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TMI BlogGuidance Notes on Implementation of Reporting Requirements under Rules 114F to 114H of the Income -Tax RulesX X X X Extracts X X X X X X X X Extracts X X X X ..... s resident in other countries, such information having to be transmitted automatically on yearly basis. The information to be exchanged relates not only to individuals but also to shell companies and trusts having beneficial ownership or interest in the resident countries. Further, the reporting needs to be done for a wide range of financial products, by a wide variety of financial institutions, including banks, depository institutions, collective investment vehicles and insurance companies. The Standard and its Commentary are available at http://www.oecd.org/ctp/exchange-of-tax-information/standard-for-automatic-exchange-of-financial-information-in-tax-matters-html. 1.2 Enactment of FATCA and signing of IGA Earlier, in 2010, the USA enacted a law known as FATCA with the objective of tackling tax evasion through obtaining information in respect of offshore financial accounts maintained by USA residents and citizens. The provisions of FATCA essentially provide for 30% withholding tax on US source payments made to Foreign Financial Institutions (FIs) unless they enter into an agreement with the Internal Revenue Service (IRS) to provide information about accounts held wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st, 2015 by inserting Rules 114F to 114H and Form 61B to provide a legal basis for the Reporting Financial Institutions (RFIs) for maintaining and reporting information about the Reportable Accounts. These Rules have been developed in consultation with Regulators and Financial Institutions in order to smoothen the reporting requirements and to address their concerns wherever possible. A copy of the Notification No. 62 of 2015 modifying the Income-tax Rules, 1962 . is at http://www.incometaxindia.gov.in/communications/notification/notification%20no.%2062%20dated%2007-08-2015.pdf. 1.5 Purpose of the Guidance Note The purpose of this Guidance Note is to provide guidance to the Financial Institutions. Regulators and officers of the Tax Department for ensuring compliance with the reporting requirements provided in Rules 114F to 114H and Form 61B of the Income-tax Rules, 1962. The Guidance Note is intended to explain the complex reporting requirements and provide further guidance wherever required. Since a large part of the Rules is based on CRS on AEOI, the Financial Institutions may refer the CRS and its Commentary to get further understanding of the terms use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been in existence, whichever is less. Entities that safe keep Financial Assets for the account of others, such as custodian banks, brokers and central securities depositories, would generally be considered Custodial Institutions. (Ref: Page 44 of CRS and 160 of Commentary) 2.3.2 Depository Institution Explanation (b) to Rule 114F(3) defines a depository institution to mean any entity that accepts deposits in the ordinary course of a banking or similar business. An Entity is considered to be engaged in a banking or similar business if, in the ordinary course of its business with customers, the Entity accepts deposits or other similar investments of funds and regularly engages in one or more of the following activities : (a) makes personal, mortgage, industrial, or other loans or provides other extensions of credit; (b) purchases, sells, discounts, or negotiates accounts receivable, instalment obligations, notes, drafts, cheques, bills of exchange, acceptances, or other evidences of indebtedness; (c) issues letters of credit and negotiates drafts drawn thereunder; (d) provides trust or fiduciary services; (e) finances foreign e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India and branches of Foreign Financial Institutions that are located in India are the Reporting Financial Institutions while Foreign Financial Institutions, their foreign branches and foreign branches of Indian Financial Institutions are not. In the case of Trusts, the reporting requirement is on the Trustees resident in India, unless the required information is being reported elsewhere because the trust is treated as resident there. (Ref: Page 44 of CRS and 158 of Commentary) 2.5 Step 4: Is the Financial Institution a Non-Reporting Financial Institution? Rule 114F(5) specifies a number of entities as non-reporting financial institutions and these entities are not required to maintain or report the information, except in case of financial institution with a local client base in certain specified situations. These non-reporting financial institutions are as under : (a) a Governmental entity, International Organisation or Central Bank; (b) a Treaty Qualified Retirement Fund; a Broad Participation Retirement Fund; a Narrow Participation Retirement fund; or a Pension Fund of a Governmental entity, International Organization or Central bank; (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information for the relevant NPS Investors. 3. Accounts which are Financial Accounts and therefore need to be reviewed 3.1 Introduction RFIs are required to review the Financial Accounts they maintain to identify whether any of them need to be reported. The general rule is that a Financial Account is an account maintained by a Financial Institution and includes specific categories of accounts (Depository Accounts, Custodial Accounts, Equity and debt interests. Cash Value Insurance Contracts and Annuity Contracts). Certain types of Financial Accounts which carry low risk of being used to evade tax are excluded from needing to be reviewed or reported and are called Excluded Accounts. 