Media release - 21 January 2012
On Friday the United States Treasury issued finalised regulations to implement the Foreign Account Tax Compliance Act (known as FATCA) in an effort to combat tax evasion by Americans. Being a hefty 544 pages and coming a year after the nearly 400 pages of draft regulations were issued there is a substantial amount of detail for financial institutions to work through.
The release of the finalised regulations should be welcome news to New Zealand financial institutions such as banks, finance companies, insurers and managed funds as the regulations provide more clarity on what they will need to do to be FATCA compliant.
However, as New Zealand is pursuing an Intergovernmental Agreement (IGA) with the United States as the basis for implementing FATCA in New Zealand, the precise requirements for New Zealand financial institutions will not be known until the IGA is signed, enabling legislation passed and supporting guidance issued by Inland Revenue.
Although this is not likely to happen before the middle of this year, KPMG’s FATCA specialist Michael Wright warns New Zealand financial institutions have little time to assess the likely impact of FATCA and consider the necessary system and process changes required to enable the changes to be designed, implemented and tested before the 31 December 2013 deadline.
New Zealand financial institutions can look to the final regulations and developments in other countries to assist with determining the likely impact of FATCA in designing solutions. This is particularly so given the New Zealand IGA is unlikely to significantly depart from those that have been signed by other countries and the final regulations now incorporate many of the terms and provisions used in IGAs.
Furthermore, the guidance issued by the United Kingdom may influence the rules implementing FATCA in New Zealand and should also be considered.
Some of the highlights from the regulations include:
- Alignment of FATCA with the existing Anti-Money Laundering (AML) regulations.
- Incorporation of some of the IGA definitions into the regulations, including the definitions of depository and custodial institutions and investment entities.
- Modifications and clarifications to what entities can be deemed compliant financial institutions.
The issue of the regulations are a step in the right direction and have incorporated many of the submissions made to the United States Treasury.
With less than a year until New Zealand financial institutions need to be FATCA compliant, Michael Wright says financial institutions should be determining how FATCA applies to them, whether their current customer on-boarding process will obtain the necessary information from customers, what information is held about existing customers and what reporting may be required.