US-India FATCA Agreement 1: What to Expect from Bilateral FATCA agreement between the US and India

Since the Foreign Account Tax Compliance Act (FATCA) came out in 2010, US Government has already signed Bilateral Agreements with 9 countries until June 2013. The November 8, 2012 Press Release mentioned that the US is engaged with more than 50 countries (including India) to implement FATCA. After analyzing all 9 bilateral agreements entered till date with UK, Denmark, Mexico, Ireland, Switzerland, Norway, Spain, Germany and Japan, I have pretty good idea about what will be included in the US-India FATCA Agreement.
Based on review and research of all 9 agreements, I would assume that the US and India FATCA agreement would include 10 Articles and two Annexes as under:
Article 1  – Definitions
Article 2  – Obligations to obtain & exchange information with respect to reportable account
Article 3  – Time & manner of exchange of information
Article 4  – Application of FATCA to respective countries’ Financial Institutions
Article 5  – Collaboration on compliance and enforcement
Article 6  – Mutual commitment to enhance effectiveness of info. exchange & transparency
Article 7   – Consistency in application of FATCA to partner jurisdiction
Article 8  – Consultations & Amendments
Article 9  – Annexes
Article 10- Term of Agreement
Annex I: Procedures for identifying and reporting on US Reportable accounts and on payments to certain non-participating financial institution
I.    General
II.   Pre-existing Individual Accounts

A.  Accounts not required to be reviewed, identified or reported
B.  Review procedures for accounts with balance or value over $50,000 to $1 million
C.  Additional procedures for lower value accounts
D.  Enhanced procedures for  accounts with balance exceeding US$ 1 million
E.  Additional procedures for higher value accounts

III.  New Individual Accounts
IV.   Pre-existing Entity Accounts
V.    New Entity Accounts
VI.   Special Rules and definitions
Annex II:    Non-Reporting countries’ Financial Institutions and Products
I.     Exempt  Beneficial Owners
II.   Deemed Compliance Financial Institutions
III.  Exempt Product

Switzerland and Japan entered into Model-2 intergovernmental agreement with the US whereas all other countries entered Model-1 intergovernmental agreement. The articles and annexes above are from Model 1. Articles under Model-2 covered all major provisions and both Annexes, but may have different titles for Articles .

If you want to understand the provisions, just open any intergovernmental agreement (e.g. UK or Germany) and cut and paste that country’s name with India and you will have a good idea about what to expect from the US and India FATCA agreement.

A lot of NRIs are still in denial hoping that India may not enter into an agreement and their accounts may not be reported. To them, I just want to tell that if Switzerland, one of the most secretive banking jurisdiction, has entered into an agreement, there are pretty good chance that India will as well. Also, there are so many examples of NRIs being charged, fined and imprisoned for failure to comply with FBAR reporting requirements. FATCA is the next step.

So the question is not “If” but it is “When” India enters into an agreement with the USA. It is just a matter of time. And, it is VERY VERY important for NRIs to ditch the habit of “Wait and Watch” or “I am not the only one” or “Let’s see what happens to others” or “will face when it comes” and be proactive NOW to understand the implications of the FATCA on their investments in India or anywhere outside USA. Else, it could be too late.

For now, the most important and relevant FATCA provisions for NRIs to comprehend are few definitions, reporting date and time, consistency, provisions related to “Preexisting accounts” and how FATCA, FBAR and 8938 are related, to be covered in the next blog.

Please note the source of content is IRS and Treasury Department website and views are personal and the US and India has not yet entered into a FATCA agreement.

Please click here to read my latest blog on “Comprehensive Analysis of FATCA (Foreign Account Tax Compliance Act) of USA for US based NRIs”  that analyze the history and background, FATCA update, Update on US-India FATCA agreement, NRI mindset, Effect of India signing FATCA, etc.