The New Zealand Tax Podcast - Inland Revenue gains another tool for its crypto-asset activities. And Iran, and the All Whites, might have tax problems at the football World Cup

Recently, we've been discussing Inland Revenue’s increasingly aggressive, in our view, activities in dealing with crypto asset investors. You may recall that one tax agent has reported that clients with unfiled but not yet due 2025 tax returns received warning letters from Inland Revenue in effect saying, ‘You may not have yet filed your return, but we know you've got crypto-asset income, and we expect to see it in your return.’

To add to this increased activity, Inland Revenue has adopted the international Crypto Asset Reporting Framework, or CARF from 1st April. This is an extension of the Organisation for Economic Cooperation and Development’s Common Reporting Standard on the Automatic Exchange of Information (AEOI).

Reporting crypto asset service providers

From 1st April CARF will apply to what are termed New Zealand-based ‘Reporting Crypto Asset Service Providers’. These are basically any individual or entity who are carrying out the exchange or conversion of crypto assets on behalf of users as a business. This includes acting as a counterparty, intermediary or provide a trading platform. It does not include an individual entity who is only holding wallets or is trading crypto assets on their own benefit.

These Reporting Crypto Assets Service Providers must collect and report specified information about their users and transactions. This is then reported each year to Inland Revenue each 30th June. The first reporting date will be 30th June 2027 covering the period from 1st April 2026 to 31st March 2027. That information will then be shared with other jurisdictions as happens currently with AEOI.

The unknown network of information sharing

Inland Revenue obviously will also use what data it receives through CARF and the AEOI to match with New Zealand resident taxpayers. CARF is another example of something many appear unaware of, which is the massive amount of information that Inland Revenue gathers and has access to, and how it also shares that information with other jurisdictions. Those jurisdictions will in turn also be sharing similar types of information with Inland Revenue.

Inland Revenue is being very aggressive in the crypto-asset space. Its basic position regarding crypto-assets appears to be that all crypto is trading income and will be taxed accordingly although circumstances will vary. The one thing all crypto-asset investors should be aware of is that it is more likely than not, that Inland Revenue has data relating to your transactions. So pleading ignorance of the rules is not going to work.

More on the financial arrangements regime

Moving on, we've greeted with some relief the recent back-dated increase in thresholds for about the financial arrangements regime. The change should hopefully mean a lot of taxpayers are now what's termed “cash basis holders”, so they're not potentially subject to exchange rate fluctuations and therefore being taxed on unrealised income when the cash flows don't match.

The issue with the financial arrangements regime is that it is extremely broad which an interesting new Inland Revenue Technical Decision Summary TDS 26/03 illustrates. The taxpayer in question applied for a private ruling in relation to the potential application of the financial arrangements regime to a transaction relating to the sale and purchase of land.

The arrangement in question was for the sale and purchase of land. The sales were structured as a staged subdivision with settlement and payment for each lot occurring in eight stages over eight years. The sale and purchase agreement included what's known as a lowest price clause, under which the agreed price for the purchase of each subdivision was the lowest price for tax purposes under section EW 32(3) of the Income Tax Act 2007.

Does deemed interest income arise with a staged subdivision?

The issue TDS 26/03 considered was whether the consideration payable under the sale and purchase agreement was the in fact the lowest price, and whether there was any financial arrangement income in the form of deemed interest under the agreement. In other words, the price component have included an interest component because eight payments would be received over a period of eight years. In such a context, it's not hard to see why the persons putting this arrangement together were a bit concerned about potentially being caught under the financial arrangements regime.

Inland Revenue did indeed conclude the agreement was a financial arrangement which is hardly surprising given the eight-year period proposed. What about the lowest price clause, which basically said this is the price we would have paid at market value. This argument was accepted by Inland Revenue’s Tax Counsel Office. Yes, the sale and purchase agreement was a financial arrangement, but the value of the land was the purchase price as agreed, and therefore there was no financial arrangement income or loss for the purposes of the financial arrangement regime.

A good result for the taxpayer and a useful example about how the financial arrangements regime contains plenty of traps for the unwary.

And now in sports news…

Finally, this week, you may have forgotten, the Football World Cup to be held in Canada, Mexico and the United States is coming up. The All Whites have qualified for the first time since 2010 and their first opponent is Iran with the match to be played in Inglewood, California on 16th June. President Trump’s view is that Iran should not be there, but FIFA hasn't really responded to this, so potentially the match may be moved to Canada or Mexico or even cancelled.

The All Whites versus the Internal Revenue Service?

Anyway, it has emerged in the last week or so that the venue is potentially the least of the problems for both Iran and the All Whites. This is because FIFA has failed to reach agreement with the United States Internal Revenue Service (the IRS), about a tax exemption relating to payments made to players and officials attending the World Cup.

Quite apart from their appearance fees, players and officials receive a daily living allowance or per diem. This was US$850 at the 2022 World Cup but because of the increase in the number of teams to 48 it has been reduced to US$600, (about NZ$1000) per day, for this year. I've been told there are literally huge bags of cash carried around as the daily disbursements are made to officials and players.

According to the Guardian report, no blanket exemption has been agreed with the IRS, and therefore those teams playing in the United States may be subject to federal, state, and city taxes on their tournament earnings and per diems.

When Qatari held the World Cup in 2022, it granted exemptions to all 32 attendees. As things stand Carlo Ancelotti, head coach of the Brazilian team, potentially could be taxed on his earnings in both Brazil and the US. The double tax agreement might give some relief and there should be a foreign tax credit available for any US taxes paid, but in summary it’s a bit of a mess.

But what about the double tax agreements?

There are a number of participating countries which will have double tax agreements with the United States. These typically include a whole range of clauses dealing with the issue of which country gets taxing rights in this scenario. The Guardian reports 18 countries have signed a formal double tax agreement with the United States, which would exempt their delegation from paying the federal taxes on the matter. Most of those are in Europe, but Australia, Egypt, Morocco, and South Africa are all reported as having a relevant double tax agreement.

New Zealand has a double tax agreement with the United States, but it is over 40 years old. I'm therefore not entirely sure that the agreement may cover the treatment of sporting participants. It’s therefore possible the All Whites players and officials will be subject to US federal taxes on their earnings and the daily living expenses I mentioned earlier.

A win-win for Iran and the All Whites?

You can be sure that the Iranians do not have a double tax agreement with the Americans. It will be interesting to see how this plays out. It might be that both the All Whites and Iran would be very happy to have the match moved outside the United States, not necessarily because of geopolitical matters, but simply because they get to keep more of their earnings.

And on that note, that's all for this week. I’m Terry Baucher and thank you for listening. Please send me your feedback and requests for topics or guests. Until next time, kia pai to rā. Have a great day.