Not acche din for Indian companies operating in US
30 Oct 2014 5:45 AM IST
These companies now fear that the court rulings might delay the process of inter-governmental agreement (IGA) on the lines of Foreign Account Tax Compliance Act (FATCA) with the US government.
According to a circular issued by the Securities and Exchange Board of India (SEBI) on 30 June, Indian financial institutions operating out of the US have to register with American tax authorities by 31 December, 2014 to obtain a Global Intermediary Identification Number (GIIN), in line with the FATCA.
There are several Indian companies that are operating in US, which includes HDFC, Infosys, Tata Communications Limited, Wipro Limited, Tata Motors Limited, ICICI Bank Limited, Dr Reddy’s Laboratories Ltd, Sify Technologies Limited, MakeMyTrip Limited etc. All are NYSE listed companies and it was Infosys which first got listed in 1999 with the NYSE.
But now with the government revealing names of black money holders before the apex court, which passed it to SIT for further probe, many Indian companies are fearing that the recent precedents might hamper the ‘tax treaty’ process with the US government – failing which Indian companies have to shell out 30 per cent withholding tax to the federal government.
Already, several Indian companies operating in US have started approaching the new NDA government to expedite the process of IGA but as per Supreme Court’s July 2011 & May 2014 rulings, the government is barred from signing any ‘confidential treaty’ considering the sovereignty of the country, with some clauses to ‘go ahead’ on a priority basis – if it serves the nation’s interest.
It was learnt that the Centre on Wednesday has reportedly sought Attorney General of India Mukul Rohatgi’s advice over IGA, which he reportedly placed before the apex court. However, there are speculations that the apex court is likely to pass the issue to the SIT, probing the black money controversy, to decide on the IGA issue.
Introduced by the US tax department in March 2010, FATCA aims to bring all income generated outside the US by the citizens of that country under the tax net. According to FATCA rules, financial institutions catering to US citizens have to register with the US government and disclose all investments by US clients through them. Non-disclosure of such information could lead to a 30 per cent withholding tax.
India has so far only agreed to follow the FATCA guidelines in-principle and is yet to sign the IGA. Experts feel India’s stand to make names public without prosecution might hamper signing of the FATCA with the US, which contains a confidentiality clause. They claimed that as per law if IGA related to FATCA was not signed by its due date, all remittances, including payments for exports, would face a 30 per cent withholding tax.
‘This would be disastrous for the Indian companies operating in US. The government should immediately look for ways to ensure that the tax liability does not kick in from January 2015,’ Bhaskar Sanyal, an economist based in Kolkata, told Millennium Post.
The special investigation team headed by former Supreme Court judge MB Shah and Arijit Pasayat, probing the black money issue, was asked to submit it by March 2015. Now, things might land in rough weather for the Indian companies if special investigation team decides to place its
opinion on the IGA on the same date when it was asked to submit the final report on black money controversy (March 2015).
‘If the matter was stretched after December 2014, then the Indian companies have to bear a huge loss for the next three months till March, if - at all - the special investigation team comes out with some solutions.
If not, then it is going to give an irreparable dent in the balance sheets of the Indian companies,’ Sanyal said.
According to a circular issued by the Securities and Exchange Board of India (SEBI) on 30 June, Indian financial institutions operating out of the US have to register with American tax authorities by 31 December, 2014 to obtain a Global Intermediary Identification Number (GIIN), in line with the FATCA.
There are several Indian companies that are operating in US, which includes HDFC, Infosys, Tata Communications Limited, Wipro Limited, Tata Motors Limited, ICICI Bank Limited, Dr Reddy’s Laboratories Ltd, Sify Technologies Limited, MakeMyTrip Limited etc. All are NYSE listed companies and it was Infosys which first got listed in 1999 with the NYSE.
But now with the government revealing names of black money holders before the apex court, which passed it to SIT for further probe, many Indian companies are fearing that the recent precedents might hamper the ‘tax treaty’ process with the US government – failing which Indian companies have to shell out 30 per cent withholding tax to the federal government.
Already, several Indian companies operating in US have started approaching the new NDA government to expedite the process of IGA but as per Supreme Court’s July 2011 & May 2014 rulings, the government is barred from signing any ‘confidential treaty’ considering the sovereignty of the country, with some clauses to ‘go ahead’ on a priority basis – if it serves the nation’s interest.
It was learnt that the Centre on Wednesday has reportedly sought Attorney General of India Mukul Rohatgi’s advice over IGA, which he reportedly placed before the apex court. However, there are speculations that the apex court is likely to pass the issue to the SIT, probing the black money controversy, to decide on the IGA issue.
Introduced by the US tax department in March 2010, FATCA aims to bring all income generated outside the US by the citizens of that country under the tax net. According to FATCA rules, financial institutions catering to US citizens have to register with the US government and disclose all investments by US clients through them. Non-disclosure of such information could lead to a 30 per cent withholding tax.
India has so far only agreed to follow the FATCA guidelines in-principle and is yet to sign the IGA. Experts feel India’s stand to make names public without prosecution might hamper signing of the FATCA with the US, which contains a confidentiality clause. They claimed that as per law if IGA related to FATCA was not signed by its due date, all remittances, including payments for exports, would face a 30 per cent withholding tax.
‘This would be disastrous for the Indian companies operating in US. The government should immediately look for ways to ensure that the tax liability does not kick in from January 2015,’ Bhaskar Sanyal, an economist based in Kolkata, told Millennium Post.
The special investigation team headed by former Supreme Court judge MB Shah and Arijit Pasayat, probing the black money issue, was asked to submit it by March 2015. Now, things might land in rough weather for the Indian companies if special investigation team decides to place its
opinion on the IGA on the same date when it was asked to submit the final report on black money controversy (March 2015).
‘If the matter was stretched after December 2014, then the Indian companies have to bear a huge loss for the next three months till March, if - at all - the special investigation team comes out with some solutions.
If not, then it is going to give an irreparable dent in the balance sheets of the Indian companies,’ Sanyal said.
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