24 August 2015
2013mber 2012
EY Tax Alert
Central Board of Direct Taxes notifies Income-tax (11th
Amendment) Rules, 2015 for furnishing statement of reportable
accounts as per section 285BA of the Income-tax Act, 1961
Executive summary
Tax Alerts cover significant
tax news, developments and
changes in legislation that
affect Indian businesses. They
act as technical summaries to
keep you on top of the latest
tax issues. For more
information, please contact
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Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 by the
Government of the United States of America (USA) (Govt. of US) with a view to
combat tax evasion by U.S. citizens and residents through the use of offshore
accounts.
FATCA requires financial institutions globally to share information about the
financial accounts held by U.S. citizens/ residents for tax purposes to the Internal
Revenue Services (IRS) of the Govt. of US.
On similar lines as FATCA, Organization for Economic Co-operation and
Development (OECD) issued a standard for Automatic Exchange of Information
(AEOI) in tax matters called as ‘Common Reporting Standard’ (CRS). CRS requires
financial institutions globally to share information about the financial accounts held
by the non-residents (other than U.S. citizens and residents for tax purpose).
To enable financial institutions in India to comply with FATCA and CRS, the
Government of India (GOI) signed the Inter-Governmental Agreement (India IGA)
with the Govt. of US on 9 July 2015 and joined the Multilateral Competent
Authority Agreement (MCAA) on 3 June 2015.
For implementing India IGA and MCAA, necessary amendments were made to
section 285BA of the Income-tax Act, 1961 (Act). In exercise of the power
conferred by section 285BA of the Act, Central Government notified the
Income-tax (11th Amendment) Rules, 2015 (Rules) to provide for registration of
persons, due diligence procedures and maintenance and reporting of information
by the financial institutions in India.
This alert summarises the key provisions1 of the Rules.
Background
►
As per section 285BA(1)(k) of the Act, a
‘reporting financial institution’ (RFI) is
required to furnish a statement of
‘reportable accounts’ maintained by it.
►
Further, section 285BA(7) of the Act
provides that Central Government may,
by rules, specify the:
► the ‘RFI’ to be registered with the
prescribed income-tax authority;
► the nature of information and the
manner in which such information
shall be maintained by the ‘RFI’; and
► the due diligence to be carried out
by the ‘RFI’ for the purpose of
identification of any ‘reportable
accounts’
►
In exercise of the powers conferred by
section 285BA(7) of the Act, the Central
Government notified the Rules vide
Notification no. 62 dated 7 August 2015.
►
The Rules comprise of:
► Rule114F – Definitions
► Rule 114G – Information to be
maintained and reported and
reporting timelines
► Rule 114H – Due diligence
requirements and timelines
►
This alert highlights the key provisions of
Rule 114F, Rule 114G and Rule 114H.
Rule 114F – Definitions
►
►
‘RFI’ [Rule 114F(7)] means:
► a financial institution [Rule 114F(3)]
(other than a non-reporting financial
institution3) which is resident in
India, but excludes any branch of
such institution, that is located
outside India; and
► any branch, of a financial institution
(other than a non-reporting financial
institution) which is not resident in
India, if that branch is located in
India
►
‘Financial institution’ [Rule 114F(3)]
means a custodial institution, a
depository institution, an investment
entity, or a specified insurance
company4.
►
‘Reportable account’ [Rule 114F(6)]
means a financial account [Rule 114F(1)]
which has been identified, pursuant to
the due diligence procedures provided in
Rule 114H, as held by,► a reportable person [Rule 114(8)];
or
► an entity, not based in USA, with
one or more controlling persons that
is a specified U.S. person; or
► a passive non-financial entity with
one or more controlling persons that
are resident of a country outside
India (except USA)
►
‘Financial account’ [Rule 114F(1)] means
an account (other than an excluded
account5) maintained by a financial
institution, and includes► a depository account;
Some of the key definitions are
summarised as under2:
1
The Rules are extremely complex in wording. Though, in
this Alert an attempt has been made to highlight key
provisions. Any position may be taken only after
consulting the local/global experts.
