Banker Times - 06 Dec 2014 - RJ - Gist of Draft CRS/FATCA

Gist of Draft CRS/FATCA Rules Version 3

Source : Draft  from first meeting between IBA & CBDT

1. Statement of reportable account is to be filed by 31 may of every year for the previous year starting 31 may 2015
2. The report is to be furnished to the Director of Income tax ( intelligence). The report has to be uploaded in a online system using a digital signature.
3. The details of report will be specified by the IT dept in due course
4. Details about the following type of accounts
   1. Depository accounts
   2. Custodial accounts
   3. Equity Or debt interests in an investment entity
5. Refer Definition of Financial accounts and other definitions on page 2 – 6
6. Refer Nature of Information to be maintained and reported on page 7-9
7. Rule 114 H : Reporting rules – what accounts are to be reported -9

Definition of Financial accounts

1. Depository accounts : "depository account" means any account maintained by a financial institution in the ordinary course of a banking or similar business and includes an amount held by an insurance company pursuant to a guaranteed investment contract or similar agreement to pay or credit interest thereon.
   1. CASA, TD CCOD,and all accounts wherever depository functions can be carried out will be included in this definition.
   2. Credit cards to be included
   3. Prepaid cards to be included
   4. Escrow accounts to be included
   5. Term loans ,consumer finance, LAS to be excluded< to be checked>.
2. Custodial Account: "custodial account" means an account (other than an insurance contract or annuity contract) for the benefit of another person that holds one or more financial assets.

Type of account	Desc	Owner of the acct for FATCA
Securities account	Accounts of the customers to which securities are posted	Bank as a custodian
Collateral on derivative transactions	Collateral held in the form of cash or securities in a collateral acct by a bank pursuant to a derivative contract	The bank which is acting as a custodian of the cash/securities
Inhouse custodial account	An internal account held by the entity in its name	EXCLUDED. Not a financial account

3. Equity /Debit interests : "equity interest" in a financial institution, being,-

1. a partnership means either a capital or profits interest in the partnership;
2. a trust means any interest held by any person treated as a settlor or beneficiary of all or a portion of the trust, or any other natural person exercising ultimate effective control over the trust.

Explanation.- A person will be treated as being a beneficiary of a trust if he has the right to receive directly or indirectly a mandatory distribution or may receive, directly or indirectly, a discretionary distribution from the trust.

Type of account	Desc	Considered as financial account?	Owner of the acct for FATCA
Listed wholesale debt notes	Unsecured debt instruments issued by a bank.	These are considered to be financial accounts only if these are not regularly traded<exact definition of regularly traded needed> or value is not determined wrt a asset giving rise to a withholdable payment.	The issuer of the instrument
Unlisted debt instruments – Commercial paper/Bill	An unsecured short term debt instrument issued by bank custodian , investment entity,	These are considered to be financial accounts only if value is determined wrt a asset giving rise to a withholdable payment.	The issuer of the instrument
Bonds/Promissory note	Issued by a bank	Same as above	The issuer of the instrument
Securitisations(UNLISTED)	Bonds or note or equity instruments issued by a SPV	YES	SPV that issues the instrument
Derivatives	All variations of derivatives including swaps, forwards, futures, options, interest rates, foreign currency equities.	TO BE CHECKED
Repo		TO BE CHECKED

4. Excluded accounts : This means a retirement or a pension account which satisfies the following requirement :

1. Retirement plans :

1. The accounts is subject to regulation as a personal retirement acct or is a part of regd regulated retirement plan. For provision of retirement benefits.
2. Accounts is tax favoured i.e contributions to the account are deductible, or taxed at reduced rate or taxation of invt income is deferred or taxed at reduced rate.(TAX FDs)
3. Reporting is required to be done to IT wrt to these accounts
4. Withdrawls are only related to a specific age , death or disability or penalties apply when withdrawals are made
5. Either annual contributions are limited to 30 lakh rupees or there is maximum life time contribution to the extent of 6 crores

