by Niko Kloeten
As tipped by Good Returns, the government has announced it will look to negotiate a FATCA (Foreign Account Tax Compliance Act) tax information agreement with the United States.
The Act requires overseas financial institutions such as New Zealand banks, life insurers or managed funds to enter into agreements with the US’s Internal Revenue Service (IRS) and US Treasury to provide details about the affairs of their United States clients.
Without such an agreement New Zealand financial institutions could have 30% of income and sales proceeds from US assets withheld by the US Government.
If New Zealand succeeds in getting an agreement it will mean local institutions will have to share information with Inland Revenue rather than dealing directly with the IRS.
“New Zealand fully supports moves to clamp down on tax evasion through effective exchange of information between jurisdictions, but we want to ensure that the information goes through existing channels,” Revenue Minister Peter Dunne said.
“Without an intergovernmental agreement, financial institutions would have to enter into separate agreements with the IRS, withhold tax on certain accounts, and risk being in conflict with New Zealand’s privacy and human rights laws,” he said.
The New Zealand Bankers’ Association (NZBA), which has estimated complying with FATCA could cost this country’s banks $100 million, said today’s announcement would be welcomed across the financial sector.
“It’s a useful step towards sorting out a very thorny and expensive compliance issue for us,” said NZBA chief executive Kirk Hope.
“We understand US moves to clamp down on tax evasion by Americans living around the world. But without an inter-governmental agreement, the US law’s provisions are virtually unworkable.”
PWC partner Mark Russell said a FATCA agreement would also benefit New Zealand’s financial adviser industry.
“The thing with the financial adviser community is often they are the ones that hold all the customer information,” he said.
“Sometimes product providers have that information but in some cases that information is actually held by the adviser and there could be a need for that adviser to have systems to collect and pass on information to those whose products they are invested in.”
Russell said at a practical level it would be easier to deal with the IRD than the IRS; removing withholding is also important for “everyone in the chain”, he said.
“Under a situation where the money got withheld the question is, ‘who is responsible for that?’ Having that prospect taken off the tablegives everyone a lot of breathing space.”
And in other good news for advisers, he said they will be able to rely on information gathered on clients for their anti-money laundering (AML) requirementsin their FATCA compliance.
New Zealand is the 17th country to begin negotiating a FATCA agreement, while about 20 other countries are understood to be in discussions with their financial industries about pursuing their own deals. Only one country, the UK, has signed an agreement so far.
Meanwhile, the IRS has announced the key start date for FATCA is being delayed from July 2013 to January 2014.
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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