3
2
4
Please note that the terms mentioned herein below are
not defined in detail as compared to the Rules.
Accordingly, the reader is advised to refer the Rules
issued for the detailed understanding.
A ‘Non Reporting Financial institution’ is elaborately
defined in Rule 114F(5). It has 13 categories of
institutions each of which has its own elaborate
definition.
Each of these categories has its own long and elaborate
definition.
5
Numerous categories of excluded accounts are
contained in explanation (h) to Rule 114F(1).
►
►
►
►
a custodial account;
in the case of an investment entity
(in certain situations), any equity or
debt interest in the financial
institution;
any cash value insurance contract
and any annuity contract issued or
maintained by a financial institution
‘Reportable person’ [Rule 114F(8)]
means,
► one or more specified U.S. persons
[Rule 114F(9)]; or
► one or more persons that is a
resident of any country or territory
outside India (except the USA) under
the tax laws of such country or
territory
►
‘Specified U.S. person’ [Rule 114F(9)]
means a U.S. Person [Rule 114F(10)].
►
‘U.S. person’ means [Rule 114F(10)],► an individual, being a citizen or
resident of the USA;
► a partnership or corporation
organized in the USA or under the
laws of the USA or any State
thereof;
► a trust if,► a court within the USA would
have authority under applicable
law to render orders or
judgments concerning
substantially all issues
regarding administration of the
trust; and
► one or more U.S. persons have
the authority to control all
substantial decisions of the
trust; or
► an estate of a decedent who was a
citizen or resident of the USA
►
‘U.S. reportable account’
[Rule 114F(11)]means a financial
account maintained by a RFI and,
pursuant to the due diligence procedures
provided in Rule 114H, is identified to be
held by one or more specified U.S.
persons or by an entity not based in the
USA with one or more controlling
persons which is a specified U.S. Person.
►
‘Other reportable account’
[Rule 114H(2)(g)] means a reportable
account which is not a U.S. reportable
account.
Rule 114G – Information to
be maintained and reported
Information to be maintained:
►
RFI shall maintain the following
information with respect to each account
which has been identified as such
pursuant to due diligence procedures
specified in Rule 114H of the Rules, as
‘reportable account’:
1. the name, address, taxpayer
identification number (TIN) assigned
to the account holder by the country
or territory of his residence for tax
purposes and date and place of birth
(in the case of an individual);
2.
in the case of any entity which has
one or more controlling persons that
are reportable persons:
a. the name and address of the
entity, TIN assigned to the
entity by the country or
territory of its residence; and
b. the name, address, date and
place of birth of each such
controlling person and TIN
assigned to such controlling
person by the country or
territory of his residence
3.
the account number (or functional
equivalent in the absence of an
account number);
4.
the account balance or value
(including, in the case of a cash
value insurance contract or annuity
contract, the cash value or
surrender value) at the end of
relevant calendar year or, if the
account was closed during such
year, immediately before closure;
5.
in the case of any custodial
account,a. the total gross amount of
interest, dividends and other
income generated with respect
to the assets held in the
account, in each case paid or
credited to the account (or with
respect to the account) during
the calendar year; and
b. the total gross proceeds from
the sale or redemption of
financial assets paid or credited
to the account during the
calendar year with respect to
which the RFI acted as a
custodian, broker, nominee, or
otherwise as an agent for the
account holder;
6.
in the case of any depository
account, the total gross amount of
interest paid or credited to the
account during the relevant
calendar year;
7.
in the case of any account other
than that referred to in 5 or 6, the
total gross amount paid or credited
to the account holder with respect
to the account during the relevant
calendar year with respect to which
the RFI is the obligor or debtor,
including the aggregate amount of
any redemption payments made to
the account holder during the
relevant calendar year; and
8.
in the case of any account held by a
non-participating financial
institution, for calendar year 2015
and 2016, the name of each non-
participating financial institution to
which payments have been made
and the aggregate amount of such
payments
►
If the person being an account holder is a
resident of more than one country, then
RFI shall maintain TIN in respect of each
such country.
