In a pre-emptive move, the Government has introduced enabling legislation for an anticipated inter-governmental agreement with the United States on its controversial Foreign Account Tax Compliance Act, known as FATCA.
Lawyers at Minter Ellison Rudd Watts suggest this means New Zealand’s inter-governmental agreement negotiations have been progressing well and that an agreement should be concluded soon.
The legislation comes in an omnibus tax bill introduced to the House by Revenue Minister Todd McClay, the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill. McClay says the Bill proposes changes to New Zealand's international tax rules.
"The first of these provides that when the inter-governmental agreement with the United States in relation to its Foreign Account Tax Compliance Act is finalised, New Zealand financial institutions will have an appropriate domestic law framework to follow," says McClay.
FATCA was introduced to tackle non-compliance by US taxpayers who make investments through accounts located outside the US. However, the implications of FATCA extend well beyond US borders with all foreign financial institutions potentially being subject to a FATCA related withholding tax on payments they receive directly or indirectly from the US.
In October last year then Revenue Minister Peter Dunne said NZ aimed to negotiate a tax information agreement with the US over FATCA, which the NZ Bankers' Association had estimated could cost local banks NZ$100 million to comply with.
In a note on the Government's legislation Minter Ellison Rudd Watts say the inter-governmental agreement will allow NZ resident financial institutions to register with the NZ government, comply with simplified due diligence and reporting requirements and avoid certain withholding obligations.
Minter Ellison Rudd Watts says the Bill provides:
Treatment of the inter-governmental agreement as a class of double tax agreement referred to as a “Foreign account tax sharing agreement”;
Clarification that no deduction is allowed in respect of amounts withheld on account of FATCA;
Establishment of new record keeping and due diligence requirements for FATCA (to be included as a new Part 11B in the Tax Administration Act 1994). The Bill does not detail what these requirements are but instead refers to the requirements described or contemplated in the intergovernmental agreement;
Information to be reported to the New Zealand competent authority (i.e. the IRD) and, where necessary, third parties, in accordance with the inter-governmental agreement or an Order in Council;
Nullification of arrangements that are designed to circumvent FATCA requirements; and
New absolute liability (i.e. strict liability) and knowledge offences for failing to register for FATCA.
"The introduction of the Taxation (Annual Rates, Employee Allowances and Remedial Matters) Bill is an indication that New Zealand’s inter-governmental agreement negotiations have been progressing well and that an inter-governmental agreement can be expected to be concluded in the near future," Minter Ellison Rudd Watts says.
"An inter-governmental agreement will provide some much desired certainty for New Zealand financial institutions looking to comply with FATCA. While the model inter-governmental agreement produced by the United States Treasury acts a useful guide, a number of details still need to be determined. In the interim, financial institutions should continue to review their due diligence, account opening procedures and information reporting capabilities in preparation for FATCA coming into effect on 1 July 2014."