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RBI circular dt 28/08/15
Reporting requirement under Foreign Account Tax Compliance
Act (FATCA) and Common Reporting Standards (CRS)
1. India
has signed the Inter-Governmental Agreement (IGA) with the USA on July 9, 2015,
for Improving International Tax Compliance and implementing the Foreign Account
Tax Compliance Act (FATCA). India has also signed a multilateral agreement on
June 3, 2015, to automatically exchange information under the Common Reporting
Standard(CRS), formally referred to as the Standard for Automatic Exchange of
Financial Account Information (AEoI).
2. In
this regard, Government has notified the amendments to Income Tax Rules (Rules)
vide notification dated August 7, 2015 and have added
Rule 114F (definitions),
Rule 114G (Information to be maintained and
reported) and
Rule 114H (due diligence requirement)
Information
regarding US reportable persons and other reportable persons has to be furnished
in a form 61B.
3.
All the concerned ‘financial institutions’ should take steps for complying with
the reporting requirements. Accordingly, they should register on the related e-filing
portal of Income Tax Department as Reporting Financial Institution. Thereafter,
the reports can be submitted online by using the digital signature of the
‘Designated Director’ by either uploading the Form 61B or ‘NIL’ report.
4.
Some important issues which need to be kept in mind:
i.
The
IGA between India and USA is expected to come into force on August 31, 2015.
ii.
The
due diligence procedure for pre-existing individual and entities accounts have
been provided in Rule 114H (3) and Rule 114H (5) respectively.
iii.
FIs
have to treat an account as reportable as on the date it is identified and,
unless otherwise provided, information will be required to be reported annually
in the calendar year following the year to which the information relates.
iv.
FIs
have to decide the ‘high value account’ and ‘lower value account’ as on June
30, 2014 for pre-existing individuals in the case of a US reportable account
and as on December 31, 2015 in case of other reportable account.
v.
FIs
have to properly segregate ‘pre-existing accounts’ from ‘new accounts’ and
apply due diligence procedure as applicable.
vi.
The
alternate procedure prescribed for identification of US Reportable Accounts will
be applicable for accounts opened from July 1, 2014 to August 31, 2015 and will
not be applicable for accounts opened after September 1, 2015.
vii.
As
per the alternate procedure for accounts opened from July 1, 2014 to December
31, 2014, a value search should be carried out as on December 31, 2014 and for
accounts opened between January 1, 2015 to August 31, 2015, a value search
should be carried out as on December 31, 2015. The due diligence procedure in
required cases should be completed before August 31, 2016. Thereafter the
accounts where the required self-certification or documentation are not
received will need to be closed. The progress of the Reporting Entities (REs) will
be monitored on a milestone basis.
viii.
For
the new accounts opened after September 1, 2015, the due diligence procedures
specified in Rule 114H (4) and 114H (6) would be applicable. FIs may undertake
a value search for such new accounts opened up to October 31, 2015, as on
December 31, 2015 and carry out and complete due diligence in required cases within
90 days. The actual on boarding of new accounts in the IT platform of the REs
should start from November 1, 2015, with FATCA/CRS compliant account opening
form and documentation.
ix.
For
carrying out value search, REs may refer to the spot reference rates published
by Foreign Exchange Dealers’ Association of India (FEDAI).
x.
For
the purpose of value search, the threshold limit for a depository account of
individuals for determining US reportable accounts is greater than USD
50,000.00. There is no such threshold limit for determining other reportable
accounts.
xi.
Similarly,
the threshold limit for a depository accounts of entities (opened upto 31st
Dec 2014)for determining US reportable accounts and other reportable accounts
is greater than USD 250,000.00.
xii.
For
the purpose of value search, the procedures relating to aggregation of account
balance and currency will be as per Rule 114H (7) (c) (i) to (iv).
xiii.
All
the FIs have to submit reports online using the digital signature of the
designated director by either uploading Form 61B or Nil Report by September 10,
2015. The first report will be with respect to calendar year 2014. The reasons
for the Nil report should be captured as under
A.
For
pre-existing accounts
a.
Option
1: Due diligence procedure not completed
b.
Option
2: Due diligence procedure completed, but no reportable US account identifier
B.
For
new accounts
a.
Option
1: Alternative procedure invoked
b.
Option
2: Due diligence procedure as applicable to new accounts completed, but no
reportable US account identified
xiv.
Reporting
Entities are requested to register in the e-Filing portal at the link https://incometaxindiaefiling.gov.in/ post
login --> My Account --> Register as Reporting Financial Institution. After
successful Registration, submission of Nil statement of Form No. 61B can be
done post login --> e-File --> Submit Form 61B/Nil Statement.
xv.
All
the regulated entities should develop their IT system for carrying out due
diligence procedure and complete the reporting requirement with respect to each
calendar year beginning 2014.
5. CBDT
guidelines will determine whether they are the Reporting Financial Institution and
whether they are falling within one of the exemptions.
6.
All the regulated entities should ensure implementation of due diligence and
reporting requirements and ensure compliance . The IT system should be upgraded
to not only maintain the information but also to record and store the due
diligence procedures.
7.
As the implementation of FATCA and CRS are in the nature of fulfillment of
country’s obligations and non-compliance can lead to huge penalties in addition
to loss of reputation, it is encumbent on the Chairperson/CEO of the RE to form
a “High Level Monitoring Committee” under the Designated Director.
8.
These instructions are issued under Section 35A of the Banking Regulation Act,
1949 and Section 45 of the Reserve Bank of India Act, 1934. Any contravention thereof,
or non-compliance shall attract penalties under the Act.
_________________________________________________________________________________
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
FOREIGN TAX AND TAX RESEARCH
DIVISION
New Delhi, 31st August, 2015
GUIDANCE NOTES ON IMPLEMENTATION OF REPORTING
REQUIREMENTS UNDER RULES 114F TO 114H OF THE INCOME-TAX RULES
1.1
New Global Standards on Automatic Exchange of
Information
To
combat the problem of offshore tax evasion and avoidance and stashing of
unaccounted money abroad requiring cooperation amongst tax authorities, the G20
and OECD countries working together developed a Common Reporting Standard (CRS)
on Automatic Exchange of Information (AEOI). The CRS on AEOI was presented to
G20 Leaders in Brisbane on 16th November, 2014. The Hon’ble Prime
Minister of India speaking on the occasion supported the new global standard as
it would be instrumental in getting information about unaccounted money hoarded
abroad and in its eventual repatriation. The CRS on AEOI requires the financial
institutions of the “source” jurisdiction to collect and report information to
their tax authorities about account holders “resident” in other countries, such
information having to be transmitted “automatically’ on yearly basis. The
information to be exchanged relates not only to individuals but also to shell
companies and trusts having beneficial ownership or interest in the “resident”
countries. Further, the reporting needs to be done for a wide range of
financial products, by a wide variety of financial institutions, including
banks, depository institutions, collective investment vehicles and insurance
companies. The Standard and its Commentary are available at http://www.oecd.org/ctp/exchange-of-tax-information/standard-for-automatic-exchange-of-financial-information-in-tax-matters.htm.
