PwC welcomes IR’s proposals to help comply with US reporting

Friday 22 November 2013

News release

PwC welcomes IR’s proposals to help comply with US reporting obligations

Inland Revenue (IR) has today released draft legislation to facilitate compliance with the United States (US) Foreign Account Tax Compliant Act (FATCA) regulations.

The importance of this legislation is to help New Zealand financial services companies comply with the FATCA obligations, under an inter-governmental agreement (IGA) once it has been negotiated with the US.

The implementation of FATCA under an IGA rather than under the US regulations should reduce compliance costs for New Zealand financial institutions. It will also enable New Zealand financial institutions to meet their FATCA reporting obligations without any Privacy Act breach.

PwC New Zealand FATCA Director Henry Risk says, "We welcome the release of the proposed legislation by IR and the New Zealand Government. It offers a solution to the Privacy Act issue.

“Allowing organisations to provide the required information to IR rather than the US Internal Revenue Service (IRS) should also simplify reporting and reduce compliance costs for New Zealand financial institutions.

“Yet, it’ll mean some local institutions that do not have US assets and may previously have been able to bypass the compliance requirements of the FATCA rules, will have to comply with the new local information reporting rules,” adds Mr Risk.

Understanding FATCA is key to financial institutions, including New Zealand banks, deposit takers, brokers, managed funds and other financial services providers. Its 2010 introduction by the US Government requires them to register with the US IRS, and provide details to the IRS about the affairs of certain customers with links to the US.

Not following the rules would mean 30% of financial institutions’ income and sales proceeds from US assets would be withheld by the US Government.

Last October, the New Zealand Government announced its proposal to enter into negotiations with the US Government on an IGA, in relation to FATCA.

One of the main concerns of New Zealand financial institutions has been the potential to breach the New Zealand Privacy Act if they were forced to report details of their customers to IRS. The enabling legislation places obligations on New Zealand financial institutions to report that information under New Zealand tax law, which is permitted under the Privacy Act.

The draft legislation enables obligations included in information sharing agreements, such as the proposed IGA, to be enforced under local New Zealand laws. These obligations include obligations to register, perform due diligence procedures and provide information to IR or directly to a foreign tax authority where this is required under an information sharing agreement.

One option being considered by financial institutions that deal with few US customers is to close all accounts provided to US residents. The legislation specifically authorises the financial institution to choose this option.

Mr Risk notes, “This appears to be an attempt to address a concern that such a course of action could be discriminatory against US customers and amount to a breach of human rights.”

The enabling legislation has been drafted in general terms to apply to both the proposed IGA with the US Government and any future agreements the New Zealand Government may enter into.

This is in line with the current trend toward increasing exchange of taxpayer information between governments, which is being led by the OECD.

- Ends -

© Scoop Media