Media release, 30 October 2012
Michael Wright - Senior Manager, Financial Risk Management, KPMG
The recent announcement by the Minister of Revenue that New Zealand will negotiate an Intergovernmental Agreement (IGA) with the US to facilitate the implementation of the Foreign Account Tax Compliance Act (known as FATCA) has been welcomed by many in the financial services industry.
The announcement offers some comfort for financial institutions as they can now plan for the introduction of FATCA with a little more certainty.
FATCA was enacted by the US Congress in 2010 to prevent tax abuses by US persons. The FATCA rules are wide-ranging and will require non-US financial institutions, investment entities and insurance companies to report details on their US customers and owners.
The IGA will mean that all financial institutions in New Zealand will be required to follow detailed procedures to identify any US account holders, be they customers or owners of the financial institution.
Once this process has been completed, the financial institution will be required to provide information on any US persons to Inland Revenue who will exchange it with the US for similar information on New Zealand persons with accounts at US financial institutions.
Under the original regulations many considered financial institutions without a direct investment in the US to be outside the scope of FATCA whereas the IGA will apply to all New Zealand financial institutions regardless of exposure to US investments or US investors.
One significant benefit of the IGA compared with the original US FATCA regulations is that the IGA mostly eliminates the punitive 30% FATCA withholding on US sourced income and sale proceeds. In addition, subject to meeting their reporting requirements under the IGA, New Zealand financial institutions should not be required to close accounts of customers which do not provide confirmation of whether they are US persons or not.
The IGA will eliminate FATCA requirements for some New Zealand financial institutions and modify the requirements for others such as ‘local’ financial institutions whose account holders are largely New Zealand residents.
These local financial institutions will still be required to monitor their customer base and report on or close the accounts of any US persons so they will see need to implement monitoring processes and systems and ensure ongoing compliance.
As the expected start date for gathering information on new customers is 1 January 2014, it is important that the New Zealand Government concludes the Agreement in a timely manner to provide certainty to New Zealand financial institutions and as much time as possible for FATCA to be implemented.
Management of financial institutions should be considering the application of FATCA to their business operations and determining what systems and processes are impacted by the customer identification and reporting requirements.
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