2. Any account that satisfies the following requirements

1. The account is subject to regulation as an investment vehicle for purposes other than for retirement and is regularly traded on an established securities market, or the account is subject to regulation as a savings vehicle for purposes other than for retirement; Mutual fund units , Recurring deposits ?
2. the account is tax-favoured where contributions to the account that would otherwise be subject to tax are deductible or excluded from the total income of the account holder or taxed at a reduced rate, or taxation of investment income from the account is deferred or taxed at a reduced rate;
3. withdrawals are conditioned on meeting specific criteria related to the purpose of the investment or savings account (for example, the provision of educational or medical benefits), or penalties apply to withdrawals made before such criteria are met; and
4. annual contributions are limited to an amount equivalent to thirty lakh rupees or less, applying the rules prescribed in clause (C) of sub-rule (7) of rule 114H for account aggregation and currency translation.

3. An account established in India under the Senior Citizens Saving Scheme of 2004 to provide Indian senior citizens and saving schemes and savings and deposits account.
4. an account that is held solely by an estate if the documentation for such account includes a copy of the deceased's will or death certificate(deceased accounts).
5. An account established in connection with any of the following:

1. a court order or judgment.Court Deposits
2. a sale, exchange, or lease of real or personal property,(EMD for property transactions , or escrow for property transactions)

6. In the case of an account other than a U.S. reportable account<WHAT IT MEANS IS A NON US PERSON >, a depository account that satisfies the following requirements, namely:-

1. the account exists solely because a customer makes a payment in excess of a balance due with respect to a credit card or other revolving credit facility and the overpayment is not immediately returned to the customer; and
2. beginning on or before [xx/xx/xxxx], the financial institution implements policies and procedures either to prevent a customer from making an overpayment in excess of thirty lakh rupees, or to ensure that any customer overpayment in excess of thirty lakh rupees is refunded to the customer within 60 days, in each case applying the rules prescribed in clause (C) of sub-rule (7) of rule 114H for account aggregation and currency translation. For this purpose, a customer overpayment does not refer to credit balances to the extent of disputed charges but does include credit balances resulting from merchandise returns.

7. any other account that presents a low risk of being used to evade tax, has substantially similar characteristics to any of the accounts described in sub-clauses (i) to (vi), and is defined in under any other Act as an excluded account

Other Definitions to be noted :

Financial assets

Financial institution

Non-reporting financial institution

U.S. Reportable Account" means a financial account maintained by a reporting financial institution and, pursuant to the due diligence procedures prescribed in rule 114H, is identified to be held by one or more specified U.S. persons or by a Non-U.S. entity with one or more controlling persons that is a specified U.S. Person

Controlling person : means the natural persons who exercise control over an entity and includes a beneficial owner as defined in Explanation to sub-rule (1A) of rule 9 of Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005.

Explanation 1.- In determining the beneficial owner the procedure specified in the following Circular shall be applied, namely:-

35. DBOD.AML.BC. No.71/14.01.001/2012-13 issued on 18^th January, 2013 by the Reserve Bank of India;

(ii) CIR/MIRSD/2/2013 issued on 24^th January, 2013 by the Securities and Exchange Board of India.

In the case of a trust, such term means the settlor, the trustees, the protector (if any), the beneficiaries or class of beneficiaries, and any other natural person exercising ultimate effective control over the trust, and in the case of a legal arrangement other than a trust, such term means persons in equivalent or similar positions

Related Entity : an entity is a "related entity" of another entity if either entity controls the other entity, or the two entities are under common control.

Explanation.- For the purpose of this clause control includes direct or indirect ownership of more than fifty per cent of the vote and value in an entity.

A citizen of United States of America is a resident of United States of America under the tax laws of United States of America.

Nature of Information to be maintained and reported

Rule 114G : The following information shall be maintained and reported by a reporting financial institution in respect of each reportable account

A) The name, address, taxpayer identification number date and place of birth

B) In the case of any entity :

i) the name and address of the entity, taxpayer identification number assigned to the entity by the jurisdiction 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 jurisdiction of his residence;

This would require us to capture the TAX id of all foreign nationals and not only US persons. This would require a mandating of PAN field for all foreign nationals

C) the account number (or functional equivalent in the absence of an account number);

D) the account balance or value for the specified period as per the specified calculation

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 each of the four quarters of the relevant calendar year; and

