All you need to know about FATCA & CRS Compliance

A guide to FATCA & CRS Compliance:

FATCA/ CRS RegulationsIn the recent times, while interacting with your banks, mutual fund houses or any other financial institutions, they might have asked you to submit additional KYC details in line with the regulations under FATCA & CRS making you think what FATCA and CRS are. In this article, I am going to take you through the details on FATCA & CRS, associated terms and the regulations on FATCA & CRS.

What is FATCA?

Foreign Account Tax Compliance Act i.e. FATCA, was first introduced in October 2009 by the US Government and became law on March 18, 2010, under the Hiring Incentives to Restore Employment (HIRE) Act.

The objective behind FATCA is to restrict US persons from using any financial institutions like banks, mutual fund houses, etc. outside the USA to park their wealth for avoiding US taxation on the income generated from such wealth. FATCA compel such financial institutions to reveal information of US persons having accounts with them.

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For the implementation of FATCA norms in India, the Government of India (GOI) signed an Intergovernmental Agreement (IGA) with the USA.

Intergovernmental Agreement (IGA):

It is a bilateral agreement between the Government of India and the US government for the implementation of FATCA.

FACTA -IGA

What is CRS?

Alike FATCA, Common Reporting Standard (CRS) is a globally accepted standard for the automatic exchange of financial account information, set forth by the Organization for Economic Cooperation and Development (OECD) in close-cooperation with the G20 countries and the EU. The purpose of CRS is to encourage the automatic exchange of information between bilateral treaty partner countries on accountholders/investors maintaining accounts in foreign jurisdictions.

India being part of the G20 countries has committed itself to the adoption of CRS. In agreement with CRS, Government of India (GOI) has committed itself to implement the reciprocal exchange of financial account information on an automatic basis with 93 countries as on Nov 06, 2014. India also has treaties with 130 countries/ union territories. In the same manner, India would also get similar information through financial institutions from such treaty countries.

All the financial institutions in India are required to do enhance KYC for the identification of the US accounts and taxpayers from other foreign countries and report such accounts on a yearly basis.

CRS-G 20

Entities covered under the purview of FATCA & CRS

The impact of FATCA regulations will be on both; individual and business entities, which are being treated as a ‘US person’ governed by the US tax rules. The FATCA rules will also have an impact on certain types of business entities with beneficial owners/ controlling persons from the US.

An account carrying U.S. information like U.S place of birth, U.S. address, etc. does not necessitate that the account has to be reported. However, such accounts shall be subjected to closer scrutiny by the financial institutions. In view of CRS, the coverage shall extend to investors/ beneficial owners or controlling persons of business entities, falling under the category of tax residents in any of the 130 signatory countries.

Entities not included under the definition of Foreign Financial Institutions (FFIs) and are not subjected to withholding includes the following:

• Foreign Government
• Foreign Central Bank of Issue
• Entity organised in US Territory and owned by its resident
• Corporation with stock traded on established securities market
• Affiliated group of those corporations
• International organization

Foreign Financial Institutions (FFIs) includes, but are not restricted to:

• Depository Institutions like Banks
• Investment entities like private equity funds or hedge funds
• Custodial Institutions like mutual funds
• Insurance companies having cash value products/ annuities

Information being sought from customers by the banks & other financial institutions in India

The information to be reported will depend on the category of the customer falling under FATCA and CRS. Customers are expected to provide details on Country of Tax Residence, Tax Identification Number from such country, Country of Citizenship, Country of Birth, etc.

For Non-individual customers, the necessary details of any of the controlling persons need to be provided.

Will FATCA be applicable to the non-US person?

In general FATCA rules do not apply to non-US persons. However, you may be necessitated to provide additional details/documents for the determination of whether you are a US Person under FATCA in case any of the below-mentioned indicators is/are found:

• US citizenship/ residence
• US place of birth
• US address with US PO boxes
• US contact number
• Recurring payment instructions for payments to a US address or an account maintained in United States
• Recent Power of Attorney or signatory authority granted to a person with a US address

How often customers need to submit their details to banks for FATCA/CRS purposes?

Every new customer is required to provide such information to the bank. FATCA/CRS being an ongoing process obligates the banks to contact the customers for obtaining additional information/documentation in case of any changes in the account details of the customers.

Will joint accounts held by a reportable person and a non-reportable person considered as reportable?

Joint accounts having one tax resident of a relevant foreign country reportable owner are treated as reportable accounts resulting in the entire account being subjected to the FATCA/CRS legislation.

What if any customer refuses to provide the requisite information?

A new customer refusing to provide the FATCA/CRS information and documents may not be allowed to open an account with the banks.

