1. India gets extra time to sign information pact with US

India gets extra time to sign information pact with US

Benefit of deadline extension will go to 42 other nations as well...

By: | New Delhi | Published: December 27, 2014 12:51 AM

The US has extended the December 31 deadline for India to sign an information sharing pact with it regarding overseas investments held by people of both countries. The move  gives relief to businesses and individuals sending funds to India from US financial institutions from a 30% withholding tax that Washington intends to charge in the absence of such a pact.

The benefit of the deadline extension (subject to review after a month) will also go to 42 other nations that have, like India, agreed to sign the agreement, but have so far not been able to. Under the pact, India would share with the US IRS details of investments held by American taxpayers in Indian institutions. The US would reciprocate by sharing details of Indians’ investments in US institutions that will help the Income Tax Department fight tax evasion here.

As per US’s Foreign Account Tax Compliance Act (FATCA), US taxpayers have to report at the end of the tax year investments in foreign financial accounts, stock, securities, mutual funds, life insurance or annuity schem-es with cash value above $50,000. Any under-reporting will be caught when IRS receives information from treaty partners.

India has a similar provision in the Income Tax Act, which it had invoked in the case of Cyprus, holding it as a non-co-operating jurisdiction. On November 1, 2013, New Delhi had decided to subject all payments from India to that country to a 30% withholding tax for not facilitating effective exchange of tax information.

Subjecting a huge withholding tax liability on outbound payments to another country is a tactics increasingly being deployed by major economies to elicit information on accounts held in that country by own citizens which are not reported to tax authorities at home. “A jurisdiction that is treated as if it had an inter-government agreement (IGA) in effect, but that has not yet signed an IGA, retains such status beyond December 31, 2014, provided the jurisdiction continues to demonstrate a firm resolve to sign the IGA…as soon as possible,” says an announcement on the IRS website.

The current extension would be reviewed on a monthly basis to assess whether the 43 nations including India should continue to be treated as if they have an IGA in effect, the IRS says.

India’s ability to sign the pact with the US recently came under question when the Supreme Court told the government it should not enter into agreements with secrecy clauses that are not in sync with the Constitution. The court’s concern was that secrecy clauses will prevent naming Indians who hold unaccounted wealth abroad once India receives such information from its treaty partners.

The government, however, believes that without agreeing to confidentiality of information with the sole exception of naming accountholders in tax evasion proceedings, no country will part with information of account holders in that country.

When the finance ministry approached the apex court in mid-October to clarify that its observation on confidentiality clauses does not prevent India from signing more tax treaties, the matter was referred to the Special Investigation Team probing black money cases. The SIT did not raise any objection. However, with the extra time, the finance ministry hopes to get a clarification from the apex court itself.

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Tags: IndiaUS
  1. J
    Dec 29, 2014 at 8:56 am
    This is what the US calls diplomacy: sign here or else we will take a 30 percent withholding "tax" on all US source payments into India. Other words for this include extortion and blackmail. The US has made a direct threat to the economy of India. Where is the Indian sense of national pride and sovereignty? India should not let the US unilaterally force India to accept US law as its own. India and the US are supposed to be friends and is this how a friend treats another friend? And for what in return? The US banks are not asking if account holders are Indian residents. Nor are there any plans for such reciprocity. There are some reports that implementing FATCA will cost the banks of the world $200 billion. This contrasts greatly to a projection of extra revenue to the US IRS of $8.7 billion over 10 years. India, the US has no care for your implementation costs - verification that each account holder in India for all accounts is not a US "person" and to check for all new accounts (funds better spent on a myriad other purposes to benefit India). Nor through this exercise does the US show care and respect for India as a sovereign nation. The US will force the rewriting of discrimination and privacy laws of India to accommodate the provisions of FATCA: which involves insutionalised discrimination, based on national origin, against Indians (resident and nonresident) who are US citizens and green card holders. Already, in various nations of the world persons are getting accounts dropped. It is all very serious for India considering how many Indians are citizens and green card holders of the US, and how may of these persons have Indian bank accounts. Even if an Indian resident has no money in the US but has US citizenship or a Green Card then the US wants to tax the income and ets of these Indians. There is an India-US Tax Treaty yet while it reduces double taxation it guarantees it as the US has taxes that India does not and there may be no tax credit from India to use against these taxes. US IGA agreements are not Consutional under US law, so says fatcalegalaction. Such agreements are international treaties. For them to be considered US law they require approval of the US Senate. The Obama Administration has not submitted any IGA agreements with any countries to the the US Senate for review and approval. This is what India could insist on: (1) the IGA treaty would have to be reviewed and approved by the US Senate for it to be considered law in India, (2) India requires that the US pays for implementation costs of financial insutions in India, (3) India will provide the information but only at the same time as the US provides identical information to India, (4) India would not allow any agreement that calls banks within India “Foreign Financial Insutions.” It is not all about black money and tax cheats, it very much impacts on everyday persons everyday with complex changing tax compliance that requires expensive tax experts to sort out. The US is trying to export over-regulation to all countries of the world. Canada is fighting back with 1 million US persons living in Canada. See the lawsuit against the Canadian FATCA IGA supported by The Alliance for the Defence of Canadian Sovereignty. Any US persons caught up in this must visit the message boards of The Isaac Brock Society.

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