Information to be reported in statement of
reportable account:
►
►
Information to be reported is different
for different calender year:
►
For the calender year 2014: RFI shall
furnish information mentioned at sr.
no. 1 to 4 in respect of those
‘reportable accounts’ which are U.S.
reportable accounts.
►
For the calender year 2015: RFI shall
furnish information mentioned at sr.
no. 1 to 4, 5(a), 6, 7, 8 in respect of
those ‘reportable accounts’ which are
U.S. reportable accounts.
►
For the calender year 2016: RFI shall
furnish information mentioned at sr.
no. 1 to 8 in respect of all ‘reportable
accounts’.
►
For the calender year 2017 onwards:
RFI shall furnish information
mentioned at sr. no. 1 to 7 in respect
of all ‘reportable accounts’.
However, the following information is not
required to be reported:
►
For the calender year 2014, TIN of
the U.S. reportable account is not
required to be reported if the TIN is
not in the records of the RFI as on
30 June 2014.
►
If the reportable account is a preexisting account, TIN and date of
birth is not required to be reported
►
if they are not available. But RFI
shall obtain it by 31 December 2016
and shall report it with respect to
calender year 2017 and subsequent
year.
►
The statement of reportable account
shall be signed, verified and furnished by
the Designated Director8 of the RFI on
the basis of information available with
the institution.
Place of birth is not required to be
reported unless it is available in the
electronica searchable data
maintained by the RFI.
►
Where the RFI is a non-resident, the
statement of reportable account may be
signed, verified and furnished by a
person who holds a valid power of
attorney from such Designated Director.
►
The Designated Director or the person
holding a valid power of attorney from
such Designated Director shall digitally
sign the statement of reportable
account.
►
RFI shall obtain Income Tax Reporting
Entity Identification Number (ITDREIN)
from the Principal Director General of
Income-tax (Systems) and quote the
same in Form No. 61B.
►
However, no guidelines have been issued
to date on how to register and obtain
ITDREIN. In such situation, RFI may
quote a dummy number in Form No. 61B.
►
Form No. 61B includes:
1. Part A – Statement Details - RFI are
required to mention its name, Income
Tax Department Reporting Entity
Identification Number, Global
Intermediary Identification Number,
type of statement, principal officer
details etc.
Procedural aspects:
►
►
►
►
6
RFI shall furnish the statement of
reportable account under
section 285BA(1)(K) of the Act with
respect to each account which has been
identified pursuant to due diligence
procedures specified in Rule 114H of the
Rules, as ‘reportable accounts’.
Where no accounts are identified as
‘reportable account’ pursuant to due
diligence procedures then RFI shall
furnish ‘NIL’ statement of reportable
account.
Statement of reportable account shall be
furnished in Form No. 61B for every
calender year by 31st May following that
year. However, statement of reportable
account for the calender year 2014
shall be furnished by 31 August 20156.
The statement of reportable account
shall be furnished electronically under a
digital signature to the Director of
Income-tax (Intelligence and Criminal
Investigation) or the Joint Director of
Income-tax (Intelligence and Criminal
Investigation)7.
2. Part B – Report Details - RFI are
required to mention the account
details, branch details, account
summary, Individual details (for
individual account holder), legal
entity details (for entity account
Practically however, as time limits for due diligence
requirements can stretch beyond this date, each RFI may
after evaluating its own circumstances consider if it is
able to file a ‘Nil’ report by this date.
8
Each RFI is required to appoint a Designated Director
and Principal Officer whose details are to be
communicated to the Principal Commissioner of
7
The schema for the same has not been released till
24 August 2015.
Income-tax (Systems).
holder), controlling persons details
(for each controlling person of the
entity etc.