3.2 Categories of Financial Accounts Rule 114F (1) defines Financial Accounts to include the following (a) depository account which includes any commercial, checking, savings, time, or thrift account, or an account that is evidenced by a certificate of deposit, thrift certificate, investment certificate, certificate of indebtedness, or other similar instrument maintained by a financial institution in the ordinary course of a banking or similar business and also an amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other accounts and satisfying certain conditions Explanation (h)(vii) to Rule 114F(1) (Ref: Page 53 of CRS and 184 of Commentary) 4. Financial Accounts which are Reportable Accounts 4.1 Introduction Once a RFI has identified the Financial Accounts they maintain they are required to review those accounts to identify whether any of them are Reportable Accounts. Where they are found to be Reportable Accounts information in relation to those accounts must be reported. In general terms, a Reportable Account means an account, which has been identified pursuant to the due diligence procedure prescribed in Rule 114H, as held by one or more Reportable Persons or by a Passive Non-Financial Entity with one or more Controlling Persons that is a Reportable Person. Thus, an account can be Reportable Account by virtue of the Account Holder or by virtue of the Account Holders' Controlling Persons. 4.2 Reportable Accounts by virtue of the Account Holder Rule 114F(6)(a) states that reportable account is a financial account, which has been identified, pursuant to the due diligence procedures prescribed in Rule 114H , as held by a reportable person . T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident of a country/territory outside India. 4.3.4 Passive NFE is defined in Explanation (D) to Rule 114F(6) as any non-financial entity which is not Active NFE, an investment entity or a withholding partnership or withholding foreign trust. Active NFE has been defined in Explanation (A) to Rule 114F(6) and includes regularly traded entities etc. 4.3.5 Controlling Person is defined in Explanation (B) to Rule 114F(6) to mean the natural person who exercises control over an entity and includes a beneficial owner as determined under sub-rule (3) of rule 9 of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005. It has been specified that in determining the beneficial owner, the procedure specified in the following circular as amended from time to time shall be applied, namely:- (i) DBOD.AML.BC. No. 71/14.01.001/2012-13, issued on the 18th January, 2013 by the Reserve Bank of India; or (ii) CIR/MIRSD/2/2013, issued on the 24th January, 2013 by the Securities and Exchange Board of India; or (iii) IRDA/SDD/GLD/CIR/019/02/2013, issued on the 4th February, 2013 by the Insurance Regulatory and Development Authority. It has also been specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.2.2 The date from which the procedure for New Accounts would be applicable is 1st July, 2014 in case of U.S. Reportable Accounts 1st January, 2016 in case of other Reportable Accounts 5.2.3 In the case of U.S.A., the accounts opened from 1st July. 2014 to the date of entry into force of the IGA between India and USA., i.e., 31st August, 2015, there is an alternate procedure for due diligence prescribed in Rule 114H(8) . As per this alternate procedure, the self-certification required for New Accounts should be obtained within one year of entry into force of the IGA, i.e., by 31st August, 2016 and if it is not obtained, the accounts need to be closed. 5.3 Due Diligence for Pre-existing Individual Accounts 5.3.1 The following pre-existing individual accounts are not required to be reviewed or reported: In case of US reportable accounts [ Rule 114H (3)(a)(i) ] where the balance or value as on 30th June, 2014 does not exceed an amount equivalent to US$ 50,000 which is a cash value insurance contract or an annuity contract, the balance or value does not exceed an amount equivalent to US$ 2,50,000 as on 30th June, 2014 which is a cash val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory authority granted to a person with an address in a country or territory outside India; or a hold mail instruction or in-care-of address in a country or territory outside India if the reporting financial institution does not have any other address on file for the account holder. If none of the indicia are discovered in the electronic search, no further action is required unless there is a change in circumstances which results in one or more indicia being associated with the account, or the account becomes a high value account. 5.3.4 Notwithstanding finding of indicia in the case of low value pre-existing individual accounts, it would not be reportable if the Reporting Financial Institution obtains and maintains a record of a self-certification from the account holder that it is not resident of a country/territory outside India. documentary evidence establishing the account holder's non-reportable status. 5.3.5 The due diligence procedure for high value pre-existing individual accounts is prescribed in Rule 114H(3)(c) which provides for enhanced review procedures described below: (a) If the electronic searchable information in case of a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n electronic search, paper record search or RM's search, the account will be an undocumented reportable account. 