India has become the latest lackey to sign on to the United States’ extraterritorial FATCA legislation. On July 9, the United States and India signed the agreement to implement FATCA in India.
The agreement comes into effect Oct. 1 and is reciprocal, with the United States also sharing with India financial information about Indian nationals.
“We reassured the U.S. government of the binding commitment to… fight the menace of evasion and bring transparency in the matters of payment of taxes which are legitimately due to the government,” said Indian Revenue Secretary Shaktikanta Das.
“FATCA is a mutual effort to combat tax evasion and it would be mutually beneficial for both the countries… FATCA would detect, discourage offshore tax evasion. This kind of exchange of information is top priority for governments,” said U.S. Ambassador to India Richard Verma.
Last year, Indian Prime Minister Narendra Modi joined 20 countries’ leaders in an agreement to automatically exchange tax information on a reciprocal basis by the end of 2018.
FATCA was made law in 2010 and went live in January 2015 with its International Data Exchange Service, linking tax authorities in more than 110 countries and 145,000 financial institutions with the IRS to ensure that individuals and institutions are compliant with FATCA and not dodging their U.S. tax obligations.
Banks must comply with IRS rules under FATCA, which means either reporting account information on American clients with accounts worth more than US$50,000 or signing a statement to the IRS that states they have no U.S. clients.
Noncompliant banks will see a 30% withholding on U.S.-dollar wires to their bank. The law has caused many international financial institutions to simply close any American-held accounts and not take new American clients.
The United States is the only developed country that collects taxes based on citizenship instead of residency. The only other countries—developed or not—to tax nonresident citizens based on worldwide income are Eritrea and China.