On the other hand, if you are a pre-existing customer; you will be treated as Recalcitrant Account Holder and will be reported to the tax authority as such. As per the FATCA/CRS regulations, a recalcitrant account holder is someone who:

1. Does not comply with the requisite information/ documentation required by FFI
2. Does not provide valid W9
3. Does not provide waiver
4. Provides the documents for the classification of the entity as Passive Non-Financial Foreign Entity (NFFE) but does not provide information on substantial owners

FATCA Regulations on Mutual Fund investments

1. For Customers:

As per the FATCA regulations all the existing and the new customers subscribed to the mutual fund schemes need to comply with the new FATCA regulations and submit the FATCA self-declaration form at the time of subscription.

Effective from Jan 01, 2016 all mutual fund houses made it mandatory for existing customers to:

a. Submit additional KYC information such as Net worth, Income slab, Occupation, etc. to make additional purchases including switches, in their mutual fund accounts.
b. Submit FATCA self-declaration form before initiating any transaction.

In fact, all new forms are coming up with the self-declarations on FATCA, CRS & Ultimate Beneficial Ownership (UBO).

Steps for online submission of FATCA declaration form:

• Mutual fund schemes serviced by CAMS:

Schemes offered by HDFC, ICICI Prudential, HSBC, DSP Blackrock, JP Morgan, Birla Sunlife, IDFC, Kotak, IIFL, SBI, L&T, Shriram, Tata, PPAS, Mahindra or Union KBC comes under CAMS. To submit the FATCA declaration form, you can follow the steps below:

a. For existing investors including the joint holders:

1. Go to CAMS website
2. Enter the PAN and DOB
3. Click on ‘Generate OTP’. You will receive the OTP on the registered mobile number
4. Enter the OTP and fill the requisite details

b. For new customers to CAMS service funds:

1. Go to CAMS website
2. Select the AMC, enter the PAN and DOB
3. Click on ‘Generate OTP’. You will receive the OTP on the registered mobile number
4. Enter the OTP and fill the requisite details

• Mutual fund schemes serviced by Karvy:

Schemes offered by Franklin, Axis, IDBI, Motilal Oswal, Religare, Edelweiss, Goldman, LIC Nomura, Deutsche, Canara, LIC Nomura, Mirae, Quantum, Principal, UTI, Tauras, etc. comes under Karvy.

To submit the online declaration, the steps to be followed are:

1. Visit the Karvy website
2. Enter your PAN
3. Click on ‘Generate OTP’. You will receive the OTP on the registered mobile number
4. Enter the OTP and fill the requisite details

Note: OTP will be generated only to mobile numbers registered in India.

Below are the links to various distributor services for submitting FATCA/ CRS declaration and additional KYC information online:

CAMS:                             FATCA/CRS declaration on CAMS
KARVY:                            FATCA/ CRS declaration on KARVY             
SUNDARAM:                    FATCA/ CRS declaration on SUNDARAM
FRANKLIN TEMPLETON: FATCA/ CRS declaration on FRANKLIN TEMPLETON

2. For Financial Institutions:

There is a sign of relief for the account holders as the financial institutions may not close the accounts by August 31, 2016 where the self-certifications has not been obtained.

The previous deadline for FATCA compliance has been extended by the Ministry of Finance in a Notification dated August 31, 2016. India and US are on a discussion to find out the alternative procedures for granting a few month extension for the completion of due diligence and not closing the accounts within one year of entry into force of the agreement i.e. August 31, 2016. The revised timeline for the completion of due diligence with respect to the accounts where self-certification has not been obtained shall be notified in due course. In the mean time, the financial institutions are required to continue working on completing the necessary due diligence which includes obtaining self-certifications.

As per the previous notification, the financial institutions are required to obtain the self-certification and carry out due diligence procedure in case all the individual and entity accounts opened from July 01, 2014 to August 31, 2015.

FATCA compliance for the US Based Non-Resident Indians

US persons and US based NRIs have to be more careful in complying with their US tax laws. An income exempted from the income tax as per Indian income tax law may not be tax-free in the US as per the US tax laws and may be reported to IRS. For instance, dividend income on the investment in shares in India is tax-free for a US based NRI. However, he has to report the income while filing US tax returns as the income may get reported to the CBDT, which will further report it to US Internal Revenue Service (IRS).

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Some of the top mutual fund houses like HDFC, ICICI, Reliance, Birla, etc. have stopped accepting fresh investments from US based NRIs and US Residents to lower the burden of reporting.

When an existing mutual investor is acquiring the NRI status or becoming the US or Canada citizen, facilities like switching of schemes, systematic investment plans, dividend reinvestments, systematic transfers, etc. are being stopped by such AMCs and the investors will be asked to sell out.

However, not all mutual fund houses have stopped accepting investments from the US based NRIs and some of them are ready to comply with FATCA.

Note: NRIs based in other countries except from USA and Canada are allowed to invest in all mutual fund schemes.

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