5.3.6 For purposes of determining the aggregate balance or value of financial accounts held by an individual, RFI is required to aggregate all financial accounts maintained by it, or by a related entity, but only to the extent that the computerised systems of the 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. In the case of a high value account the RFIs are also required to aggregate those 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, [ Rule 114H(7)(c) ] 5.3.7 The timeline for reviewing of the pre-existing individual accounts have been provided in Rule 114H(3)(d) as under:- (i) in case of a U.S. reportable account which is high value account as on the 30.6.2014, shall be completed by the 31.12.2015 and if based on this review such account is identified as a U.S. reportable accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount holder will be treated as a non-participating financial institution requiring information to be reported to USA for calendar years 2015 and 2016 if the account holder is treated as non-participating financial institution by the USA or the account holder is a financial institution from a country/territory which has not entered into an IGA with USA and the reporting financial institution does not verify the said account holder's Global Intermediary Identification Number issued by the US IRS if the account holder is an FI referred to in sub-clauses (e) to (m) of Clause 5 of Rule 114F. the account holder is a financial institution from a country/territory which has entered into an IGA with USA (a partner jurisdiction FI) but has neither registered with US IRS and obtained a GIIN nor it is a Non-Reporting FI (NRFI). 5.4.5 The Reporting Financial Institution also needs to determine whether the account holder is a Passive NFE and whether its controlling persons are residents of countries/territories outside India as per the following procedure: for purposes of determining whether the account holder is a passive NFE, the reporting financial institution s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash value insurance contract unless the cash value exceeds an amount equal to US$ 50,000 at the end of any calendar year The above exemption is not available for U.S. custodial or investment accounts and thus the same need to be reviewed even if the account balance is less than US$ 50,000. Further, there is no threshold in case of other reportable accounts and thus any individual account opened from 1.1.2016 has to be reviewed to ascertain whether it is a reportable account. 5.5.2 In the case of US reportable accounts, not falling under the exemption as above, and in case of other reportable accounts, on account opening, the reporting financial institution must obtain a self-certification, as part of the account opening documentation, to determine the account holder's residence or residences for tax purposes. The Reporting Financial Institution must also confirm the reasonableness of such self-certification based on the information obtained by it in connection with the opening of the account, including any documentation collected in accordance with Prevention of Money-laundering (Maintenance of Records) Rules, 2005. 5.5.3 Where the self-certification establishes that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve NFE, the reporting financial institution shall rely on a self-certification from the account holder to establish its status, unless it has information in its possession or that is publicly available, based on which it can reasonably determine that the account holder is not a passive non-financial entity. (b) for purposes of determining the controlling persons of an account holder, a reporting financial institution may rely on information collected and maintained in accordance with the rules made under the Prevention of Money-laundering Act, 2002. (c) for purposes of determining whether a controlling person of a passive non-financial entity is a reportable person, a reporting financial institution may rely on a self-certification from the account holder or such controlling person. 5.6.4 The RFI is also required to determine whether the account holder is a non-participating financial institution and those accounts should be treated as US reportable accounts to be reported to USA for calendar years 2015 and 2016. (Ref: Page 40 of CRS and 143 of Commentary) 5.7 Alternate Procedure in case of US Reportable Accounts 5.7.1 In the case of US Reportable Accounts, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a balance not exceeding US$ 50,000 or cash value insurance contracts having cash value not exceeding USS 50,000 at the end of any calendar year are not required to be reviewed or reported in case of U.S. reportable accounts. Accordingly, in these cases, for the accounts opened from 1.7.2014 to 31.12.2014, a value search should be carried out as on 31.12.2014 and for accounts opened between 1.1.2015 to 31.8.2015, a value search should be carried out as on 31.12.2015. The due diligence for new accounts including obtaining of self-certification needs to be carried out only in those cases where the value exceeds US$ 50,000. In case of accounts other than depository or cash value accounts, the financial institutions should make reasonable efforts to obtain the self-certification, particularly in those cases where after indicia search a positive match is found with any of the U.S. indicia. If a self-certification is not provided by an account holder or the reasonableness of a self-certification cannot be confirmed, the account is reportable. 