1.2
Enactment of FATCA and signing of IGA
Earlier,
in 2010, the USA enacted a law known as FATCA with the objective of tackling
tax evasion through obtaining information in respect of offshore financial
accounts maintained by USA residents and citizens. The provisions of FATCA essentially
provide for 30% withholding tax on US source payments made to Foreign Financial
Institutions (FIs) unless they enter into an agreement with the Internal
Revenue Service (IRS) to provide information about accounts held with them by
USA persons or entities (firms/companies/trusts) controlled by USA persons.
Since domestic laws of sovereign countries, (including India) may not permit
sharing of client confidential information by FIs directly with USA, USA has
entered into Inter-Governmental Agreement (IGA) with various countries. The IGA
between India and USA was signed on 9th July, 2015, which provides
that the Indian FIs will provide the necessary information to Indian tax
authorities, which will then be transmitted to USA automatically. Under the
IGA, USA will also provide substantial information about Indians having
financial assets in USA although the exchange of information is not fully
reciprocal as yet. The text of the http://www.incometaxindia.gov.in/Lists/Press%20Releases/Attachments/375/india
_iga_final-_india_english.pdf.
1.3
Commitment to Implement CRS on AEOI
In keeping with
its leadership role in developing the new global standards, India is one of the
early adopters of the CRS and has committed to exchange information
automatically by 2017 as under:
Ø
First exchange in September, 2017 for new accounts
(both individuals and entity) opened after 1.1.2016 and for pre-existing (as on
31.12.2015 ) individual high value accounts (balance more than USD 1,000,000)
Ø
Exchange in September, 2018 of pre-existing (as on
31.12.2015) individual low value accounts and pre-existing (as on 31.12.2015 )
entity accounts
The Government
of India has also joined the Multilateral Competent Authority Agreement (MCAA)
on 3rd June, 2015, for exchanging information as per the above
timelines. By August, 2015, 93 jurisdictions have committed to exchange
information as per the new global standards, 58 of them from 2017 and the
balance 35 from 2018. 61 of the 93 jurisdictions have also joined the MCAA.
Table in Annexure provides a list of the 93 jurisdictions and the time time for
exchanging information.
1.4
Steps taken for Implementation of CRS on AEOI and
IGA
In view of our
commitment to implement the CRS on AEOI and also the IGA with USA, and with a
view to provide information to other countries, necessary legislative changes
have been made through Finance (No. 2) Act, 2014, by amending section 285BA of
the Income-tax Act, 1961. Income-tax Rules, 1962 were amended vide Notification
No. 62 of 2015 dated 7th August, 2015 by inserting Rules 114F to
114H and Form 61B to provide a legal basis for the Reporting Financial
Institutions (RFIs) for maintaining and reporting information about the
Reportable Accounts. These Rules have been developed in consultation with
Regulators and Financial Institutions in order to smoothen the reporting
requirements and to address their concerns wherever possible. A copy of the
Notification No. 62 of 2015 modifying the Income-tax Rules, 1962, is at http://www.incometaxindia.gov.in/communications/notification/notification%20no
1.5
Purpose of the Guidance Note
The
purpose of this Guidance Note is to provide guidance to the Financial
Institutions, Regulators and officers of the Tax Department for ensuring compliance with the
reporting requirements provided in Rules 114F to 114H and Form 61B of the
Income-tax Rules, 1962. The Guidance Note is intended to explain the complex
reporting requirements and provide further guidance wherever required. Since a
large part of the Rules is based on CRS on AEOI, the Financial Institutions may
refer the CRS and its Commentary to get further understanding of the terms
used. In this Guidance Note, reference to the CRS and Commentary has been given
for further reference. All the stakeholders are requested to provide feedback
and suggestions so that an updated version of the Guidance Note can be issued
before 1st January, 2016, when most of the reporting requirements
will commence including Frequently Asked Questions (FAQs).
2.
Reporting Financial Institutions
2.1
Introduction
Rule 114G (1)
casts an obligation on “Reporting Financial Institutions” to maintain and
report certain information in respect of each “Reportable Account”. “Reporting
Financial Institution” is defined in Rule 114F (7) to mean
(a)
a
financial institution (other than a non-reporting financial institution) which
is resident in India, but excludes any branch of such institution that is
located outside India; and
(b)
any
branch of a financial institution (other than a non-reporting financial
institution) which is not resident in India, if that branch is located in
India.
Following
Steps may be followed to determine whether a person is a Reporting Financial
Institution (RFI) and thus has reporting obligations:
·
Step
1: Is it an Entity?
·
Step
2: Is the Entity a Financial Institution?
·
Step
3: Is the Financial Institution in
India?
·
Step
4: Is the Financial Institution a Non-Reporting Financial Institution?
2.2
Step 1: Is it an Entity?
Only Entities
can be RFIs. The term “Entity” would include legal persons and legal
arrangements, such as corporations, partnerships, trusts, and foundations.
Individuals, including sole proprietorships, are therefore not RFIs.
Step 2: Is the
Entity a Financial Institution?
The definition
of Financial Institution is very wide and includes custodial institutions,
depository institutions, investment entities and specified insurance companies.
2.3.1 Custodial Institution
Explanation (a)
to Rule 114F(3) defines a “custodial institution” to mean any entity that
holds, as a substantial portion of its business, financial assets for the
account of others and where its income attributable to the holding of financial
assets and related financial services equals or exceeds 20% of its gross income
during the three financial years preceding the year in which determination is
made or the period during which the entity has been in existence, whichever is
less. Entities that safe keep Financial Assets for the account of others, such
as custodian banks, brokers and central securities depositories, would
generally be considered Custodial Institutions.
(Ref: Page 44 of
CRS and 160 of Commentary)
2.3.2 Depository Institution
Explanation (b)
to Rule 114F(3) defines a “depository institution” to mean any entity that
accepts deposits in the ordinary course of a banking or similar business. An
Entity is considered to be engaged in a “banking or similar business” if, in
the ordinary course of its business with customers, the Entity accepts deposits
or other similar investments of funds and regularly engages in one or more of
the following activities:
(a)
makes
personal, mortgage, industrial, or other loans or provides other extensions of
credit;
(b)
purchases,
sells, discounts, or negotiates accounts receivable, installment obligations,
notes, drafts, checks, bills of exchange, acceptances, or other evidences of
indebtedness;
(c)
issues
letters of credit and negotiates drafts drawn thereunder;
(d)
provides
trust or fiduciary services;
(e)
finances
foreign exchange transactions; or
(f)
enters
into, purchases, or disposes of finance leases or leased assets.
Savings
banks, commercial banks, savings and loan associations, and credit unions would
generally be considered Depository Institutions.
(Ref: Page 44 of
CRS and 160 of Commentary)
Explanation
(c) to Rule 114F(3) defines an “investment entity” to be primarily of two types
·
Entities
which primarily conduct as a business one or more of the following activities
or operations for or on behalf of a customer, namely:-
o trading in money market instruments
(cheques, bills, certificates of deposit, derivatives, etc.); foreign exchange;
exchange, interest rate and index instruments; transferable securities; or
commodity futures trading; or
o
individual and collective portfolio management; or
o otherwise investing, administering, or
managing financial assets or money on behalf of other persons;
·
Entities
whose gross income is primarily attributable to investing, reinvesting, or
trading in financial assets, if the said entity is managed by another entity
that is a depository institution, a custodial institution, an investment entity
or a specified insurance company.
