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), mutual funds (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.
|FATCA IN, US INVESTORS OUT|
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.