FATCA & CRS OVERVIEW & UPDATES

17/11/2021FATCA & CRS – Overview and Updates - Bengaluru Branch of SIRC of ICAI 1

FATCA & CRS

OVERVIEW & UPDATES

17 November 2021 Presented by: CA Vijay Kotha


AGENDA

OVERVIEW OF FATCA

OVERVIEW OF CRS

FATCA & CRS IN INDIA

TAX AUDIT REPORT

INCOME TAX RETURNS

UPDATES ON FATCA & CRS

NON COMPLIANCE OF FATCA & CRS

OFFSHORE DATA LEAKS


GLOSSARY

FFI – Foreign Financial Institution

NFFE – Non Financial Foreign Entity

IGA – Inter Governmental Agreement

IRS – Internal Revenue Service

LTA – Local Tax Authority

GIIN – Global Intermediary Identification Number

TIEA – Tax Information Exchange Agreement

DTAA – Double Taxation Avoidance Agreement

OECD - Organization for Economic Cooperation & Development

CRS - Common Reporting Standard

FDAP - Fixed, Determinable and Annual or Periodical

USCP - US Controlling Person


FOREIGN ACCOUNT TAX

COMPLIANCE ACT (FATCA)

COMMON REPORTING STANDARD

(CRS)


FOREIGN ACCOUNT TAX

COMPLIANCE ACT (FATCA)

Is a United States (US) federal law

To enforce tax compliance by US

Persons with financial assets and

accounts outside the US

Intergovernmental Agreements

(IGAs) concluded by US with 113*

partner countries

Reporting of US accounts

*Including 8 countries agreement in substance


INTERGOVERNMENTAL

AGREEMENTS (IGAs) An IGA establishes a partnership

between the US and a foreign country:

To implement an automatic

information exchange

To improve international tax

compliance

To establish uniform reporting

standard and

To reduce compliance burdens and

costs


INTERESTING FACTS # 1

WHETHER FATCA IS

APPLICABLE IN THE US

FOR THE US ENTITIES?


COMMON REPORTING STANDARD

(CRS)

Organisation for Economic Co-operation and Development

(OECD) released ‘Standard for Automatic Exchange of Financial

Account Information in Tax Matters’ popularly known as “Common

Reporting Standard” (CRS)

OECD developed the CRS’ systems,

standards and platform, based on IGA

model 1

120 jurisdictions implemented the CRS

42 jurisdictions yet to commit on the date for CRS implementation

Reporting of tax resident account details of other CRS

participating jurisdictions by the Financial Institutions to local tax

authorities



DOES THE US

PARTICIPATE IN THE

CRS?


India signed the FATCA Model 1 IGA with the US on 9

July 2015

Income-tax Rules (“Rules”) was amended to include

FATCA & CRS provisions in August 2015

Rules 114F (Definitions), 114G (Reporting) and 114H

(Due Diligence) provides for FATCA and CRS details

Updated Guidance Note on FATCA and CRS was issued

on 30 November 2016

Annual FATCA & CRS Report in Form 61B to be filed on

or before 31 May of the following year

Nil report is mandatorily to be furnished

FATCA & CRS IN INDIA



India was the first country

to issue joint rules on

FATCA & CRS


Entity*

Foreign Financial

Institution (FFI)Non Financial Foreign

Entity (NFFE)

Reporting FFI

Non-Reporting or

Certified Deemed

Compliant FFI

Active NFFE Passive NFFE

• Depository

Institutions

• Custodial Institutions

• Specified Insurance

companies

• Investment Entities

• Those FFIs which are

listed in FATCA

Regulations or IGA as

Deemed Compliant

• Remote risk of tax

evasion

• Less than 50%

income is Passive

Income, AND

• Less than 50%

assets held to

generate Passive

Income

• More than 50%

income is Passive

Income, OR

• More than 50%

assets held to

generate Passive

Income

* Above chart is simplified as in practice various other FATCA classification statuses are available

FATCA CLASSIFICATION


Entity*

Financial Institution (FI) Non Financial Entity

(NFE)

Reporting FI Non-Reporting FI Active NFE Passive NFE

• Depository

Institutions

• Custodial Institutions

• Specified Insurance

companies

• Investment Entities

• Those FIs which are

listed as Deemed

Compliant

• Remote risk of tax

evasion

• Less than 50%

income is Passive

Income, AND

• Less than 50%

assets held to

generate Passive

Income

• More than 50%

income is Passive

Income, OR

• More than 50%

assets held to

generate Passive

Income

* Above chart is simplified as in practice various other CRS classification statuses are available

CRS CLASSIFICATION



Whether FATCA AND CRS

are applicable to

Individuals?


