India and the United States have signed an agreement under which the two countries will share information on tax evaders, opening a new window to fight tax dodgers who use financial products like equities, bank accounts and insurance to cheat governments.
The two countries today signed an Inter Governmental Agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA) to promote transparency between the two nations on tax matters.
India's revenue secretary Shaktikanta Das and US ambassador to India Richard Verma signed the agreement in New Delhi today.
The agreement aims to close a window for US citizens to avoid tax through financial products like equities, bank accounts and insurance, while New Delhi expects Washington to help it bring back illicit funds stashed by Indians in foreign tax havens and boost revenues by getting information about Indians working in the United States.
The agreement "would enhance tax transparency and eventually bring in higher equity into the direct tax regime which are necessary for a healthy economy," revenue secretary Shaktikanta Das said at the signing.
The agreement also underscores growing international co-operation to end tax evasion everywhere.
The United States and India have a long standing and close relationship. This friendship extends to mutual assistance in tax matters and includes a desire to improve international tax compliance.
The signing of IGA is a re-affirmation of the shared commitment of India and USA towards tax transparency and the fight against offshore tax evasion and avoidance, a finance ministry release said.
''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,'' Shaktikanta Das stated.
''The signing of this agreement is an important step forward in the collaboration between the United States and India to combat tax evasion. FATCA is an important part of the US government's effort to address that issue,'' Ambassador Verma stated.
FATCA is rapidly becoming the global standard in the effort to curtail offshore tax evasion. To date, the US has signed IGAs with more than 110 jurisdictions and is engaged in related discussions with many other jurisdictions.
The United States enacted FATCA in 2010 to obtain information on accounts held by US taxpayers in other countries.
FATCA 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 will provide similar information about Indian account holders in the United States. This automatic exchange of information is scheduled to begin on 30 September 2015.
Both the signing of the IGA with US as well as India's decision to join the Multilateral Competent Authority Agreement (MCAA) on 3 June 2015 are two important milestones in India's fight against the menace of black money as it would enable the Indian tax authorities to receive financial account information of Indians from foreign countries on an automatic basis.