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Non-compliance with US tax laws may see over 5 million MFs close down

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There are growing concerns that over 5 million mutual fund folios are likely to be closed or the account frozen due to non-compliance with the US’ Foreign Account Tax Compliance Act or FATCA.
According to the Association of Mutual Fund of India (Amfi), mutual fund investments of about Rs.1 lakh crore could be affected prompting the association to approach the finance ministry to address the issue.
“The matter should get resolved… We have already approached the finance ministry for a solution,” said A Balasubra-manian, vice-chairman of Amfi.
The deadline for furnishing details under FATCA is August 31, and still a large number of mutual fund investors haven’t yet complied with it. According to industry estimates, around 5.2-5.4 million folios may be affected.
“It is unlikely that there will be any freezing of accounts, but at the same time there should compliance, so the government should look at giving an extension as freezing of accounts could lead to collapse of the system,” said Girish Vanvari, head of tax, KPMG.
As per the regulation, non-compliant accounts have to be closed, which means fund houses may have to redeem and return the funds.
The matter came up for discussion in Amfi’ s general body meeting on Wednesday, said a CEO of a mutual fund house who was part of the meeting.
FATCA only requires basic disclosures such as the country of citizenship and country of tax residence, and fund houses and distributors say they have been reaching out to investors on the matter. But, many investors have still not complied due to lack of clarity from the time the rules were first notified and little awareness among investors, say fund managers and distributors.
Given that the Indian government was party to the agreement signed with the US government, experts say it’ s the finance ministry that will have to issue a clarification on the matter.
“As of now, the situation doesn’t look good as to how it will impact investors. So, either the finance ministry may have to move the deadline or instead of closing the account just freeze it till compliance is done,” said a senior executive at a large mutual fund distributor.
Hindustan Times New Delhi,22th July 2016

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