India and US Link Up to Prevent Offshore Tax Evasion

In a renewed effort to combat the problem of offshore tax invasion – and as an expression of business solidarity – India and the US have joined hands to implement FATCA on tax matters. The two countries signed an agreement under the FATCA (Foreign Account Tax Compliance Act) regime to exchange financial and other information from October 1 2015.

Mutual Cooperation on International Tax Matters
The Foreign Account Tax Compliance Act (FATCA) is a measure against non-compliance – tax evasion – by US taxpayers who have money in foreign bank accounts, including in India. The FATCA reporting requirements mean a sharing of information between countries about foreign financial accounts under a certain criteria.
For the regime to be successful it relies upon the mutual sharing of financial information and, as recently reported by the Times of India, India is the latest country to offer up information in a mutually beneficial fashion. During the signing of the act, Indian officials reassured the US officials that there was a binding commitment on behalf of the country to fight tax evasion and to make the process of international tax payment more transparent.

Under the agreement, financial institutions in India will reveal financial information on people from the US who have money in Indian bank accounts. There are certain criteria on how much money tax payers need to own, and where it is placed, which affects how much the Indian government must reveal. For example, financial institutions must share the details of US tax payers who have more than $50,000 in an Indian account. In the form of a mutual agreement, the US will also give India data and financial information in return. The US has already signed agreements with over 80 countries to put the Foreign Account Tax Compliance Act into force. Plus, there are intergovernmental agreements in place connected with over 110 different jurisdictions.
Problems with FATCA for Expats

FATCA is not without its controversies affecting individuals and companies. Americans living abroad have problems gaining access to financial services in the countries they are resident as expats. But a new bill being considered in the House of Representatives suggests a “same country exception” could solve some of these issues for Americans who are residents of a different country. The same country exception ruling would remove the need for reporting when a person holds financial accounts in a country where they are a resident – instead they will be treated as locals of their new country.

FATCA is Not Voluntary (Yet is Mutually Beneficial)
The agreement signed by India and other countries is not an indication of a country independently deciding to increase tax transparency with the US. More, it is a reflection of the FATCA reporting requirements that say a financial institution must comply with the law or risk having to pay a tax penalty of 30 percent on revenues from US companies or individuals.

However, there are certain advantages for India in terms of signing the agreement. Under the all-encompassing agreement India will start to receive financial data from other participating countries in an effort to stop tax evasion and money loss from the country. It also hopes to be able to gain support from the US in returning the funds to the country that Indian tax payers have concealed in foreign bank accounts. The information about Indians paying taxes and working in the US will also be valuable to the Indian government.

India has put into practice a law – dubbed the black money law – that demands tax evaders declare their overseas money collections. With the increasing number of Indian millionaires leaving the country and taking their cash with them, calls have been made to increase money movement transparency and keep the benefits of Indian money in India. The benefits of FATCA for the US as well as for India and other countries are yet to be seen, but the rollout of FATCA is already having a profound effect on the transparency of overseas tax dealing and money kept in overseas accounts.

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