(Ref: Page 44 of
CRS and 161 of Commentary)
2.3.4 Specified Insurance Company
Explanation (d)
to Rule 114F(3) defines “specified insurance company” to mean any entity that
is an insurance company (or the holding company of an insurance company) that
issues, or is obligated to make payments with respect to, a Cash Value
Insurance Contract or an Annuity Contract. A “cash value insurance contract” is
defined in Explanation (f) of Rule 114F(1) is defined to mean an insurance
contract (other than an indemnity reinsurance contract between two insurance
companies) that has a cash value and in case of a U.S. reportable account such
value is greater than an amount equivalent to US$ 50,000. A single premium life
insurance contract which does not permit an amount to be paid on surrender or
termination of the contract and which does not allow amounts to be borrowed
under or with regard to the contract, shall not constitute a cash value
insurance contract.
(Ref: Page 44 of
CRS and 165 of Commentary)
2.4
Step 3: Is the Financial Institution in India?
The Financial
Institutions resident in India, their branches located in India and branches of
Foreign Financial Institutions that are located in India are the Reporting
Financial Institutions while Foreign Financial Institutions, their foreign branches and foreign branches of Indian
Financial Institutions are not. In the case of Trusts, the reporting
requirement is on the Trustees resident in India, unless the required
information is being reported elsewhere because the trust is treated as
resident there.
branches and foreign branches of Indian
Financial Institutions are not. In the case of Trusts, the reporting
requirement is on the Trustees resident in India, unless the required
information is being reported elsewhere because the trust is treated as
resident there.
(Ref: Page 44 of
CRS and 158 of Commentary)
2.5 Step 4: Is
the Financial Institution a Non-Reporting Financial Institution?
Rule 114F(5)
specifies a number of entities as non-reporting financial institutions and
these entities are not required to maintain or report the information, except
in case of “financial institution with a local client base” in certain
specified situations.
These
non-reporting financial institutions are as under:
(a)
a
Governmental entity, International Organisation or Central Bank;
(b)
a
Treaty Qualified Retirement Fund; a Broad Participation Retirement Fund; a
Narrow Participation Retirement Fund; or a Pension Fund of a Governmental
entity, International Organization or Central Bank;
(c)
a
non-public fund of the armed forces, Employees’ State Insurance Fund, a
gratuity fund or a provident fund;
(d)
an
entity that is an Indian financial institution only because it is an investment
entity, provided that each direct holder of an equity interest in the entity is
a financial institution referred to in sub-clauses (a) to (c);
(e)
a
qualified credit card issuer;
(f)
an
investment entity established in India that is a financial institution only
because it (i) renders investment advice to, and acts on behalf of; or (ii)
manages portfolios for, and acts on behalf of; or (iii) executes trades on
behalf of, a customer for the purposes of investing, managing, or administering
funds or securities deposited in the name of the customer with a financial
institution other than a non-participating financial institution;
(g)
an
exempt collective investment vehicle;
(h)
a
trust established under any law for the time being in force to the extent that
the trustee of the trust is a reporting financial institution and reports all
information required to be reported under Rule 114G with respect to all
reportable accounts of the trust;
(i)
a
financial institution with a local client base;
(j)
a
local bank;
(k)
a
financial institution with only low-value accounts;
(l)
sponsored
investment entity and controlled foreign corporation, in case of any U.S.
reportable account;
(m)
sponsored closely held investment vehicle, in case of any U.S. reportable
account.
Explanation
to Rule 114F(5) provide further explanation of the above categories of
non-reporting financial institutions.
(Ref: Page 45 of
CRS and 166 of Commentary)
2.6
NPS Trust as RFI
National Pension
System Trust (NPS Trust) is the nodal point for co-ordination of the operations
of all intermediaries and is responsible for monitoring and evaluation of all
operational and service level activities of all intermediaries in accordance
with the provisions of the PFRDA Act, 2013 or the regulations made or
guidelines or circulars issued by the Authority. The Board of Trustees is also
responsible with regard to taking of action on reports submitted by the intermediaries
in order to ensure compliance with the regulations applicable to them under the
National Pension System. Accordingly, the NPS Trust is the RFI and would report
the information for the relevant NPS Investors.
3. Accounts
which are Financial Accounts and therefore need to be reviewed
3.1
Introduction
RFIs are
required to review the Financial Accounts they maintain to identify whether any
of them need to be reported. The general rule is that a Financial Account is an
account maintained by a Financial Institution and includes specific categories
of accounts (Depository Accounts, Custodial Accounts, Equity and debt
interests, Cash Value Insurance Contracts and Annuity Contracts). Certain types
of Financial Accounts which carry low risk of being used to evade tax are
excluded from needing to be reviewed or reported and are called Excluded
Accounts.
3.2
Categories of Financial Accounts
Rule 114F(1)
defines “Financial Accounts” to include the following
(a)
“depository
account” which includes any commercial, checking, savings, time, or thrift
account, or an account that is evidenced by a certificate of deposit, thrift
certificate, investment certificate, certificate of indebtedness, or other
similar instrument maintained by a financial institution in the ordinary course
of a banking or similar business and also an amount held by an insurance company pursuant to a guaranteed
investment contract or similar agreement to pay or credit interest thereon
an insurance company pursuant to a guaranteed
investment contract or similar agreement to pay or credit interest thereon
(b)
“custodial
account” which means an account (other than an insurance contract or annuity
contract) for the benefit of another person that holds one or more financial
assets
(c)
in
the case of an investment entity, any equity or debt interest in the Financial
Institution. “Equity Interest” in a financial institution being a partnership
firm, means either a capital or profits interest in the partnership firm and in
the case of a trust it would mean any interest held by any person treated as a
settlor or beneficiary of all or a portion of the trust, or any other natural
person exercising ultimate effective control over the trust. A person will be
treated as a beneficiary of a trust if he has the right to receive directly or
indirectly a mandatory distribution or may receive, directly or indirectly, a
discretionary distribution from the trust.
(d)
any
cash value insurance contract and any annuity contract issued or maintained by
a financial institution, other than a non-investment-linked, non-transferable
immediate life annuity that is issued to an individual and monetises a pension
or disability benefit provided under an account that is an excluded account.
(Ref: Page 50 of
CRS and 175 of Commentary)
3.3
Excluded Accounts
“Excluded
Accounts” have low risk of being used to evade tax and are thus excluded from
needing to be reviewed or reported. These accounts have been enumerated in
Explanation (h) to Rule 114F(1) as under
(i)
Retirement
or pension accounts satisfying certain conditions Explanation (h)(i) to Rule
114F(1)
(ii)
Non-retirement
tax-favored accounts subject to regulations and satisfying certain conditions
Explanation (h)(ii) to Rule 114F(1)
(iii)
Account
established under the Senior Citizens Savings Scheme Rules Explanation (h)(iii)
to Rule 114F(1)
(iv)
Term
Life Insurance contracts satisfying certain conditions Explanation (h)(iv) to
Rule 114F(1)
(v)
Accounts
held by Estates Explanation (h)(v) to Rule 114F(1)
(vi)
Escrow
Accounts established in connection with court judgments etc. Explanation
(h)(vi) to Rule 114F(1)
(vii)
Depository
accounts due to non-returned overpayments in case of credit card and other
accounts and satisfying certain conditions Explanation (h)(vii) to Rule 114F(1)
(Ref: Page 53 of
CRS and 184 of Commentary)
4.
