India - US intergovernmental agreement on FATCA

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India - US intergovernmental agreement on FATCA
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• India's avidity for exchange of information
• In this era of digitalisation where the world has
  become a global village and distances are no
  longer a challenge, flow of capital has become
  easier and faster. Albeit, this globalisation
  fuelled by technological advancement has led to
  seamless transfer of goods, services, money and
  man, the same has also stimulated international
  tax evasion and avoidance, in particular through
  tax havens and non-co-operative jurisdictions.
• Where the world has recently witnessed the
  illegitimate stashing of money in foreign
  jurisdictions and banking scandals, co-operation
  between tax administrations of different
  sovereigns has been considered to be critical in
  this fight against tax-evasion and in protecting
  the integrity of tax systems.
• A key aspect of such co-operation shall be the
  effective and seamless exchange of information
  ('EOI'), between the jurisdictions, to curb the
  practice of tax evasion followed by taxpayers
  around world.

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• The 1998 OECD report 'Harmful Tax Competition An
  Emerging Global Issue'1 identified the lack of
  effective exchange information as one of the key
  characteristics of harmful tax practices and
  recommended member countries to remove
  impediments to the access of bank information.
• The scope of national tax authorities is
  restricted to the territorial limitations of the
  country and hence their powers are also
  restricted. Thus international co-operation and
  mutual assistance for tax purposes is most
  important which makes exchange of information an
  effective worldwide system for recovery of taxes
  in cross-border scenarios.
• The G20 leaders stated their commitment to the
  automatic exchange of information and called for
  a new single global standard (Multilateral
  Convention on Mutual Administrative Assistance on
  Tax Matters) for automatic exchange of
  Information. Many countries namely Austria,
  Luxemburg, Singapore, Switzerland etc have signed
  the Multilateral Convention on Mutual
  Administrative Assistance in Tax Matter designed
  by Organisation for Economic Co-operation and
  Development ('OECD'), which inter alia, allowed
  for exchange of information on request.
• India has also signed the aforesaid Multilateral
  Convention on June 3, 2015.

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• United States of America ('US') has introduced
  Foreign Accounts Tax Compliance Act ('FATCA'),
  a per se unilateral action of the US government
  to combat the menace of undisclosed money and
  wealth of US persons2 stashed in foreign
  jurisdictions. FATCA at the outset is an attempt
  of US to fight against the instances of tax
  evasion by US taxpayers through concealment of
  their direct or indirect interest in offshore
  financial accounts and assets.
• Background - FATCA
• FATCA aims at tracking the undisclosed
  investments made by the US persons in other
  jurisdiction and thus bringing the undisclosed
  income and assets to US tax net. The primary
  objective of this US global law is to identify
  the US persons, who have evaded the US taxes by
  stashing their money and wealth in financial
  accounts maintained outside US.
• The aforesaid law was introduced with a dual
  approach, casting obligation on US persons on one
  hand and on the other making it mandatory for
  other sovereigns for effective exchange of
  information primarily related to assets and
  accounts directly or indirectly owned by US
  persons.
• At the first instance, the aforesaid law makes it
  mandatory for the US persons to report3 to
  Internal Revenue Service, US ('IRS') any direct
  or indirect holding or interest in any of the
  offshore accounts or assets, non-compliance of
  which may attract hefty penalties. Howbeit, the
  anti-evasive US law is mostly discussed, debated
  and criticized round the world for the obligation
  it casts at the secondary level. FATCA aims at
  tracking US persons and their undisclosed
  offshore financial assets and accounts, by way of
  effective exchange of information with the rest
  of the world. It does this through the imposition
  of strict monitoring and reporting obligations on
  foreign government or foreign entities,
  non-compliance of which is backed by high
  withholding penalties.
•  

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