►
Rule 114 H- Due diligence
requirement
►
►
►
►
►
►
In case of other reportable account:
For the purpose of due diligence,
financial accounts maintained by the RFI
are classified into ‘pre-existing accounts’
and ‘new accounts’.
Pre-existing accounts means financial
accounts maintained by the RFI:
► In case of a U.S. reportable account
– as on 30 June 2014; and
► In case of other reportable account as on 31 December 2015.
►
►
New accounts means financial accounts
maintained by the RFI:
► In case of a U.S. reportable account
– opened on or after 1 July 2014;
and;
► In case of other reportable account –
opened on or after 1 January 2016.
Following pre-existing individual accounts
are not required to be reviewed,
identified and reported:
Following pre-existing entity accounts are
not required to be reviewed, identified
and reported:
►
where the balance or value as on
30 June 2014 does not exceed an
amount equivalent to fifty thousand
U.S. dollars; or
where the balance or value as on
30 June 2014 does not exceed an
amount equivalent to two hundred
and fifty thousand U.S. dollars
In case of other reportable account:
►
►
where the balance or value as on
30 June 2014 does not exceed an
amount equivalent to two hundred
and fifty thousand U.S. dollars
Following new individual accounts are not
required to be reviewed, identified and
reported:
In case of U.S. reportable account:
►
In case of U.S. reportable account:
►
which is a cash value insurance
contract or an annuity contract, the
RFI, under any other law for the
time being in force in India, is
prevented from selling such
contract to a person who is not a
resident of India for tax purposes
In case of U.S. reportable account:
Pre-existing accounts are further
classified into pre-existing individual
accounts (accounts held by individuals)
and pre-existing entity accounts (account
held by entities).
Similarly, new accounts are further
classified into new individual accounts
(accounts held by individuals) and new
entity accounts (account held by
entities).
which is a cash value insurance
contract or an annuity contract, the
balance or value does not exceed an
amount equivalent to two hundred
and fifty thousand U.S. dollars as on
the 30th June, 2014
►
a depository account unless the
account balance exceeds an amount
equivalent to fifty thousand U.S.
dollars at the end of any calendar
year;
a cash value insurance contract
unless the cash value exceeds an
amount equivalent to fifty thousand
U.S. dollars at the end of any
calendar year
►
For the purposes of determining the
aggregate balance or value of financial
accounts:
► a RFI shall be required to aggregate
all financial accounts maintained by
it, or by a related entity, but only to
the extent that the computerised
systems of that RFI links the
financial accounts by reference to a
data element such as client number
or taxpayer identification number,
and allows account balances or
values to be aggregated;
► any account maintained in rupees or
in any permissible currency (other
than the U.S. dollar) as designated
by the Reserve Bank of India shall be
converted to U.S. dollar at the end
of the reporting period as per the
reference rates of the Reserve Bank
of India and such converted amount
in the U.S. dollar shall be used for
determining the balance or value of
a financial account provided in such
rules;
► each holder of a jointly held
financial account shall be attributed
the entire balance or value of the
jointly held financial account for
purposes of applying the
aggregation requirements;
► held by a person, to determine
whether a financial account is a high
value account, a RFI shall also be
required, in the case of any financial
accounts that a relationship
manager knows, or has reason to
know, are directly or indirectly
owned, controlled, or established
(other than in a fiduciary capacity)
by the same person, to aggregate all
such accounts
Due diligence procedure for pre-existing
individual accounts:
In case of low value account9
►
RFI are required to electronically search
the data maintained by it to identify
whether the account holder is a
‘reportable person’ or not.
In case of high value account10
►
In addition to electronic search, in
certain situations RFI are required to
undertake paper record search and
relationship manager enquiry to identify
whether the account holder is a
‘reportable person’ or not.
Due diligence procedure for pre-existing entity
accounts:
►
RFI are required to review information
maintained by it for regulatory or
customer relationship purposes and are
also required to obtain self-certification
from an account holder to identify
whether the account holder is a
‘reportable person’ or not.