Financial Accounts which are Reportable Accounts
4.1
Introduction
Once a RFI has
identified the Financial Accounts they maintain they are required to review
those accounts to identify whether any of them are Reportable Accounts. Where
they are found to be Reportable Accounts information in relation to those
accounts must be reported. In general terms, a Reportable Account means an
account, which has been identified pursuant to the due diligence procedure
prescribed in Rule 114H, as held by one or more Reportable Persons or by a
Passive Non-Financial Entity with one or more Controlling Persons that is a
Reportable Person. Thus, an account can be Reportable Account by virtue of the
Account Holder
or by virtue of the Account Holders’ Controlling Persons.
4.2
Reportable Accounts by virtue of the Account Holder
Rule 114F(6)(a)
states that “reportable account” is a financial account, which has been
identified, pursuant to the due diligence procedures prescribed in Rule 114H,
as held by a “reportable person”. The reportable person as defined in Rule
114F(8) means:
(a)
One
or more specified U.S. persons
(b)
One
or more persons that is resident of any country or territory outside India
under the tax laws of such country or territory other than prescribed entities
The U.S. person
includes an individual being a citizen or resident of USA, a partnership or
corporation organized in the USA, US trusts etc. In case of USA, an individual
account holder who is a citizen or resident of USA is a US reportable account
and the account of a US entity which is a specified US person is a US
reportable account. In case of other reportable accounts, the accounts held by
residents (for tax purposes) of countries/territories outside India, whether
individuals or specified entities, would be reportable accounts.
(Ref: Page 57 of
CRS and 192 of Commentary)
4.3 Reportable Accounts by virtue of the
Account Holder’s
Controlling
Persons
4.3.1
Regardless
of whether the Financial Account is a Reportable Account by virtue of the
Account Holder, a second test in relation to the Controlling Persons of certain
Entity Account Holders needs to be applied to ascertain whether the Controlling
Persons of such Entities are residents of countries/territories outside India.
If this test is satisfied, the accounts would be Reportable Account.
4.3.2
In
case of USA, these reportable accounts by virtue of Rule 114F(6)(b) would be
accounts held by an entity, not based in USA, with one or more controlling
person that is a specified U.S. person. The specified U.S. person is defined in
Rule 114F(9) as a U.S. person other than persons exempted under sub-clauses (i)
to (xiii) of clause (ff) of Article 1 of the IGA between India and USA . U.S.
person is defined in Rule 114F(10) as an individual, being a citizen or
resident in USA, a partnership or corporation organized in USA or US Trusts. In
case of an entity not based in US, controlling persons and their tax residency to
be ascertained only in respect of a passive entity and if such controlling
persons are identified as specified US person, the account of such non-US
passive entity will be a US reportable account.
4.3.3
In
the case of other countries/territories, these reportable accounts by virtue of
Rule 114F(6)(c) would be accounts held by a Passive Non Financial Entity (NFE)
with one or more controlling persons resident in a country/territory outside
India.
4.3.4
Passive
NFE is defined in Explanation (D) to Rule 114F(6) as any non-financial entity
which is not Active NFE, an investment entity or a withholding partnership or
withholding foreign trust. Active NFE has been defined in Explanation (A) to
Rule 114F(6) and includes regularly traded entities etc.
4.3.5
Controlling
Person is defined in Explanation (B) to Rule 114F(6) to mean the natural person
who exercises control over an entity and includes a beneficial owner as
determined under sub-rule (3) of rule 9 of the Prevention of Money-laundering
(Maintenance of Records) Rules, 2005. It has been specified that in determining
the beneficial owner, the procedure specified in the following circular as
amended from time to time shall be applied, namely:-
(i)
DBOD.AML.BC.
No.71/14.01.001/2012-13, issued on the 18th January, 2013 by the Reserve Bank
of India; or
(ii)
CIR/MIRSD/2/2013,
issued on the 24th January, 2013 by the Securities and Exchange Board of India;
or
(iii)
IRDA/SDD/GDL/CIR/019/02/2013,
issued on the 4th February, 2013 by the Insurance Regulatory and Development
Authority.
It has also been
specified that in the case of a trust, the controlling person means the
settlor, the trustees, the protector (if any), the beneficiaries or class of
beneficiaries, and any other natural person exercising ultimate effective
control over the trust, and in the case of a legal arrangement other than a
trust, the said expression means the person in equivalent or similar position
4.3.6 Thus, if
the Controlling Persons of a Passive NFE having an account in a Reporting
Financial Institution, is a person resident of a country/territory outside
India, the account becomes a Reportable Account for all such country/territory
outside India which the controlling person is a tax resident of. The details of
the controlling person(s) will also be reportable to the respective country
(ies) or territory (ies) outside India.
(Ref: Page 57 of
CRS and 195 of Commentary)
5.
Due Diligence Procedure
5.1
Introduction
The RFIs need to
identify the Reportable Accounts by carrying out due diligence procedures.
There are different rules for accounts held by individuals and Entities as well
as for Preexisting and New Accounts, reflecting the differing characteristics
between the different types of accounts. The standardized approach to be
applied for carrying out due diligence procedure ensures quality of information
to be reported and exchanged. The rules also leverage on existing processes
such as those for Anti Money Laundering purposes but not for any other process
that may have been in place for identification of the accountholders for any
other purposes or under any Act, Regulations etc., including under Income-tax
Act 1961. This is particularly the case for Preexisting Accounts where it is
more challenging and costly for Financial Institutions to obtain new
information from the Account Holder.
5.2
Split between Preexisting Accounts and New Accounts
5.2.1
There are separate due diligence procedure for Preexisting and New Accounts and
thus the date from which the procedure for New Accounts become
applicable is critical. Generally from this date, persons opening New Accounts
will be required to provide additional information for Financial Institutions
to determine where they are resident in a country/territory outside India. For
accounts opened prior to this date, Financial Institutions will generally be
allowed to rely on the information they hold on file.
5.2.2 The date
from which the procedure for New Accounts would be applicable is
·
1st
July, 2014 in case of U.S. Reportable Accounts
·
1st
January, 2016 in case of other Reportable Accounts
5.2.3 In the
case of U.S.A., the accounts opened from 1st July, 2014 to the date
of entry into force of the IGA between India and USA, i.e., 31st
August, 2015, there is an alternate procedure for due diligence prescribed in
Rule 114H(8). As per this alternate procedure, the self-certification required
for New Accounts should be obtained within one year of entry into force of the
IGA, i.e., by 31st August, 2016 and if it is not obtained, the
accounts need to be closed.