FATCA & CRS PROCESS

FATCA & CRS PROCESS

Classification

Registration*

On boarding

Due Diligence

Withholding*

Reporting

*Not applicable for CRS


DEPOSITORY INSTITUTION

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, it regularly

engages in activities such as: (a) accepts deposits or other similar investments of funds;

(b) makes personal, mortgage, industrial, or other loans or provides

other extensions of credit;

(c) purchases, sells, discounts, or negotiates accounts receivable,

instalment obligations, notes, drafts, checks, bills of exchange,

acceptances, or other evidences of indebtedness;

(d) issues letters of credit and negotiates drafts drawn there under;

(e) provides trust or fiduciary services;

(f) finances foreign exchange transactions; or

(g) enters into, purchases, or disposes of finance leases or leased

assets



WHETHER THE FOLLOWING

ENTITIES WILL BE DEPOSITORY

INSTITUTIONS?

Co-operative Banks

Payments Banks

Small Finance Banks

NBFCs


CUSTODIAL INSTITUTION & SPECIFIED INSURANCE COMPANY

Custodial institution means 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 twenty per cent 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

Specified insurance company means 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



WHETHER NON LIFE

INSURANCE COMPANIES ARE

COVERED UNDER SPECIFIED

INSURANCE COMPANIES

DEFINITION?


INVESTMENT ENTITY

A. Entity’s primary business consists of one or more of the

following activities 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; and

the gross income from such business activities has to be equal

or more than 50% of the gross income over a three year

period

B. Entity’s primary income is from business of investing,

reinvesting, or trading in financial assets and such entity

managed by another entity that is a depository institution, a

custodial institution, an investment entity or a specified

insurance company and also the gross income of the entity

from such business activities is more than 50% of the entities

gross income over a three year period



WHETHER THE FOLLOWING

ENTITIES WILL BE

INVESTMENT ENTITIES?

Alternate Investment Funds

Trusts


GIIN REGISTRATION

Online GIIN Registration (Form 8957) with the IRS

GIIN has a 19-character identification number - XXXXXX.XXXXX.XX.XXX (For

eg: State Bank of India’s GIIN is 68D1E5.99999.SL.356)

First 6 characters represent FATCA ID, 8-12 characters represent type of FFI,

14-15 characters represent Category of FFI, 17-19 characters represent

Country code based on ISO 3166. These characters will never contain the letter

“O”

Type of FFI registrations: Single

Lead of Expanded Affiliate Group

Member of an Expanded Affiliate Group

Sponsoring Entity

FFI type: LE - a lead FI

SL - a single FI

ME - a member FI

BR - an FI branch

SP -a sponsoring entity

SF - a sponsored entity that is a sponsored fund

SD - a sponsored entity that is a sponsored direct reporting NFFE

SS - a sponsored entity that is a sponsored subsidiary

SB - a sponsored subsidiary’s branch



WHETHER SEPARATE

GIINs TO BE OBTAINED

FOR THE ENTITY AND ITS

BRANCH/ES?


REGISTRATION WITH THE IRS

Total FFIs in approved status as on October 2021 – 4,04,202

Source : IRS website

CAYMAN ISLANDS, 82,309 , 20%

BRAZIL, 36,588 , 9%

UNITED KINGDOM, 36,172 , 9%

JAPAN, 25,614 , 6%

LUXEMBOURG, 19,017 , 5%

VIRGIN ISLANDS (BRITISH), 14,880 ,

4%

CANADA, 14,301 , 4%

GUERNSEY, 9,253 , 2%

OTHERS, 1,66,068 , 41%

FFIs REGISTERED WITH IRS


REGISTRATION WITH IRS INDIAN FFIs

The above information is pulled out from IRS website based on the names of the entities (rather than the business activities of the

entities). Accordingly, the above chart is prepared based on “best efforts” basis and does not provide the exact sub-classification status

of FFIs.

Source : IRS websiteTotal Indian FFIs in approved status as on October 2021 – 3,229

Banks/Co-op

Bank/Payments Bank, 242,

8%

Brokerage Companies, 622,

19%

Funds, 722, 22%Investment Entities, 802,

25%

Specified Insurance

Companies, 29, 1%

Sponsoring Entities, 62, 2%

Trusts, 750, 23%


DUE DILIGENCE TO IDENTIFY ACCOUNTS HOLDERS

Financial

Accounts

Financial

Accounts

Financial

Accounts

Financial

Accounts

Individuals Entities

New

Pre-

Existing

• Depository Institution: Depository accounts

• Custodial Institution: Custodial accounts

• Specified Insurance Co: Cash Value

Insurance and Annuity Account holders

• Investment Entity: Debt or Equity Interests

• Partnership: Partner in capital/profit

• Company: Shareholders

• Trust: Settlor, beneficiaries, trustees and

any natural person exercising ultimate

effective control

Due Diligence procedure to categorize accounts, to verify FATCA status, to identify US accounts/other reportable accounts

