On 9 July 2015, India and USA 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.
The agreement underscores growing international cooperation to end tax evasion everywhere.
FATCA is rapidly becoming the global standard in the effort to curtail offshore tax evasion. To date, the United States has 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. It 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.
FFIs in India will now 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.
The signing of the IGA with US, as well as India’s decision to join the Multilateral Competent Authority Agreement (MCAA), 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.