5.3
Due Diligence for Pre-existing Individual Accounts
5.3.1
The following pre-existing individual accounts are not required to be reviewed
or reported
In case of US reportable accounts [Rule 114H(3)(a)(i)]
o Where the balance or value as on 30th
June, 2014 does not exceed an
amount equivalent to US$ 50,000
o Which is a cash value insurance
contract or an annuity contract, the
balance
or value does
not exceed an
amount equivalent to US$
2,50,000 as on 30th June,
2014
o
which
is a cash value insurance contract or an annuity contract, the reporting
financial institution, under any other law for the time being in force in India
or of the USA, is prevented from selling such contract to a person who is a
resident of the USA
·
In
case of other reportable accounts [Rule 114H(3)(a)(ii)]
o
which
is a cash value insurance contract or an annuity contract, the reporting
financial institution, under any other law for the time being in force in
India, is prevented from selling such contract to a person who is not a
resident of India for tax purposes
5.3.2
There are separate due diligence procedures for “lower value account” and “high
value account”. The high value account is defined in Rule 114H(2)(b) as In case of U.S. Reportable accounts, balance
or value exceeding an amount equal to one million dollars as on 30th
June, 2014 or 31st December of any subsequent year
In case of U.S. Reportable accounts, balance
or value exceeding an amount equal to one million dollars as on 30th
June, 2014 or 31st December of any subsequent year
·
In
case of other reportable accounts, balance or value exceeding an amount equal
to one million dollar as on 31st December, 2015 or 31st
December of
any subsequent year.
The Lower Value
account is defined in Rule 114H(2)(c ) as
·
In
case of U.S. Reportable accounts, balance or value exceeds an amount
equal
to US$ 50,000 but does not exceed an amount equal to one million dollars as on
30th June, 2014 or 31st December of any subsequent year
·
In
case of other reportable accounts, does not exceed an amount equal to one
million dollars as on 31st December, 2015 or 31st
December of any subsequent year.
5.3.3 The due
diligence procedure for lower value pre-existing individual accounts is
prescribed in Rule 114H(3)(b) which provides that the Reporting Financial
Institutions must review electronically searchable data maintained on the
following indicia
·
identification
of the account holder as a resident of any country or territory outside India
for tax purposes or unambiguous indication of a place of birth in USA
·
current
mailing or residence address (including a post office box) in any country or
territory outside India; or
·
one
or more telephone numbers in a country or territory outside India and no
telephone number in India; or
·
standing
instructions (other than with respect to a depository account) to transfer
funds to an account maintained in a country or territory outside India; or
·
currently
effective power of attorney or signatory authority granted to a person with an
address in a country or territory outside India; or
·
a
“hold mail” instruction or “in-care-of” address in a country or territory
outside India if the reporting financial institution does not have any other
address on file for the account holder
If none of the
indicia are discovered in the electronic search, no further action is required
unless there is a change in circumstances which results in one or more indicia
being associated with the account, or the account becomes a high value account.
5.3.4
Notwithstanding finding of indicia in the case of low value pre-existing
individual accounts, it would not be reportable if the Reporting Financial
Institution obtains and maintains a record of
a self-certification from the account holder
that it is not resident of a country/territory outside India
documentary evidence establishing the account
holder’s non-reportable status
5.3.5 The due
diligence procedure for high value pre-existing individual accounts is
prescribed in Rule 114H(3)(c) which provides for enhanced review procedures
described below
(a)
If
the electronic searchable information in case of a customer includes the
following information, no paper record search is required
·
the
account holder’s residence status for tax purposes;
·
the
account holder’s residence address and mailing address currently on file with
the reporting financial institution;
·
the
account holder’s telephone number or numbers currently on file, if any, with
the reporting financial institution;
·
in
the case of financial accounts other than depository accounts, whether there
are standing instructions to transfer funds in the account to another account
(including an account at another branch of the reporting financial institution
or another financial institution);
·
whether
there is a current “in-care-of” address or “hold mail” instruction for the
account holder; and
·
whether
there is any power of attorney or signatory authority for the account.
(b)
If
the electronic searchable data does not contain all of the above information,
the Reporting Financial Institution need to review the current customer master
file and the documents obtained during the last five years for identification
of any of the indicia.
(c)
The
high value accounts assigned to a relationship manager will be treated as
reportable account if the relationship manager has actual knowledge that the
accountholder is a reportable person.
(d)
If
after application of review procedures:
·
none
of the indicia are discovered and the account is not identified as
held by
reportable persons, then no further action is required until there is change of
circumstances,
Any of the
indicia are discovered or there is change of circumstances, then the RFI shall
treat the account as a reportable account with respect to each country or territory outside India for which
the indicia is identified unless it obtains a self-certification to establish
its residence
country or territory outside India for which
the indicia is identified unless it obtains a self-certification to establish
its residence
the
only indicia found is a “hold mail” or “in-care” address, special procedures
are applied and the RFIs need to complete paper record search or obtain from
the account holder a self-certification or documentary evidence to establish
the residence.
(e)
In
respect of pre-existing individual account, if self-certification or
documentary evidence is not obtained from the account holder (till the deadline
of completing the due diligence procedures as laid down in the rules) in
remediation of any of the indicia found in electronic search, paper record
search or RM’s search, the account will be an undocumented reportable account.
5.3.6
For
purposes of determining the aggregate balance or value of financial accounts
held by an individual, RFI is required to aggregate all financial accounts
maintained by it, or by a related entity, but only to the extent that the
computerised systems of the RFI links the financial accounts by reference to a
data element such as client number or taxpayer identification number, and allows
account balances or values to be aggregated. In the case of a high value
account the RFIs are also required to aggregate those financial accounts that a
relationship manager knows, or has reason to know, are directly or indirectly
owned, controlled, or established (other than in a fiduciary capacity) by the
same person. [Rule 114H(7)(c)]
5.3.7
The
time line for reviewing of the pre-existing individual accounts have been
provided in Rule 114H(3)(d) as under
(i)
in
case of a U.S. reportable account which is high value account as on the
30.6.2014, shall be completed by the 31.12.2015 and if based on this review
such account is identified as a U.S. reportable account after 31.12.2014 but
before 31.12.2015, the reporting financial institution is
not
required to report information about such account with respect to calendar year
2014, but shall report information about the account on an annual basis
thereafter
(ii)
in
case of a U.S. reportable account which is low value account as on the
30.6.2014 shall be completed by the 30.6.2016
(iii)
in
case of other reportable account which is high value account as on the
31.12.2015 shall be completed by the 30.6.2016
(iv)
in
case of other reportable accounts that is low value account as on the
31.12.2015, must be completed by the 30.6.2017
(Ref: Page 31 of
CRS and 110 of Commentary)
5.4
Due Diligence for Pre-existing Entity Accounts
5.4.1
The
following pre-existing entity accounts are not required to be reviewed,
identified or reported [Rule 114H(5)(a)]
o In case of US reportable accounts if
the aggregate account balance or value as on 30.6.2014 does not exceed an
amount equivalent to US$ 250,000 or the end of any subsequent calendar year
o In case of other reportable accounts
if the balance or value as on 31.12.2015 does not exceed an amount equivalent
to US$ 250,000 or the end of any subsequent calendar year
5.4.2
The
reportable accounts would only be those accounts which are held by
·
One
or more entities which are reportable persons, or
·
Passive
NFEs with one or more controlling persons who are reportable persons
For calendar
years 2015 and 2016, accounts held by non-participating financial institutions
for purposes of FATCA, will also be treated as reportable accounts and need to
be reported as US accounts.
