Gearing up for Obama’s visit: Finance Ministry to rush Cabinet note to sign US FATCA by December 31

NEW DELHI: The finance ministry is planning to rush through a Cabinet note seeking permission to sign an accord with the US on exchanging investment information before a December 31 deadline, ahead of President Barack Obama’s visit to Delhi at the end of January.
The government has got the goahead of the justice MB Shah-led special investigation team (SIT) on black money, which allows India to sign international treaties that include confidentiality clauses, an issue that had prevented the country from acceding to the US Foreign Account Tax Compliance Act or FATCA.

A SIT official confirmed that the report had been given. India had been forced to skip signing the OECD protocol on information exchange in October after the Supreme Court demanded a list of names that India had obtained from governments overseas under tax treaties under strict confidentiality rules.

Such clauses are meant to ensure that information provided by another country can only be used in case there is an ongoing investigation into the finances of an individual or entity, not for fishing expeditions. Following the Supreme Court’s decision, the finance ministry had sought its direction on pursuing international accords such as FATCA that have an inbuilt confidentiality clause. The apex court had asked the SIT to look into the matter.

SIT's endorsement of confidentiality clauses in such treaties will boost the Narendra Modi government's pursuit of black money as this will make it easier for other countries to provide information to India on any investments by its citizens overseas.

Countries would be unwilling to share data if India isn’t able to assure secrecy.


FATCA, which comes into force on January 1, was enacted by the US in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act to combat tax evasion by US nationals holding investments in offshore accounts.

The law makes it mandatory for foreign financial institutions having a presence in the US to report accounts of US citizens held with them and also accounts of certain foreign entities with substantial US owners.

For example, State Bank of India will have to report details of investments by any US citizen, including non-resident Indians, to Indian revenue authorities in a prescribed format on a regular basis once India becomes a signatory to the law, which provides for automatic information exchange between tax authorities.

Not signing FATCA could have damaging consequences. Indian entities doing business in the US and non-resident Indians in that country risk facing a penal tax rate of 30% on any fund transfer to India if it doesn’t endorse FATCA by December 31.

The finance ministry is working overtime to meet the deadline though the US has allowed extensions to some countries for valid reasons.

Another source familiar with the matter told ET that work on the cabinet note is underway to ensure that the agreement is signed before the deadline.

Countries can opt for an inter-governmental agreement with the US under this arrangement to protect the interest of their financial firms facing penal taxes in the US.

India has opted for an inter-governmental agreement, saving its financial institutions the trouble of having to sign it individually.

India has already discussed and finalized the contours of the framework with US revenue service authorities.

Obama will be in Delhi on January 26 as chief guest at India’s Republic Day parade.