Asset management companies (AMCs) together have roped in global consultant KPMG to help them meet the complex requirements under the Foreign Account Tax Compliance Act (Fatca), a new anti-tax avoidance law in the US. According to those in the sector, the Rs 10-lakh crore mutual fund segment has been struggling with the extensive disclosures to be made under the new law, which has came into effect from July 1 globally.
The decision to appoint KPMG was taken by the Association of Mutual Funds of India (Amfi), said a source. "Rather than 40 fund houses going to each of their consultants, we at Amfi decided to seek the views of one consulting firm and then share the view with everyone in the industry. The idea is to keep it simple and standard for the industry," said a senior Amfi official on condition of anonymity.
Fatca, expected to be implemented in India by the end of the year, aims to track investments made by US citizens outside the US and bring it under the US tax-net. Financial institutions such as mutual funds receiving money from US investors will have to make extensive disclosures about the investors and the investments made to the US tax authorities.
The documentation process is expected to push up costs for the mutual fund industry. Among the measures suggested by KPMG include implementing single know-your-customer (KYC) norms across Securities and Exchange Board of India (Sebi) intermediaries capturing information of Fatca-impacted clients, integration of common account numbers for enabling Fatca compliance, and data sharing of the relevant customer profile to reduce duplication of information.
"The possible hurdles in implementing these measures could be the integration of the KRAs (KYC Registration Agencies) to facilitate Fatca compliance and client consent for confidential data or information sharing at the industry level," said Himanish Chaudhuri, partner (risk consulting) at KPMG in India.
The sector is also mulling the introduction of a declaration form for identifying investors with income generated in the US. While most of the investors would likely fall outside of this income bracket, the sector does not want to leave any stone unturned.
"This is just a precautionary measure on our part in case the investor does fall under this income bracket at some future date. The industry is still working on the format of the form," said a senior official of a domestic mutual fund.
However, not all in the segment are in favour of the declaration form. "The mere printing of the declaration form will not absolve fund houses from the responsibility of making disclosures. People are seeking legal guidance on this before going ahead with it," said Anutosh Bose, chief operating officer, LIC Nomura Mutual Fund Asset Management.
At present, all disclosures have to be made directly to the US tax authorities, which would mean establishing physical presence in the US and a rise in costs which the industry is not yet ready to meet. India is expected to sign a Intergovernmental Agreement (IGA) with the US later this year. Sector officials said the signing of the IGA would mean the segment only needs to make disclosures to the Indian government, which in turn would send the information to the US tax authorities.