5.4.3
To
determine whether the entity is a reportable person, the Reporting Financial
Institution need to review information maintained for regulatory or customer
relationship purposes (including information collected in accordance with the
rules made under the Prevention of Money-laundering Act, 2002) to determine
whether the information indicates that the account holder is a reportable
person. However, the account may not be treated as a “reportable account”, if a
self-certification is obtained from the account holder, or if the financial
institution reasonably determines based on information in its possession or
that is publicly available, that the account holder is not a reportable person.
5.4.4
The
account holder will be treated as a non-participating financial institution
requiring information to be reported to USA for calendar years 2015 and 2016 if
·
the
account holder is treated as non-participating financial institution by the USA
or
·
the
account holder is a financial institution from a country/territory which has
not entered into an IGA with USA and the reporting financial institution does
not verify the said account holder’s Global Intermediary Identification
Number
issued by the US IRS if the account holder is an FI referred to in sub clause
(e) to (m) of Clause 5 of Rule 114 F.
·
the
account holder is a financial institution from a country/territory which has
entered into an IGA with USA (a partner jurisdiction FI) but has neither
registered with US IRS and obtained a GIIN nor it is a Non Reporting FI (NRFI).
5.4.5 The
Reporting Financial Institution also needs to determine whether the account
holder is a Passive NFE and whether its controlling persons are residents of
countries/territories outside India as per the following procedure
·
for
purposes of determining whether the account holder is a passive NFE, the
reporting financial institution shall obtain a self-certification from the
account holder to establish its status, unless it has information in its
possession or which is publicly available, based on which it can reasonably
determine that the account holder is an active NFE or a financial institution
other than an investment entity
·
for
purposes of determining the controlling persons of an account holder, a
reporting financial institution may rely on information collected and
maintained in accordance with the rules made under the Prevention of
Money-laundering Act, 2002 if the balance does not exceed USD 1000000. If it
exceeds USD 1000000, self-certification from the account holder or such
controlling person(s) will be required.
If any
controlling person of a passive NFE is a resident of any country or territory
outside India for tax purposes, the account of the passive NFE shall be treated
as a reportable account to all such country or territory outside India which a
controlling person is a tax resident of. The details of the controlling
person(s) will also be reportable to the respective country (ies) or territory
(ies) outside India.
5.4.6
For
purposes of determining the aggregate balance or value of financial accounts
held by an entity, a reporting financial institution shall be required to take
into account all financial accounts which are maintained by it, or by a related
entity, but only to the extent that the computerised systems of that reporting
financial institution links the financial accounts by reference to a data
element such as client number or taxpayer identification number, and allows
account balances or values to be aggregated. [Rule 114H(7)(c)]
5.4.7
The
review of the pre-existing entity accounts with an aggregate balance exceeding
US$ 250,000 as on 30.6.2014 in case of U.S. reportable accounts should be
completed by 30.6.2016. In case of other reportable accounts with an aggregate balance exceeding US$ 250,000 as on
31.12.2015, the review should be completed by 30.6.2016. [Rule 114H(4)(e)]
aggregate balance exceeding US$ 250,000 as on
31.12.2015, the review should be completed by 30.6.2016. [Rule 114H(4)(e)]
(Ref: Page 38 of
CRS and 135 of Commentary)
5.5
Due Diligence for New Individual Accounts
5.5.1
The following new U.S. reportable accounts are not required to reviewed or
reported as per Rule 114H(4)(a)
(a)
a
depository account unless the account balance exceeds an amount equal to US$
50,000 at the end of any calendar year
(b)
a
cash value insurance contract unless the cash value exceeds an amount equal to
US$ 50,000 at the end of any calendar year
The above
exemption is not available for U.S. custodial or investment accounts and thus
the same need to be reviewed even if the account balance is less than
US$50,000. Further, there is no threshold in case of other reportable accounts
and thus any individual account opened from 1.1.2016 has to be reviewed to
ascertain whether it is a reportable account.
5.5.2
In
the case of US reportable accounts, not falling under the exemption as above,
and in case of other reportable accounts, on account opening, the reporting
financial institution must obtain a self-certification, as part of the account
opening documentation, to determine the account holder’s residence or
residences for tax purposes. The Reporting Financial Institution must also
confirm the reasonableness of such self-certification based on the information
obtained by it in connection with the opening of the account, including any
documentation collected in accordance with Prevention of Money-laundering
(Maintenance of Records) Rules, 2005.
5.5.3
Where
the self-certification establishes that the account holder is resident for tax
purposes in a country or territory outside India, the reporting financial
institution shall treat the account as a reportable account and the
self-certification shall also include the account holder’s taxpayer
identification number with respect to such country or territory outside India
and date of birth.
5.5.4
Where
a self-certification has been obtained for a new individual account and if
there is a change of circumstances with respect to such account which causes
the reporting financial institution to know, or have reason to know, that the
said self-certification is incorrect or unreliable, the reporting financial
institution shall not rely on the said self-certification and shall obtain a
valid self-certification that establishes the residence or
residences for tax purposes of the account holder. If the reporting financial
institution is unable to obtain a valid self-certification, the reporting
financial institution shall treat the account as a reportable account with
respect to each such country or territory outside India for which an indicium
is identified.
(Ref: Page 37 of
CRS and 127 of Commentary)
5.6
Due Diligence for New Entity Accounts
5.6.1
There
is no threshold or exemption for new entity accounts and all these accounts
need to be reviewed and reported. As in the case of pre-existing entity
accounts, two-step process need to be adopted as explained below.
5.6.2
The
Reporting Financial Institution need to determine whether the Entity itself is
a reportable person, i.e., resident of a country/territory outside India, by
obtaining a self-certification, as part of the account opening documentation,
to determine the account holder’s residence or residences for tax purposes. The
Reporting
Financial Institution must also confirm the reasonableness of such
self-certification based on the information obtained by it in connection with
the opening of the account, including any documentation collected in accordance
with Prevention of Money-laundering (Maintenance of Records) Rules, 2005.
5.6.3
The
RFI also need to determine whether the account holder is a passive NFE with one
or more controlling persons who are reportable persons, i.e., residents of a
country/territory outside India, through the following procedure
(a)
for
purposes of determining whether the account holder is a passive NFE, the
reporting financial institution shall rely on a self-certification from the
account holder to establish its status, unless it has information in its
possession or that is publicly available, based on which it can reasonably
determine that the account holder is not a passive non-financial entity
(b)
for
purposes of determining the controlling persons of an account holder, a
reporting financial institution may rely on information collected and
maintained in accordance with the rules made under the Prevention of
Money-laundering Act, 2002
(c)
for
purposes of determining whether a controlling person of a passive non-financial
entity is a reportable person, a reporting financial institution may rely on a
self-certification from the account holder or such controlling person
5.6.4 The RFI is
also required to determine whether the account holder is a non-participating
financial institution and those accounts should be treated as US reportable
accounts to be reported to USA for calendar years 2015 and 2016.
