New Delhi: To check offshore tax evasion, India and the US on Thursday signed an agreement to implement FATCA that will facilitate exchange of information between the two countries from October 1.
The Foreign Account Tax Compliance Act (FATCA) was signed here by Revenue Secretary Shaktikanta Das and US Ambassador Richard Verma.
"FATCA is a mutual effort to combat tax evasion and it would be mutually beneficial for both the countries... FATCA would detect, discourage offshore tax evasion. This kind of exchange of information is top priority for governments", Verma said.
Talking to reporters after singing the agreement, Das said: "We reassured the US government of the binding commitment to...Fight the menace of evasion and bring transparency in the matters of payment of taxes which are legitimately due to the government."
US law FATCA seeks to facilitate flow of financial information between countries. Under the inter-governmental agreement, Indian financial institutions would have to reveal information about US tax payers to the revenue department which would be passed on to the US tax authorities.
Under the pact, US will also share with India financial information.
The current reporting period beginning October 1 would be for July-December 2014.
If a financial institution does not comply to FATCA, it will have to pay 30 percent penalty tax on all its US revenues, including dividend, interest, fees and sales.
FATCA will help India deal with the black money menace. The country has stepped up efforts to tackle it. Under the multilateral agreement India will start receiving information from other countries under automatic exchange of information (AEOI) route from 2017 onwards.
The initiative, the US Ambassador said, marked a significant improvement in mutual cooperation to combat offshore tax evasion and will benefit both the countries.
"I am confident working together we can detect, deter and discourage offshore tax evasion, increase transparency and create stronger global financial system", Verma said.
Appreciating India's commitment to intensify cooperation on tax compliance, he said, "this kind of exchange is a top priority for the US".
The agreement, according to a Finance Ministry release, "underscores growing international co-operation to end tax evasion everywhere... The signing of Inter Governmental Agreement (IGA) is a re-affirmation of the shared commitment of India and US towards tax transparency and the fight against offshore tax evasion and avoidance."
Das said, "IGA with US to implement FATCA...Is a very important step for the Government to tackle offshore tax evasion. It reaffirms the Government?s commitment to fight the menace of black money.
"It is hoped that the exchange of information on automatic basis, regarding offshore accounts under FATCA would deter tax offenders, would enhance tax transparency and eventually bring in higher equity in to the direct tax regime which necessary for a healthy economy."
India, he said, is giving "highest importance" to fighting the menace of black money.
FATCA, the release said, is rapidly becoming the global standard in the effort to curtail offshore tax evasion.
The US has signed IGAs with more than 110 jurisdictions and is engaged in related discussions with many other nations.
America had enacted FATCA in 2010 to obtain information on accounts held by US taxpayers in other countries. It requires US financial institutions to withhold a portion of payments made to foreign financial institutions (FFIs) who do not agree to identify and report information on US account holders.
As per the IGA, FFIs in India will be required to report tax information about US account holders directly to the Indian government which will, in turn, relay that information to the IRS.
The IRS (Internal Revenue Service of the US) will provide similar information about Indian account holders in the United States. This automatic exchange of information is scheduled to begin on September 30, 2015.
The Ministry said that signing of the IGA with US as well as India?s decision to join the Multilateral Competent Authority Agreement (MCAA) on June 3, 2015 are two important milestones in nation?s fight against the menace of black money.
The US and India have a long standing and close relationship, the release said.
It added: "This friendship extends to mutual assistance in tax matters and includes a desire to improve international tax compliance."
As a country, Das said, India sees the agreement "a great breakthrough and a significant development in India-US cooperation in handling offshore tax evasion which also impacts money laundering and other aspects which we call in India the problem of black money."
The exchange of financial information, he said, will help both the countries in preventing offshore tax evasion and deal with issues "like tax avoidance and tax arbitrage".
Das further said that recently the government has enacted a new law on black money to deal with menace of unaccounted funds stashed abroad by the residents.
Under the new Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, persons having unaccounted overseas assets are being given an opportunity to come clean by declaring their assets till September 30 and paying tax and penalty of 60 percent.
Those who will fail to declare their unaccounted overseas wealth during the voluntary compliance period will have to pay tax and penalty of 120 percent and face jail term which could extend up to 10 years.
