Concessions for NZ building societies and credit unions in draft Big Brotheresque US crackdown on tax dodgers, but bad news for KiwiSaver providers

Concessions for NZ building societies and credit unions in draft Big Brotheresque US crackdown on tax dodgers, but bad news for KiwiSaver providers

There's some good news for New Zealand building societies and credit unions in US Foreign Account Tax Compliant Act (FATCA) draft regulations, but bad news for local superannuation and KiwiSaver schemes in the draft of an Act the New Zealand Bankers' Association has estimated could cost the industry in this country NZ$100 million to comply with.

FATCA targets US tax dodgers by aiming to ensure there's no gap in the ability of the US government to determine the ownership of US assets held through foreign bank accounts. It will require financial institutions to collect information on US clients and relay it to the Internal Revenue Service  (IRS), the US taxman. One proposal has been that they will have to withhold tax on customers who don't comply, and will be subject to a 30% withholding tax on their own income if they themselves don't comply.

This proposed new reporting and withholding regime is expected to impact current account opening processes, transaction processing systems and “know your customer” procedures used by non-US banks and is due for introduction from January 1, 2013.

The New Zealand Bankers' Association, which represents the country's banks, has been working with its Australian, Canadian and British counterparts in an attempt to get the US government to alter FATCA, which it says would cost the industry here NZ$100 million to comply with and breach New Zealand's Privacy Act.

Revenue Minister Peter Dunne told interest.co.nz last September the government "would of course" be concerned about any regulation that would increase the cost of doing business in New Zealand.

"However, the government is not necessarily in a position to influence decisions made by a sovereign power about tax on funds flowing through its jurisdiction," Dunne said then. "At this stage, the government is watching to see how the situation develops, and is communicating with taxpayers about the work it is doing on the issue."

'Outsourcing of IRS attack on tax dodgers'

PwC New Zealand FATCA Partner Mark Russell says the overnight release of FATCA draft regulations by the US Department of Treasury and IRS confirms an effective outsourcing of the IRS’s attack on tax evasion to the financial services industry.

‘’What is clear is that any financial institution with a commercial relationship with a US person or other FATCA compliant financial institutions, wherever in the world that occurs, must be compliant with FATCA," says Russell.

“Despite lobbying by organisations around the world, these rules continue to have significant ramifications for the global financial services industry. Having said that, there is some relief in the thresholds that apply for organisations to identify and report US persons."

Nonetheless the draft regulations released overnight provide some relief in terms of extending the categories of foreign financial entities that will be deemed to be compliant with FATCA.

"Building societies, credit unions and other non-bank deposit takers look to be the winners in the New Zealand context, if they can bring themselves within a class of ‘local foreign financial institutions (FFIs)’," Russell says.

"Local FFIs must meet a number of conditions, including being regulated, having at least 98% of their accounts held by local customers, not soliciting business from outside New Zealand and not advertising US dollar denominated accounts or investments."

Russell says although the costs of complying with the FATCA rules will be "significantly" reduced for the likes of building societies and credit unions, they will still need to introduce new due diligence and customer processes to secure "deemed compliant" status.

KiwiSaver providers don't qualify for exemptions

Meanwhile, he suggests New Zealand Superannuation and KiwiSaver operators will be disappointed that complying New Zealand superannuation funds and KiwiSaver accounts appear not to qualify for the exemption in the current draft regulations.

"Yet, we are hopeful with lobbying superannuation and KiwiSaver funds can be incorporated into the exemption prior to finalisation of the rules," adds Russell.

The deadline for submissions to the IRS is April 30 this year.

For insurers Russell notes there is clarification insurance accounts, which include an investment component such as cash value insurance contracts and annuity contracts, will be caught. Yet, insurance contracts that provide ‘pure insurance protection’ and don’t have an investment component will generally be excluded.

Inter-govt agreements?

The US is now working with Britain, France, Germany, Spain and Italy on ways to report information on US account holders through their own government agencies rather than direct to the IRS. Although New Zealand is currently not involved in these discussions, Russell suggests the outcome could pave the way for FATCA to become a global blueprint for addressing tax evasion.

"The financial services industry will be interested to see whether such inter-governmental agreements will pave the way to more flexible approached to some of the difficult issues, such as the rules relating to how payments passed through to non-compliant financial intuitions."

“One of the biggest headaches in the FATCA regulations, pass-through payments, has been further deferred until January 1, 2017, allowing the IRS to consult further with industry on workable solutions," says Russell.

"The deadlines for complying with various due diligence and reporting obligations have also been extended, in recognition of some of the difficulties raised by the industry, such as conflict of laws issues. For example, rules such as New Zealand’s Privacy Act can prohibit financial institutions from passing the required customer information to the IRS unless customers have contracted out of the restrictions."

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This will be John Key's "David Lange" moment .. an opportunity to give the US the two fingered salute and thus fulfill his dream of turning New Zealand into a Financial Hub

If the penalty is on a private business then I dont see JK giving the IRS the finger achieves anything....?
So the way I read it is if say ASB says "stuff off" any money that is going to the ASB passing through a US juristiction ie over the wire can be held/taxed by 30% by the IRS at that point.....so I dont see what a NZ govn can do about it....
If however the bank is wholly dealing in NZ then it could I suppose try and ignore it...just as long as it doesnt go to foreign markets to raise cash for some reason....otherwise that money raised could be "taxed" by the IRS before it gets to NZ shores...
regards
 

Yeah – another economic megalomaniac step by the government into disaster for small, beautiful New Zealand.
 
 Considering the worldwide circumstances - I’m wonder, when we see in this country, Kiwis standing up and stop devastating economic developments by the government.

These civil wars are really starting to get vicious. But we ain't seen nothing yet.