Funds

India: FATCA non-compliant a/cs to be frozen from May 1


By added on 25/04/2017

Mutual fund (MF) investors, bank account holders and those who have invested in insurance schemes cannot operate their accounts, which were opened between July 1, 2014 and August 31, 2015, from May 1 if they are not compliant with tax information sharing law FATCA (foreign account tax compliance act), reports Times of India.

The Ministry of Finance has instructed financial institutions — MFs, banks and insurance firms — to block non-compliant accounts.

"Queries are being received from financial institutions regarding the revised time lines for completion of due diligence. The financial institutions are advised that all efforts should be made to obtain the self-certification (for FATCA compliance)," the ministry said. "The account holders may be informed that, in case self-certifications are not provided till 30 April 2017, the accounts would be blocked, which would mean that the financial institution would prohibit the account holder from effecting any transaction with respect to such accounts," it said.

Investors and account holders have to provide a self-certification about 'tax residency' to their respective financial institutions for compliance with FATCA failing which the account will be blocked. FATCA is part of an anti-tax-evasion regime designed to locate income and assets held by US persons in offshore accounts.

Financial institutions were told to obtain self-certification and carry out due diligence procedure to determine the reasonableness of the self-certification in respect of all individual and entity accounts opened from July 1, 2014 to August 31, 2015.

Such self-certification and documentation was originally required to be obtained by the financial institutions by August 31, 2016. Otherwise they were required to close the accounts and report the same as per the prescribed due diligence procedure.

Due to the difficulties faced by account holders, the Central Board of Direct Taxes (CBDT) asked financial institutions not to close accounts that are not compliant in August last year. Industry officials and financial advisors consider FATCA as an 'irritant' as the share of NRI (non-resident Indian) investments in domestic MF and insurance schemes is negligible.

"MFs have been making sustained efforts to collect the FATCA self-certification from the investors who have opened new accounts during the aforesaid period to confirm their tax residency," according to the Association of Mutual Funds in India (AMFI).

"However, there are still a large number of investors who are yet to provide the same," it said.

FATCA enables automatic exchange of financial information between India and the US. Indian financial institutions have to provide necessary information to Indian tax authorities, which will then be transmitted to the US.

The inter-governmental agreement (IGA) with the US for implementing FATCA came into effect on August 31, 2015. Financial institutions were told to obtain self-certification and carry out due diligence procedure to determine the reasonableness of the self-certification in respect of all individual and entity accounts opened from July 1, 2014 to August 31, 2015.