India and Pakistan are basically the geopolitical Odd Couple, with a few important differences. First and foremost, Felix and Oscar are fictional. Any conflict between the two is resolved with an exchange of funny one-liners and forgotten by the time the end credits roll. Secondly, despite the show’s title, they do have some things in common. They’re both middle-aged guys, both divorced, both New Yorkers, and both reasonably successful professionals.
Other than their status as former British colonial subjects, India and Pakistan have basically nothing in common. More importantly, there is significant conflict between the two and there’s no laugh track to smooth things over. Although the region has been quiet recently, the two have fought five wars since independence in 1947. Even more ominously, as of 1998, both have nuclear weapons.
Despite the warning signs, the United States chose to buddy up with India in pursuit of the elusive dollar. Although the FATCA agreement signed between the two does not entitle New Delhi to a finder’s fee, it does have some concrete benefits for this developing nation. In addition, it signals that the United States is moving closer to India at a time when America’s relations with Pakistan are still a bit chilly, because Osama bin Laden was basically hiding in plain sight in a somewhat remote area of that country.
For those who are just tuning in, or who have blocked the relevant memories from their minds, here’s a quick primer on the Foreign Account Tax Compliance Act. During debate in the Senate, Michigan Democrat Carl Levin claimed that “thousands of U.S. tax dodgers conceal billions of dollars in assets within secrecy-shrouded foreign banks,” but didn’t really cite a source for that figure.
FATCA plugs that leak, regardless of how big it actually is. In most cases, foreign banks must turn over information about their U.S. account-holders. Furthermore, these individuals and businesses must file Form 8938, and there are stiff penalties for noncompliance. Finally, and here’s the big one, accounts with “FATCA indicia” are subject to a 30 percent withholding, whether or not taxes are due. Ouch.
India’s signature brings the total to over 110 nations that have binding inter-governmental agreements with the IRS. U.S. Ambassador Richard Verma focused on the information-exchange element, which “is [a] top priority for governments.” Speaking privately with the media after the announcement, Revenue Secretary Shaktikanta Das used even stronger language, adding that New Delhi would “fight the menace of evasion and bring transparency in the matters of payment of taxes which are legitimately due to the government.”
The agreement will take effect on September 30.
Who Gets What
There are very few, if any, reliable estimates about how much American money is lurking untaxed in India, and therein lies the problem. In a country with 1.25 billion souls, it’s very easy to hide.
In addition to a healthy dose of international goodwill, India gets to strike a blow against so-called “black money” that, according to many observers, hinders economic development. Since the United States also agreed to share information about Indian assets in America, taxpaying Indians will be less able to stuff money into U.S. banks.
Why It’s Important
The U.S. Government claims that, at its core, FATCA is not really about heavy-handed tactics to collect delinquent tax dollars. Instead, the government wants to promote the free exchange of financial information across international borders.
It’s very clear that the shadows are starting to fade, and if you have foreign assets, it’s best to get ahead of the curve and address any problems before they become unmanageable.