All bar the dotting of the i's and crossing of the t's appears done in New Zealand's intergovernmental agreement with the United States over its controversial Foreign Account Tax Compliance Act, or FATCA.
An Inland Revenue Department (IRD) spokesman confirmed to interest.co.nz negotiations between the two countries have progressed sufficiently for New Zealand to be treated as if an intergovernmental agreement is already in place.
"The FATCA obligations for New Zealand financial institutions will apply from 1 July 2014 and this will provide certainty by allowing New Zealand financial institutions to be treated as being deemed-compliant for FATCA purposes," the IRD spokesman said.
The FATCA rules require global financial institutions to report to the US Internal Revenue Service (IRS) about details of US customers. The stated aim is to reduce tax avoidance by US citizens investing outside of the US, and failing to declare the investments and income from these investments.
Financial institutions that fail to comply with the rules can have 30% of transactions associated with US financial instruments and other financial institutions withheld and paid to the IRS.
'Much needed certainly'
Lawyers at Minter Ellison Rudd Watts point out New Zealand will be treated as having an intergovernmental agreement in effect until the end of 2014.
"This provides New Zealand financial institutions with much needed certainty about their FATCA obligations come 1 July 2014 (when FATCA commences)," Minter Ellison Rudd Watts says.
PwC partner Mark Russell says implementing FATCA under an intergovernmental agreement reduces compliance costs for New Zealand financial institutions by simplifying the reporting process, and allowing them to report to and make arrangements directly with the IRD rather than the IRS.
"It also generally eliminates the prospect of 30% of payments being withheld, which would be a major business risk," Russell says.
New Zealand financial institutions can push ahead with registering for FATCA, Russell adds, with a benefit from registering before May 5. This is the cut-off date for being included on an initial list published by the IRS of qualifying institutions.
"This should make it significantly easier to establish an organisation’s FATCA status when dealing with other financial institutions because they can simply look up the list,” Russell points out.
In a recent speech John Koskinen, the Commissioner of the IRS, spoke about FATCA.
"This law is important because it requires foreign financial institutions to tell us about accounts owned by US citizens. With this information, we can do a much better job of combating offshore tax evasion. Our goal is to make it more and more difficult for Americans to hide their money in a tax haven to avoid paying taxes," Koskinen said.
"The importance of FATCA is not just that we’ll be collecting more money. It is also important because the average taxpayer has to be confident that, while they are paying their taxes, the very wealthy, with fancy lawyers and accountants, are no longer able to hide their money in foreign countries and avoid paying their fair share to support the operations of the government," added Koskinen.
'Impairing customers' privacy rights'
In a regulatory impact statement IRD says because assisting the Americans to implement FATCA will require local financial institutions to collect data on customers and pass relevant information onto the IRD, this will "impair" customers' privacy rights. However Prime Minister John Key says New Zealand has no choice but to comply with FATCA.
"If we didn't comply then there were significant implications for New Zealand, and in fact they've made everyone in the world who wants to do business with them comply under those terms," Key has said.