5.7.7 For new individual accounts (depository or cash value contract) accounts opened after 1.9.2015, the alternate procedure will not be applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification number assigned to the entity by the country or territory of its residence; and (ii) the name, address, date and place of birth of each such controlling person and taxpayer identification number assigned to such controlling person by the country or territory of his residence; (c) the account number (or functional equivalent in the absence of an account number); (d) 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; (e) in the case of any custodial account,- (i) the total gross amount of interest, the total gross amount of dividends, and the total gross amount of 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 (ii) 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 reporting financial institution acted as a cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished. A NIL statement can also be furnished if the RFI has not completed the due diligence procedures. 6.3 Other Issues related to Reporting The following clarifications have been provided in Rule 114G with regard to reporting: (a) account holder means the person listed or identified as the holder of a financial account by the financial institution that maintains the account. However, if a person, other than a financial institution, holds a financial account for the benefit or on account of another person as agent, custodian, nominee, signatory, investment advisor, or intermediary, such another person will be treated as holding the account. (b) In the case of a cash value insurance contract or an annuity contract, the account holder is any person entitled to receive a payment upon the maturity of the contract or any person entitled to access the cash value or change the beneficiary of the contract and if no person can access the cash value or change the beneficiary, the account holder is any person named as the owner in the contract and any person with a vested entitlement to payment under the terms of the contract; (c) taxpayer identification n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RFI is required to submit registration details on the screen. A RFI may submit different registration information under different reporting financial institution categories. (b) After registration, the RFIs are required to submit the Form 61B or Nil statement under e-File menu. The prescribed schema for the report under Form 61B can be downloaded from the e-filing website. The RFI will be required to submit the calendar year for which report is to be submitted and the reporting entity category for which the report is to be submitted. The reporting financial institution will then be provided the options to upload the Form 61B . The Form is required to be submitted using a Digital Signature Certificate. (c) In case Nil statement has to be submitted by the RFI, the option to submit Nil statement is required to be selected. The reporting financial institution will then be required to submit a declaration with respect to pre-existing accounts and new accounts. The declaration is required to be submitted using a Digital Signature Certificate. (d) In case if the designated director (as reported in registration details submitted by the RFI) is same as the person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing financial institution. (c) ensuring the availability of the information with the RFIs for meeting their reporting obligation, it such information is not maintained by it under any rule or regulation issued by the regulator. 8.3 Requirement of obtaining GIIN The RFIs having U.S. Reportable Accounts need to register with the US IRS and obtain Global Intermediary Identification Number by registering at http://www.irs.gov/Businesses/Crorporations/FATCA-Froreign -Financial-Institution-Registration-Tool. GIIN also needs to be obtained by the Financial Institutions claiming exemption as Non-reporting Financial Institution on the grounds of being a financial account with a local client base since they need to report the financial accounts held by a specified U.S. person. 9. Contact details for further clarification For further clarifications and suggestions/feedback for the updated version of the Guidance Note, the following officers may be contacted (a) For General Queries Mr. Akhilesh Ranjan, Joint Secretary (FT TR-I). [email protected] Mr. Rahul Navin, Director (FT TR-III), [email protected] Mr. Gaurav Sharma, US (FT TR-III)(l), us31eoi-d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 28. India Yes 29. Ireland Yes 30. Isle of Man Yes 31. Italy Yes 32. Jersey Yes 33. Korea Yes 34. Latvia Yes 35 Liechtenstein Yes 36. Lithuania Yes 37. Luxembourg Yes 38. Malta Yes 39. Mauritius Yes 40. Mexico Yes 41. Montserrat Yes 42. Netherlands Yes 43. Niue No 44. Norway Yes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78. Macau (China) No 79. Malaysia No 80. Monaco No 81. New Zealand Yes 82. Qatar No 83. Russia No 84. Saint Kitts and Nevis No 85. Saint Lucia No 86. Saint Vincent and the Grenadines No 87. Samoa No 88. Saudi Arabia No 89. Singapore No 90. Sint Maarten No 91. Switzerland Yes 92. Turkey No 93. United Arab Emirates No - Circular - Trade Notice - P ..... X X X X Extracts X X X X X X X X Extracts X X X X
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