US to share foreign account tax data with India, others

The United States has included India in a list of 34 countries with which the US administration would automatically share information under the Foreign Account Tax Compliance Act (FATCA) regulations.

The US Treasury Department has now added 16 new countries, including India, to an original list with which the US already had automatic information sharing arrangement under FATCA law.

An executive order issued by the US Treasury Department lists out the 16 new countries including India. The other countries include Italy, France, Canada, Mauritius, Liechtenstein, Luxembourg, New Zealand, South Africa and Brazil among others.

The US move would help the Indian government to automatically receive information about those Indian tax residents who are receiving ''deposit interest'' on accounts held by them in US banks and financial institutions.

It would also bolster Indian government's efforts in tracking black money stashed in the US and bringing them back to India, say tax experts.

As of now, under FATCA, the US is obliged to share only interest payment related information with the Indian side.

India, on the other hand, is required to share information around the account balances maintained by US citizens in Indian banks and custodians (value of securities) besides the gross sale proceeds in a year.

Information around interest, dividend payouts made to US citizens would also need to be provided under the inter-governmental agreement signed with the US earlier this year.

The first leg of reporting by Indian financial institutions under FATCA is already over on 10 September. The second leg of reporting by the Indian side is due on 31 March 2016 (for calendar year 2015).

The US Internal Revenue Service (IRS) on Friday announced the exchange of financial account information with certain foreign tax administrations, meeting a key 30 September milestone related to FATCA.

To achieve this, the IRS said, it has successfully and timely developed the information system infrastructure, procedures, and data use and confidentiality safeguards to protect taxpayer data while facilitating reciprocal automatic exchange of tax information with certain foreign jurisdiction tax administrators as specified under the intergovernmental agreements (IGAs) implementing FATCA.

"Meeting the September 30 deadline is a major milestone in IRS efforts to combat offshore tax evasion through FATCA and the intergovernmental agreements," said IRS Commissioner John Koskinen. "FATCA is an important tool against offshore tax evasion, and this is a significant step in the process. The IRS appreciates the assistance of our counterparts in other jurisdictions who have helped to make this possible."

This information exchange is part of the IRS's overall efforts to implement FATCA, enacted in 2010 by Congress to target non-compliance by US taxpayers using foreign accounts or foreign entities. FATCA generally requires withholding agents to withhold on certain payments made to foreign financial institutions (FFIs) unless such FFIs agree to report to the IRS information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest.

The US government has entered into a number of bilateral IGAs that set the groundwork for cooperation between the jurisdictions in this area. Certain IGAs not only enable the IRS to receive this information from FFIs, but enable more efficient exchange by allowing a foreign jurisdiction tax administration to gather the specified information and provide it to the IRS. Some IGAs also require the IRS to reciprocally exchange certain information about accounts maintained by residents of foreign jurisdictions in US financial institutions with their jurisdictions' tax authorities.

Under these reciprocal IGAs, the first exchange had to take place by 30 September, giving the IRS a deadline to put in place a process to facilitate this data exchange.

The IRS will only engage in reciprocal exchange with foreign jurisdictions that, among other requirements, meet the IRS's stringent safeguard, privacy, and technical standards.

Before exchanging with a particular jurisdiction, the United States conducted detailed reviews of that jurisdiction's laws and infrastructure concerning the use and protection of taxpayer data, cyber-security capabilities, as well as security practices and procedures.

''This groundbreaking effort has fundamentally altered our relationship with tax authorities around the world, giving us all a much stronger hand in fighting illegal tax avoidance and leveling the playing field,'' Koskinen said.

Meeting this deadline reflects a significant international collaboration and partnership with dozens of jurisdictions around the world.

The capacity for reciprocal automatic exchange builds on numerous accomplishments including the following:

  • Development of a consistent data reporting format, or schema, and the agreement to use this format by all jurisdictions;
  • Establishment of the details and procedures required to assure data confidentiality;
  • Creation of a data transmission system to meet high standards for encryption and security; and
  • Cooperation with foreign jurisdiction tax administrations to achieve the timely implementation of this exchange.

IRS said since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the US tax system and resolve their tax obligations. At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP), which is open until otherwise announced.