(Ref: Page 40 of
CRS and 143 of Commentary)
5.7
Alternate Procedure in case of US Reportable
Accounts
5.7.1
In
the case of US Reportable Accounts, the due diligence procedure for new
accounts,
including obtaining a self-certification from the account holder, would apply
from 1st July, 2014. However, the legal basis for having this due
diligence procedure for new accounts was introduced only on 7th
August, 2015, on Notification of Rules 114F to 114H, the IGA between India and
USA provides for an alternative procedures for applying the due diligence
procedure which has been included in Rule 114H(8) of the Rules.
5.7.2
As
provided in Proviso to Rule 114H(8), all the new entity accounts which are U.S.
reportable accounts opened from 1st July, 2014 to 31st
December, 2014, may be treated by the RFI as pre-existing entity account and
apply the due diligence procedure related to pre-existing accounts without
regard to account balance or value threshold.
5.7.3
Further,
as provided in Rule 114H(8), for all the individual and entity accounts opened
from 1st July, 2014 to the date of entry in to force of the IGA
between India and USA, i.e., 31st August, 2015, the RFI will need to
obtain the self-certification and carry out due diligence procedure to
determine the reasonableness of the self-certification. The RFIs will need to
obtain the self-
certification
and documentation within one year of the entry into force of the IGA, i.e., by
31st August, 2016, or otherwise close the accounts and report their
information as “reportable accounts”.
5.7.4
The
RFIs will need to report on any new account so identified, including accounts
held by non-participating financial institution, by the later of 31st
of May following the year on which the account is identified or within 45 days
of
identification
of account. Thus, all accounts identified during the calendar year 2015 should
be reported by 31st May, 2016.
5.7.5
The
information required to be reported with respect to such a new account shall be
information which would have been reportable had the new account been
identified as a U.S. reportable account or as an account held by a
non-participating financial institution, as applicable, as of the date the
account was opened. Thus for accounts opened during calendar
year 2014, the information about calendar year 2014 must be reported even if
the reporting is done in 2017 as the alternate procedure was completed during
the calendar year 2016.
5.7.6
Rule
114H(4)(a) states that the depository accounts having a balance not exceeding
US$ 50,000 or cash value insurance contracts having cash value not exceeding
US$ 50,000 at the end of any calendar year are not required to be reviewed or
reported in case of U.S. reportable accounts. Accordingly, in these cases, for
the accounts opened from 1.7.2014 to 31.12.2014, a value search should be
carried out as on 31.12.2014 and for accounts opened between 1.1.2015 to
31.8.2015, a value search should be carried out as on 31.12.2015. The due
diligence for new accounts including obtaining of self-certification needs to
be carried out only in those cases where the value exceeds US$50,000. In case
of accounts other than depository or cash value accounts, the financial
institutions should make reasonable efforts to obtain the self-certification,
particularly in those cases where after indicia search a positive match is
found with any of the U.S. indicia. If a self-certification is not provided by
an account holder or the reasonableness of a self-certification cannot be
confirmed, the account is reportable.
5.7.7
For
new individual accounts (depository or cash value contract) accounts opened
after 1.9.2015, the alternate procedure will not be applicable and the due
diligence procedure as applicable to “new accounts” including obtaining and
verification of self-certification will be applicable. In case of accounts
which are not required to reviewed or reported as per Rule 114H(4)(a), a value
search should be carried out as on 31.12.2015, the due diligence for new
accounts including obtaining of self-certification needs to be carried out only
in those cases where the value exceeds US$50,000. Such due diligence needs to
be completed within a period of 90 days from the end of calendar year 2015,
i.e, by 31.03.2016. In case of other than depository or cash value contract
accounts, the financial institutions should make reasonable efforts to obtain
the self-certification by 31.12.2015, particularly in those cases where after
indicia search a positive match is found with any of the U.S. indicia. If a
self-certification is not provided by an account holder or the reasonableness
of a self-certification cannot be confirmed, the account is reportable.
5.7.8
For
a depository entity account opened between 01.01.2015 to 31.08.2015, a value
search should be carried out as on 31.12.2015 and due diligence as applicable
to new accounts including obtaining of self-certification needs to be carried
out only in those cases where the value exceeds US$250,000. Similarly, for a depository entity account opened after 01.09.2015, a value
search should be carried out as on 31.12.2015 and due diligence as applicable
to new accounts including obtaining of self-certification needs to be carried
out only in those cases where the value exceeds US$250,000.
6.
Reporting Requirements
6.1
Information to be maintained and reported
Rule 114G(1)
provides that the RFI needs to maintain and report the following information in
case of each Reportable Account
(a)
the
name, address, taxpayer identification number (assigned to the account holder
by the country or territory of his residence for tax purposes) and date and
place of birth (in the case of an individual) of each reportable person, that
is an account holder of the account;
(b)
in
the case of any entity which is an account holder and which, after application
of due diligence procedures prescribed in rule 114H, is identified as having
one or more controlling persons that is a reportable person,-
(i)
the
name and address of the entity, taxpayer identification number assigned to the
entity by the country or territory of its residence; and
(ii)
the
name, address, date and place of birth of each such controlling person and
taxpayer identification number assigned to such controlling person by the
country or territory of his residence;
(c)
the
account number (or functional equivalent in the absence of an account number);
(d)
the
account balance or value (including, in the case of a cash value insurance
contract or annuity contract, the cash value or surrender value) at the end of
relevant calendar year or, if the account was closed during such year,
immediately before closure;
(e)
in
the case of any custodial account,-
i.
the
total gross amount of interest, the total gross amount of dividends, and the
total gross amount of other income generated with respect to the assets held in
the account, in each case paid or credited to the account (or with respect to
the account) during the calendar year; and
ii.
the
total gross proceeds from the sale or redemption of financial assets paid or
credited to the account during the calendar year with respect to which the
reporting financial institution acted as a custodian,
broker, nominee, or otherwise as an agent for the account holder;
(f)
in
the case of any depository account, the total gross amount of interest paid or
credited to the account during the relevant calendar year;
(g)
in
the case of any account other than custodial or depository accounts, including
accounts held by investment entities and cash value insurance contract and
annuity, the total gross amount paid or credited to the account holder with
respect to the account during the relevant calendar year with respect to which
the reporting financial institution is the obligor or debtor, including the
aggregate amount of any redemption payments made to the account holder during
the relevant calendar year; and
(h)
in
the case of any account held by a non-participating financial institution, for
the calendar year 2015 and 2016, the name of each non-participating financial
institution to which paments have been made and the aggregate amount of
payments.
(Ref: Page 29 of
CRS and 94 of Commentary)
6.2
Due date for furnishing the Report
6.2.1
The
information related to calendar year 2014 needs to be reported for only US
reportable accounts and the statement should be furnished by 31st
August, 2015, which has been extended to 10th September, 2015, by an
order issued by CBDT on 25th August, 2015. In this statement, only
the information referred to in clause (a) to (d) of Para 7.1 needs to be
reported.
6.2.2
The
information related to calendar year 2015 also needs to be reported for only US
reportable accounts and the statement should be furnished by 31st
May, 2016. In this statement, only the information referred to in clause (a) to
(d), e(i) and (f) to (h) of Para 7.1 needs to be reported.
6.2.3
For
calendar years 2015 and 2016, in the case of any account held by a
non-participating financial institution, the name of each non-participating
financial institutions to whom payments have been made and the aggregate amount
of such payments need to be reported.
