FATCA-CRS Reporting – Challenges faced by Financial Institution in India

Foreign Accounts Tax Compliance Act (FATCA) Reporting was implemented from the calendar year ended 31st Dec 2015 In India as Inter Governmental Agreement (IGA) was signed between India and US IRS during Aug’15. Common Reporting Standard (CRS) Reporting was implemented from the calendar year 2016.

To ensure compliances with FATCA and CRS Regulations, Central Board for Direct Taxes (CBDT), the Nodal Authority, has amended section 285BA of the Income Tax Act and introduced rules 114F to 114G, including the reporting form 61B. These rules provide the legal basis for maintaining and reporting correctly, information about Reportable Accounts.

Though FIs have been compiling and filing 61B for around five years now, they have been facing several challenges in ensuring correct reporting. Some of these inconsistencies and issues are discussed in this blog.

Due diligence completion: Commencing from 1st January 2016, CBDT expects all new reportable accounts to be “documented”, meaning completion of due diligence and reporting of Tax Identification Number (TIN) or its functional equivalent for a reportable accounts. FIs face multiple challenges here, viz., (a) the account holder not having a TIN or functional equivalent, (b) an unresponsive account holder, (c) a questioning account holder, etc. Due to this, the FIs either leave TIN blank or fill in default values or some equivalent instead of TIN while filing 61B. Of late, certain participating jurisdictions and the Global Forum have commenced scrutiny of the reports filed
by the FIs. When they come across blank/invalid contents in TIN, such jurisdictions write to CBDT which in turn slaps a notice on the FI concerned.

Non standardization of TIN structure: Out of around 250 countries signed up for CRS, only 85 have shared the TIN (or functional equivalent) structure. TIN comes in various forms, not necessarily as a continuous string of alphanumeric characters. There could be special characters like “-“, “.”, forming part of TIN. It is not clear as to how the Global Forum or a participating jurisdiction validates TIN. Due to this, even a correctly fed TIN may turn out to be incorrect, resulting in protracted correspondence and avoidable inconvenience to all concerned.

TIN not mandatory in many countries: Again, out of 85 countries which have shared the TIN structure, for about 40 countries obtaining of TIN is not mandatory. TIN in such countries (say Austria) is issued only upon application. A sizable amount of non-residents from India are low-wage earners and hence their income may not be subjected to income-tax in the country in which they are working. There is no system of obtaining/recording alternative equivalents (like Resident ID card) for such cases.

Low value accounts (CRS): Unlike FATCA, there is no minimum threshold for other reportable accounts (CRS). Around 2030% of the reportable account holders have an aggregate balance of less than Rs. 10000/- and hence the cost-benefit of following-up, obtaining and reporting TIN in such cases does not work out to the benefit of the Regulatory/Nodal Authority/FI. Under these circumstances, the Nodal Authority may introduce some minimum threshold (with other conditions linked to account transactions, if needed) for omitting low-value accounts.

It is high time that reporting Financial Institutions took up these issues with CBDT and RBI so as to ensure correct compilation of the statements with a rational approach.