The Indian government’s crackdown on black money is continuing with the signing of a Foreign Account Tax Compliance Act (FATCA) agreement with the USA.
Both countries have agreed to swap financial information about bank accounts and investments controlled by US taxpayers in India and Indian taxpayers in the States.
Hundreds of thousands of non-resident Indians live and work in America and remit a large slice of their income home, while the Indian government wants to track down taxpayers who invest in the USA.
The government is trying to work out what ministers describe as ‘the scourge’ of black money which deprives the Indian treasury of billions of rupees every year.
Signing the treaty with the US also grants a reprieve to Indian banks that feared delays in negotiations may have triggered FATCA sanctions against them.
Philippines in FATCA
Under the US law, banks failing to declare the financial interests of US taxpayers could face up to a 30% withholding tax on their transactions in the US.
India has recently moved to stamp out tax avoidance with the Black Money Undisclosed Foreign Income and Assets Imposition of Tax Act of 2015 which allows the tax authority to impose fines of up to 120% of the value of unreported foreign assets or income.
Meanwhile, the US and the Philippines have also struck a FATCA deal.
Both governments have agreed a two-way arrangement to inform tax authorities in both countries to receive updates from the other about the overseas bank accounts and investments of their taxpayers.
The US and the Philippines have close political ties. Many Filipinos live and work in the US, while the Philippines are a popular stop-over destination for retired US taxpayers and expat workers.
The FATCA network
The US State Department says 65 FATCA information swapping agreements have been signed with foreign governments and 47 are agreed in principle awaiting signature. Others are under negotiation.
More than 165,000 foreign financial institutions have also registered directly to report to the Internal Revenue Service (IRS).
US resident taxpayers controlling offshore accounts or investments valued at more than $50,000 and US expats with cash and investments worth more than $200,000 must declare their financial interests to the IRS.
Personal tax returns are then compared to FATCA data to ensure taxpayers are correctly declaring the full extent of any foreign earnings or chargeable gains.
India and the Philippines are absolute chumps for signing-up for FATCA, but they are far from being the only ones. There will be precious little, if any information flowing from the US to FATCA signatories – perhaps some occasional reporting on interest earnings at best. Whoop de do. On the other hand, the US expects these countries and their so-called Foreign Financial Institutions to comb their accounts looking for US Persons and to report on every possible metric available to them including names, addresses, telephone numbers, bank account numbers, account balances, interest earnings and even individual transactions – FAR more information than the US will EVER provide to other jurisdictions. Oh, and those countries also have to pay for all of this out of their own pockets and pass the costs on to their own citizens – not exactly something to be proud of.
Yes, it’s a very fair and compelling deal – if you’re the US Government. Every other country is simply blowing smoke trying to rationalize why they capitulated to such an audacious attack on their sovereignty and the on the privacy rights of their own citizens. India looks foolish when it claims that their FATCA IGA will somehow solve their Black Money woes. It won’t make a dent in that problem.
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