6.2.4
For
calendar years 2016 onwards, all the above information in case of both US and
other reportable accounts need to be reported.
6.2.5
The
statement of reportable accounts need to be furnished in respect of each
account identified by carrying out due diligence procedure and in case when no account is identified as reportable account, a Nil statement
needs to be furnished. A NIL statement can also be furnished if the RFI has not
completed the due diligence procedures.
6.3
Other Issues related to Reporting
The
following clarifications have been provided in Rule 114G with regard to
reporting
(a)
“account
holder” means the person listed or identified as the holder of a financial
account by the financial institution that maintains the account. However, if a
person, other than a financial institution, holds a financial account for the
benefit or on account of another person as agent, custodian, nominee,
signatory, investment advisor, or intermediary, such another person will be
treated as holding the account
(b)
In
the case of a cash value insurance contract or an annuity contract, the account
holder is any person entitled to receive a payment upon the maturity of the
contract or any person entitled to access the cash value or change the
beneficiary of the contract and if no person can access the cash value or
change the beneficiary, the account holder is any person named as the owner in
the contract and any person with a vested entitlement to payment under the
terms of the contract;
(c)
“taxpayer
identification number” means a number assigned to a person in the country or
territory in which he is resident for tax purposes and includes a functional
equivalent in case no such number is assigned.
(d)
Where
the person is a resident of more than one country or territory outside India
under the tax laws of such country or territory, the reporting financial
institution shall maintain the taxpayer identification number in respect of
each such country or territory.
(e)
In
case of pre-existing accounts, the taxpayer identification number or date of
birth is not required to be reported if such taxpayer identification number or
date of birth is not in the records of the reporting financial institution.
However, the RFI need to obtain the taxpayer identification number and date of
birth with respect to pre-existing accounts by the 31st December, 2016 and
shall report it with respect to calendar year 2017 and subsequent years.
(f)
The
taxpayer identification number is not required to be reported if it is not
issued by the relevant country or territory or the domestic law of the relevant
country or territory does not require the collection of taxpayer identification
number
(g)
The
place of birth is not required to be reported if it is not available in the
electronically searchable database of the RFI
7.
Procedure for Furnishing the Report
7.1
As
per Rule 114G(9), the statement in respect of each reportable account needs to
be filed by the RFIs to the Director of Income-tax (Intelligence and Criminal
Investigation) or Joint Director of Income-tax (Intelligence and Criminal
Investigation) through online transmission of electronic data to a server
designated for this purpose under digital signature in accordance with the data
structure specified by the Principal Director General of Income Tax (Systems).
7.2
The
Principal Director General of Income Tax (Systems) through Notification No.
3/2015 dated 25th August, 2015 has specified the procedures and data
structure and standards for ensuring secure capture and transmission of data,
which are summarized below:
(a)
The
RFIs are required to get registered with the Income Tax Department by logging
in to the e-filing website with the log in ID used for the purpose of filing
the Income Tax Return. A link to register reporting financial institution has
been provided under "My Account". The RFI is required to submit
registration details on the screen. A RFI may submit different registration
information under different reporting financial institution categories.
(b)
After
registration, the RFIs are required to submit the Form 61B or Nil statement
under "e-File" menu. The prescribed schema for the report under form
61B can be downloaded from the e-filing website. The RFI will be required to
submit the calendar year for which report is to be submitted and the reporting
entity category for which the report is to be submitted. The reporting
financial institution will then be provided the options to upload the Form 61B.
The form is required to be submitted using a Digital Signature Certificate.
(c)
In
case nil statement has to be submitted by the RFI, the option to submit Nil
statement is required to be selected. The reporting financial institution will
then be required to submit a declaration with respect to pre-existing accounts
and new accounts. The declaration is required to be submitted using a Digital
Signature Certificate.
(d)
In
case if the designated director (as reported in registration details submitted
by the RFI) is same as the person authorized to verify the return of income of
the reporting financial institution as per the provisions of section 140 of the
Income-tax Act, 1961, the Form 61B or Nil statement is required to be submitted
with the digital signature certificate of the person authorized
to sign the return of income of the RFI. In other cases, the necessary
facilities are being developed to enable filing of statement by designated
directors who are not authorized to sign the return of income.
8.
Monitoring and Compliance
8.1
By Income Tax Department
As provided in
Rule 114G(9), the statement needs to be furnished to the Directorate of
Inelegance and Criminal Investigation and the said Directorate has been given
the responsibility of ensuring the compliance. The penalty provisions provided
in the Income-tax Act, 1961, are as under:
(a)
Section
271FA of the Income-tax Act, 1961
(i)
For
failure to furnish the statement of reportable account within the prescribed
time limit – Rs. 100 for each day of failure
(ii)
For
failure to furnish the statement of reportable account after a notice is served
on him requiring to file the statement – Rs. 500 for each day of failure
(b)
Section
271FAA of the Income-tax Act, 1961 provides for levy of a penalty of Rs. 50,000
on RFI for furnishing inaccurate information in the statement of reportable
account and where
(i)
Inaccuracy
is due to failure to comply with due diligence requirements or is deliberate on
the part of the RFI
(ii)
The
RFI knows of the inaccuracy at the time of furnishing the statement of
reportable account, but does not inform the Directorate of Intelligence and
Criminal Investigation
(iii) The RFI
discovers the inaccuracy after the statement of reportable account is furnished
and fails to inform and furnish the correct information to the Directorate of
Intelligence and Criminal Investigation within 10 days.
8.2
By Regulators
Most of the RFIs
are regulated by a regulator which has been vested with the power to license,
authorize, register, regulate or supervise their activities. Rule 114G(11)
requires the regulators to issue necessary instructions and guidelines from
time to time for
(a)
Incorporating
the requirements of reporting and due diligence
(b)
Providing
the procedure and manner of maintaining the information by the reporting
financial institution
(c)
Ensuring
the availability of the information with the RFIs for meeting their reporting
obligation, if such information is not maintained by it under any rule or
regulation issued by the regulator
8.3
Requirement of obtaining GIIN
The
RFIs having U.S. Reportable Accounts need to register with the US IRS and
obtain Global Intermediary Identification Number by registering at http://www.irs.gov/Businesses/Corporations/FATCA-Foreign-Financial-Institution-Registration-Tool. GIIN also
needs to be obtained by the Financial Institutions claiming exemption as
Non-reporting Financial Institution on the grounds of being a “financial
account with a local client base” since they need to report the financial
accounts held by a specified U.S. person.
9.
Contact details for further clarification
For
further clarifications and suggestions/feedback for the updated version of the
Guidance Note, the following officers may be contacted
(a) For General Queries
Mr. Akhilesh
Ranjan, Joint Secretary (FT&TR-I), ranjan.akhilesh@nic.in Mr. Rahul Navin,
Director (FT&TR-III), rahul.navin@nic.in
Mr. Gaurav Sharma, US[FT&TR-III)1)],
us31eoi-dor@nic.in
(b) For Systems related Queries
Mr. Sanjeev Singh, ADG (Systems-II), sanjeev.singh@gov.in
Mr. Vipul Agarwal, JDIT (Systems),
vipul.agarwal@nic.in
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