As per the Inter-Governmental Agreement (IGA-Model1) between India and USA, Indian Reporting Financial Institutions (RFI) have submitted data relating to the financial accounts for the calendar years ended 2015, 2016 & 2017 to Central Board of Direct Taxes(CBDT). CBDT has commenced exchange of data with USA-Internal Revenue Service (USA-IRS).
All the RFIs are required to report U.S. Taxpayer Identification Numbers (U.S. TINs) for the US reportable accounts. If such RFIs comply with the procedure, then the Internal Revenue Service (IRS) will not determine that there is significant non-compliance with the obligations under a Model 1 IGA. If an RFI fails to report required U.S. TINs for U.S. reportable accounts, the U.S. Competent Authority may notify Indian Government that there is significant non-compliance with respect to the RFI. If the RFI remains noncompliant for 18 months after such notification, the United States may treat the RFI as a nonparticipating financial institution (NPFI) that is subject to withholding under section 1471 of the US Treasury Code.
Considering the difficulties faced by the RFIs in getting the TIN and the additional time required by the RFIs to comply with the procedure, USA has decided not to determine that there is significant non-compliance with the obligations of FATCA solely because of the failure to obtain and report required US TIN for the reporting years 2017, 2018 & 2019, provided the RFI:
Obtains and reports the date of birth of each account holder and controlling person whose U.S. TIN is not reported;
Requests annually from each account holder any missing required U.S. TIN; and
Before reporting information that relates to the calendar year 2017 to the partner jurisdiction, searches electronically searchable data.
CBDT has advised the Indian RFIs having pre-existing US reportable accounts to ensure that the U.S. TIN is reported in respect of pre-existing accounts for the year 2017 onwards. However, in case the U.S.TIN is not available, to avoid the determination by the USA Competent Authority of significant non-compliance with the obligations of the IGA, the above 3 rules should be adhered to.
Therefore, there is an urgent need for the RFIs
(a) To short-list FATCA reportable account holders and controlling persons without TIN
(b) To check whether Date_of_Birth is reported for the above persons.
(c) To take immediate steps to obtain Date_of_Birth/ TIN from all pre-existing reportable US
Account Holders & Controlling Persons.
If the RFI is categorized as an NPFI, US Source income /Payments received by the RFI, for self and for their account holders ,will be subject to FATCA tax withholding @ 30% ,which is not only a monetary loss but also a reputational risk, resulting in flight of customers to other RFIs with good track record of FATCA compliance.