Due diligence procedure for new individual
accounts:
In case of U.S. reportable account:
►
RFI shall obtain a self-certification upon
account opening or within (or within 90
days from the end of the calender year)
from the account holder to determine
whether the account holder is a
reportable person or not.
9
in case of U.S. reportable account, where account
balance or value exceeds an amount equivalent to fifty
thousand U.S. dollars as on 30 June 2014 but does not
exceed an amount equivalent to one million U.S. dollars
and in case of other reportable account, where the
account balance or value exceeds an amount equivalent
to one million U.S. dollar as on 31 December 2015
10
in case of U.S. reportable account, where account
balance or value exceeds an amount equivalent to one
million U.S. dollars as on 30 June 2014 or 31 December
of any subsequent year and in case of other reportable
account, where the account balance or value exceeds an
amount equivalent to one million U.S. dollar as on
31 December 2015 or 31 December of any subsequent
year
prescribed time limit - A sum of one
hundred rupees shall be levied on
RFI for everyday during which such
failure continues
In case of other reportable account:
►
RFI shall obtain a self-certification upon
account opening from the account holder
to determine whether the account holder
is a reportable person or not.
►
Due diligence procedure for new entity
accounts:
►
RFI shall obtain a self-certification which
may be a part of account opening
documentation that allows it to
determine whether an account is a
reportable account or not.
Alternative procedures:
►
Alternative procedures have been
prescribed for the purpose of due
diligence of U.S. reportable accounts
opened on or after 1 July 2014 but
before the date of entry into force of the
India IGA.
►
►
Under these procedures, RFI have time
upto one year from the date of the IGA
coming into force to collect information/
self-certification from the account
holders and reporting of prescribed
information.
►
As an alternative to these procedures, in
respect of new entity accounts which are
opened on or after 1 July 2014 and
before 1 January 2015, the RFI may
treat such accounts as pre-existing
accounts and apply the due diligence
procedures specified for pre-existing
entity accounts (discussed above).
Penalty implications:
►
Section 271FA of the Act provides for
the levy of penalty on RFI for several
non-compliances as under:
►
For failure to furnish a statement of
reportable account under
section 285BA of the Act within the
Where such RFI who was required to
furnish a statement reportable
account has not furnished the same
within the prescribed time limit and
Income-tax authority has issued a
notice requiring a RFI to furnish a
statement within a period of 30 days
from the date of service of such
notice – for failure to furnish a
statement within the time limit
prescribed in the notice, a sum of
five hundred rupees shall be levied
for everyday during which such
failure continues, beginning from
the day immediately following the
day on which the time specified in
the notice expires
Section 271FAA of the Act provides for
the levy of penalty of INR 50,000 on the
RFI for furnishing inaccurate information
in the statement of reportable account
and where:
► inaccuracy is due to failure to
comply with due diligence
requirements or is deliberate on the
part of the RFI; or
► the RFI knows of the inaccuracy at
the time of furnishing the statement
of reportable account, but does not
inform the prescribed income-tax
authority or such other authority or
agency; or
► the RFI discovers the inaccuracy
after the statement of reportable
account is furnished and fails to
inform and furnish the correct
information to the income-tax
authority or any other authority or
agency within 10 days
Comments
India is one of the first countries to
have adopted a combined
approach for the implementation
of India IGA and MCAA.
Implementation of these reporting
requirements is complex requiring
elaborate processes which interalia can involve changes to be
made to information technology
systems.
RFIs now will have to on a war
footing, make sure that they are
ready at the very earliest to
comply with the reporting
requirements.
Some RFIs will have to report
information in Form 61B by
31 August 2015.
It is heard that the Central Board
of Direct taxes will come out with
detailed guidance to help
taxpayers to implement these
rules. Certain RFIs however may
not have the luxury to wait for this
guidance.
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