Financial Accounts are defined as accounts maintained by a FFI and includes:


REPORTING

CBDT launched new reporting portal wef

9 April 2018 (https://report.insight.gov.in)

Local registration is mandatory by

obtaining Income Tax Department

Reporting Entity Identification Number

(ITDREIN)

Form 61B to be filed on or before 31

May, immediately following the calendar

year:

Part A – Statement Details

Part B – Report Details

Consolidated report for FATCA and CRS

reporting

NIL report to be filed mandatorily


REPORTING UNDER FATCA & CRS*

* Source : Guidance Note on FATCA & CRS


TAX AUDIT REPORT

Revised Form 3CD inserted Clause 42 w.e.f. FY 2017-18

ICAI issued Implementation Guide in August 2018 – Pages 66 to 77

contains the details on FATCA and CRS



Classification of entity not

done, how to report in Form

3CD?

Details of transactions to be

reported in Form 3CD –

Calendar year or Financial

year?


INCOME TAX RETURNS ITR-2, ITR-3, ITR-5, ITR-6 & ITR-7


CRS’ RECENT DEVELOPMENTS

The Global Forum (GF) is a multilateral framework on Transparency

and Exchange of Information for Tax Purposes

India is one of the members of the GF

GF monitors and peer reviews the implementation of Automatic

Exchange Of Information (AEOI/CRS)

GF developed the Terms of Reference and Methodology for the full

peer reviews of the implementation of the CRS

The key objectives of GF is to ensure that the CRS has been

implemented effectively and to ensure that FFIs are properly carrying

out their obligations

2021 Global Forum plenary meeting will be held virtually from 17

to 19 November 2021


TERMS OF REFERENCE – AEOI REVIEWS*

* Source : www.oecd.org

To check the effectiveness of AEOI / CRS, three Core Requirements (CR) have been

identified. CRs have been broken into sub-requirements (SRs):

o CR1 : Jurisdictions to ensure all Reporting Financials Institutions (RFIs) apply due

diligence procedure and report

• SR1.1 : Define the scope of RFIs

• SR1.2 : Define the Financial Accounts to be reported by incorporating the due

diligence procedures

• SR1.3 : Report the information

• SR1.4 : Enforcement

• SR1.5 : Ensuring effectiveness domestically

• SR1.6 : International collaboration to ensure effectiveness

CR2 : Jurisdictions should exchange with all Interested Appropriate Partners in a

timely manner

• SR2.1 & 2.2 : Putting in place the exchange agreements on time

• SR2.3 : In accordance with the requirements of the Model CAA

• SR2.4 : Preparing and validating the information

• SRs2.5 to 2.8 : Transmitting the information

• SR2.9 : Providing corrections, amendment or additions

CR3 : Jurisdictions should keep the information exchanged confidential and

properly safeguarded

• SR3.1 : Meet the confidentiality and data safeguard requirements


PEER REVIEWS OF THE AEOI STANDARD’S IMPLEMENTATION*

* As of 2 December 2020

Source : www.oecd.org



Recently, India received its

third tranche of Indians’

accounts in Swiss Banks

under AEOI / CRS


NON-COMPLIANCE OF FATCA & CRS

30% withholding

Penalties under

Income Tax Laws

Adverse impact under

Banking Regulation Act, 1949

Adverse impact under Reserve Bank of India Act,

1934

Criminal Conviction



30% withholding is applicable on all US source income

Income Tax Laws provide for penalties for non compliance:o Failure to furnish the statement in Form 61B to attract penalty of INR 500

per day of failure

o Failure to furnish the statement in Form 61B after a notice is served to

attract a penalty of INR 1,000 per day of failure

o Furnishing of inaccurate information in Form 61B to attract a penalty of

INR 50,000

Most of the financial institutions are regulated by a regulator

(RBI/ SEBI/ IRDA, etc) who have been vested with the power

to license, authorize, register, regulate or supervise their

activities, also has powers to penalize for any contravention or

non-compliance of FATCA and CRS



RBI’s circular dated August 28, 2015



RBI’s circular dated August 28, 2015 (Contd)



