FATCA & CRS- DECLARATION, REGULATIONS % REQUIREMENTS
With a boost in globalization, there is an increased growth in new markets. With these emerging markets, a big problem of tax evasion also rises; hence the government and financial institutions around the world need to figure out a way to confront the global problem of tax evasion.
FATC and CRS are two global initiatives to validate and improve tax compliance.
This article explains the difference between FATC & CRS, CRS declaration, documents required for FATC & CRD declaration and other information about FATC & CRS
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Difference between FATCA and CRS
FATCA stands for foreign accounts tax compliance act. This act was launched in 2010 by US Tax department to discourage tax evasion and promote tax compliance.
CRS stands for Common reporting standards. CRS is principally an international version of FATCA. The major difference between in FATCA & CRS it that where CRS is applicable for citizens of every registered country, FATCA is only applicable for US person. Hence both discourage tax evasion from offshore investors and stockpiling of unaccounted cash. Both G20 and OECD countries tax authorities are required to cooperate for these systems to act properly and efficiently.
FATCA or FOREIGN ACCOUNT TAX COMPLIANCE ACT
FATCA aims to fight against tax evasion and to ensure strict compliance to tax rules. The main objective of FATCA is identification and prevention of overseas tax avoidance by US citizens. FATCA seeks to track US citizen’s earnings from offshore investments and assets from other countries.
If a US person decline to meet the documentation requirement then financial institutes have power to withhold tax under FATCA. For this matter, if a financial institute registered under the act comes across US person who attempts to evade tax, they need to notify the US tax department immediately. Therefore all banks registered under FATCA reports such account holders immediately. Hence, US multinationals and foreign financial institutes have direct impact of FATCA act.
US- INDIA AGREEMENT TO IMPLEMENT FATCA
FATCA safeguards tax compliance and transformation globally by providing foreign financial institutes a way to improve and well organise their tax reporting process. It also helps them to gain trust of investors by giving visibility in foreign countries.
The Indian government inserted Rules 114F and 114H and Form 61B in income tax act, 2014 to accommodate FATCA. After this for smooth implementation of FATCA, the government signed Inter- Governmental Agreement (IAG) with USA in 2015. This agreement states that the Indian tax officials must be provided with certain account information from US taxpayers. The aim of this agreement was to ensure tax compliance by US citizen and clarity for their Internal Revenue Service (IRS). Therefore under this personal reports and income details are maintained by legal reporting to financial institutes.
FATCA DECLARATION FOR NRIs
It is mandatory for all Indian and NRI investors to file a FATCA self declaration from January 2016 onwards. The details can vary with each financial institutes, the common details required are:
- Permanent Account Number (PAN)
- Place (city/state) of birth
- Country of birth
- Gross Annual Income
- Another country resident? If yes, then residing country, Tax ID number, and type
If you are a US citizen or a green card holder, then it is mandatory to include USA as a country of residence even if you have moved to India and now is a resident of India. Also, under declaration the central board of direct taxes (CBDT) covers the issuance in rules 114F-114H giving them authority to access all the relevant information. In case of any changes in person information, contact the respective financial institutes within 30days.
COMMON REPORTING STANDARDS OR CRS
The common reporting standard (CRS) is developed by the Organization for Economic Cooperation and Development (OECD) for Automatic Exchange of Information (AEoI). CRS makes it mandatory for financial institutes across the countries to provide information about their citizens and their wealth overseas to respective tax authorities. This allows government to acquire information of international financial assets of heir citizens. More than 90 countries have taken part in this global standardization.
India also agreed to the multilateral agreement to provide personal and account information of citizens from another countries to their respective tax authorities. This agreement is stated in the article 6 of convention on mutual administrative assistance in tax matters under CRS rules.
CRS self declaration have details similar to FATCA. The only difference is that CRS is for taxpayers from over 90 countries, whereas FATCA is only for US taxpayers. The CRS self declaration form can be downloaded from any offshore mutual fund website or you can visit asset management company (AMC) or fund house service centres itself.
You can submit the self declaration online or offline at any fund company branch, like registrar and transfer agencies like CAMS. In order to complete registration, use your PAN Number to generate OTP. In simple words, CRS declaration is an extension of KYC documents.
DOCUMENTS FOR FATCA & CRS DECLARATION
All US persons are required to submit the following documents to foreign financial institutions in India:
- PAN card
- Government- issued IDs like Voters ID or Aadhaar
This declaration helps the government to identify the investor as Indian resident or an NRI. All the necessary information for NRI investors will be released by Central Board of Direct Tax (CBDT).
Tax evasion is not endemic to a single country, therefore the solution has to implement at global level. FATCA & CRS focus on consistency of compliance and global transparency among the registered nations. In recent years, these systems have reduced tax evasion and non compliance globally to a large extend. Hence, if a US person or NR investor is planning to invest in offshore funds, then he/she must we well aware of their regulation imposed by governments of offshore countries.
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