(ii) the total gross proceeds from the sale or redemption of financial assets paid or credited to the account during each of the four quarters of the relevant calendar year with respect to which the reporting financial institution acted as a custodian, broker, nominee, or otherwise as an agent for the account holder;( for reportable wealth customer However it needs to be checked if merely receiving credits in accounts makes a bank a custodian)

F) In the case of any depository account, the total gross amount of interest paid or credited to the account during each of the four quarters of the relevant calendar year;

G) In the case of any account not described in clauses (E) or (F), the total gross amount paid or credited to the account holder with respect to the account during each of the four quarters of the relevant calendar year with respect to which the reporting financial institution is the obligor or debtor, including the aggregate amount of any redemption payments made to the account holder during each of the four quarters of the relevant calendar year; and(NOT CLEAR)

H) Accounts held and payments made to non-participating financial institutions,

Provided that the information to be reported,-

1. with respect calendar year 2014, is the information of U.S. reportable accounts and that is prescribed in clauses (A), (B), (C) and (D);
2. with respect calendar year 2015, is the information of U.S. reportable accounts and that is prescribed in clauses (A), (B), (C), (D), (F), (G), (H) and sub-clause (i) of clause (E);
3. with respect to calendar year 2016, is the information of all reportable accounts and that is prescribed in clauses (A) to (H),
4. with respect to calendar year 2017 and subsequent years, is the information of all reportable accounts and that is prescribed in clauses (A) to (G).

Provided further that with respect to each U.S. reportable account that is maintained by a reporting financial institution as of June 30, 2014, the taxpayer identification number of any relevant person is not required to be reported if such taxpayer identification number is not in the records of the reporting financial institution.

Definitions & notes

Where the person is a resident of more than one jurisdiction outside India under the tax laws of such jurisdiction the reporting financial institution shall maintain the taxpayer identification number in respect of each such jurisdiction. So a dual citizen ship person both US TIN and Indian PAN have to be captured

Notwithstanding anything contained in sub-rule (1), with respect to each reportable account that is a preexisting account, the taxpayer identification number or date of birth is not required to be reported if such taxpayer identification number or date of birth is not in the records of the reporting financial institution and is not otherwise required to be collected by such reporting financial institution under domestic law:

Provided that the reporting financial institution is required to use reasonable efforts to obtain the taxpayer identification number and date of birth with respect to preexisting accounts by the end of the second calendar year following the year in which such accounts were identified as reportable accounts.

Notwithstanding anything contained in sub-rule (1), the place of birth is not required to be reported unless the Reporting Financial Institution is otherwise required to obtain and report it under domestic law and it is available in the electronically searchable data maintained by the Reporting Financial Institution.

Rule 114 H : Reporting rules – what accounts are to be reported

1) An account is treated as a reportable account from the date it is identified as such. Information with respect to a reportable account must be reported annually in the calendar year following the year to which the information relates.

2) For the purpose of this rule,-

(A) "preexisting account" means a financial account maintained by a reporting financial institution as of,

(i) in case of a U.S. reportable account, 30 June, 2014; and

(ii) in case of other reportable account, 31 December 2015.

B) New account means a accounts opened on or after 1 july 2014( for US reportable account). For other reportable accounts date is 31 dec 2015.

(F) "lower value account" means a preexisting individual account with a balance or value that,-

(i) in case of a U.S. reportable account, exceeds thirty lakh rupees but does not exceed six crore rupees as of 30 June, 2014; and

(ii) in case of other reportable account, does not exceed six crore rupees as of 31 December 2015.

(G) "high value account" means a preexisting individual account with a balance or value that,-

(i) in case of a U.S. reportable account, exceeds six crore rupees as of 30 June, 2014 or 31 December of any subsequent year; and

(ii) in case of other reportable account, exceeds six crore rupees as of 31 December 2015 or 31 December of any subsequent year.

(H) "new entity account" means a new account held by one or more Entities.

3. Method for identifying reportable accounts. This rule lays down guidelines/due diligence for identifying reportable accounts from various categories of accounts

Prexisting individual accounts

New individual accounts

Preexisting entity accounts

Nonparticipating financial institutions among new entity accounts