You are here: Home » Markets » Mutual Funds
Business Standard

Despite Fatca clearance, MFs shun investment from US, Canada

Fatca was introduced in 2010, to curb offshore tax evasion by US entities and citizens

Sneha Padiyath  |  Mumbai 

Image via Shutterstock

Even after the signing of a treaty between the governments of India and America to comply with the latter's Foreign Account Tax Compliance Act (Fatca), (MFs) continue to remain wary of accepting investments from their or from Canada.

“The compliance requirement is very stringent and involves high costs. At present, we are not accepting any investments from the US or Canada until we figure out a way to be compliant and in a manner that does not escalate costs,” said A Balasubramanian, chief executive at Birla Sun Life Asset Management.

Fatca was introduced in 2010, to curb offshore tax evasion by US entities and citizens. The Indo-US treaty was earlier this month. The Fatca guidelines require foreign financial institutions receiving money from US investors to report the offshore holdings of those investors to American tax authorities. These institutions have to make various declarations, such as names and addresses of the investors and details of their balances, receipts and withdrawals. Fund houses will also have to conduct the Know-Your-Customer compliance requirement.

Any financial institution failing to comply will have to pay a 30 per cent penalty on all its US revenues, including dividend, interest, fees and sales.

  • Despite FATCA clearance, Indian MFs shun investments from US and Canada
  • Total size of investments from the US and Canada about Rs 600 crore, according to industry estimates
  • Higher compliance and operating costs discouraging mutual funds
  • New application forms introduced, based on change in reporting format

At present, the reporting is to the Indian tax authorities, who send it on to the US ones. Sector officials said they were in the process of smoothening the process of compliance, in consultation with entities such as PricewaterhouseCoopers and KPMG. A new application form has been introduced for such investors.

“Even before the deadline, most fund houses were not accepting money from the US or Canada. Signing of Fatca (the treaty) has not changed our decision because all that has changed is the reporting format,” said R S Srinivas Jain, executive director at SBI MF.

The agreement's signing between the two governments was to be held in October-November last year but lack of clarity about the reporting format led to a delay. Financial institutions had also made representations for a reciprocity clause with the US tax authorities but this was declined.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Wed, July 22 2015. 22:45 IST