FATCA’s first criminal conviction US’ Department of Justice (DOJ) announced that it had made

its first criminal conviction for violating FATCA in September

2018

Adrian Baron (Adrian), the former Chief Business Officer and

former Chief Executive Officer of Loyal Bank Ltd

Loyal Bank, an off-shore bank with offices in Budapest,

Hungary and Saint Vincent and the Grenadines

An undercover agent enticed Adrian to use, to evade

requirements to report the assets of individuals with US

indicia to their home government or directly to U.S. tax

authorities

Adrian was extradited to the US in July 2018

The case relied heavily on cooperation with foreign

authorities, including the City of London Police; the UK’s

Financial Conduct Authority and the Hungarian National

Bureau of Investigation

Adrian faces five years in prison


PANAMA PAPERS (2016)

The anonymous source who leaked the papers did so from Panama,

hence the name Panama Papers

The Panama Papers refer to an unprecedented leak

of 11.5 million files from the database of the world’s

fourth biggest offshore law firm, Mossack Fonseca

The files exposed a network of 214,000 tax havens

involving wealthy people, public officials, and entities

from 200 nations

More than 36,000 files relates to India

Undeclared assets totalling Rs 20,078 crores have

been identified by CBDT till June 2021*

Till June 2021, 46 prosecutions have been filed in

various courts under the Black Money Act and the

Income Tax Act. In 83 cases, searches and surveys

have been conducted.

*ICIJ & The Indian Express


BAHAMAS LEAKS (2016)

The anonymous source who leaked the papers did so from Panama,

hence the name Panama Papers

Bahamas Leaks are 1.3 million internal files from the

company register of the Bahamas

The files provided data on 175,888 shell companies

and trusts that were established in The Bahamas

475 India-related files linked to corporate

personalities across sectors such as mines and

metals, electronics, real estate, media and

entertainment



PARADISE PAPERS (2017)

The name "Paradise Papers" reflects "the idyllic profiles of many

of the offshore jurisdictions whose workings are unveiled", so-

called tax havens, or "tax paradises"

Paradise Papers had cache of 13.4 million files, a

bulk of the records are from Bermuda law firm,

Appleby

Names of more than 120,000 people and companies

Files capture around 180 nations

714 files relate to India



PANDORA PAPERS (OCTOBER 2021)

There are 11.9 million leaked files from 14 global

corporate services firm

The files exposed about 29,000 off-the-shelf

companies and trusts of wealthy elites from more

than 200 countries and territories

There are atleast 380 persons of Indian nationality

As per CBDT’s Press Release dated 4 October 2021,

undisclosed credits of Rs. 20,352 crores

approximately (status as on 15.09.2021) have been

detected in the investigations carried out in the

Panama and Paradise Papers


The name “Pandora” was given as these documents may prove to

open a Pandora’s box of investigations and lawsuits in the future


QUESTIONS


FURTHER DETAILS

FOR FURTHER DETAILS ON FATCA AND CRS, PLEASE READ

MY ARTICLE WHICH WAS PUBLISHED IN “THE CHARTERED

ACCOUNTANT” APRIL 2018 ISSUE

https://resource.cdn.icai.org/49465cajournal-apr18-23.pdf

https://resource.cdn.icai.org/49465cajournal-apr18-23.pdf


For information purposes only

This presentation material is intended for informational purposes only

and does not constitute tax, legal or professional advice

Recipients should not act or rely on any information contained in this

presentation material without seeking appropriate legal, tax, or other

professional advice on the particular facts and circumstances at issue

The information is “AS IS” and I make no express or implied

representations or warranties or guarantee as to the completeness,

accuracy or timeliness of this information. Your use of this information

is at your own risk and responsibility

Note : Images used in the PPT belong to the respective copyright owners


CA Vijay Kotha

Ph : 9916327272

Email: [email protected]

[email protected]


INTER GOVERNMENTAL AGREEMENTS

FFI

No IGA : FATCA

Regulation

IGA Model 1 -

India, UK,

Singapore, etc

RFI

Revenue

Authority

IGA Model 2 -Japan, Hong Kong, etc

FFI

Revenue

Authority

Group

Request

TIEA

Reporting non-

consenting /

recalcitrant

account holders

on aggregated

basis

Reciprocal

Info upon

Group

Request

Need

consent

Reporting Reporting

Automatic

Exchange


FDAP INCOME

Fixed, Determinable and Annual or Periodic Payments (FDAP)

Dividends

Interest

Annuities

Real property income, such as rents, other than gains from the

sale of real property

Royalties

A sales commission paid or credited monthly

A commission paid for a single transaction

Full list at: http://www.irs.gov/Individuals/International-Taxpayers/Fixed,-

Determinable,-Annual,-Periodical-(FDAP)-Income


CRS COMMITMENTS – BY JURISDICTION

FATCA & CRS OVERVIEW & UPDATES

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