Model I reciprocal IGA
As expected the IGA is based on the ‘model I’ IGA and will require New Zealand financial institutions to identify customers and investors that are US persons or controlled by US persons and to report certain financial information to Inland Revenue.
Inland Revenue will then exchange the information with the United States’ Internal Revenue Service. The IGA is reciprocal in nature so in return Inland Revenue will receive information about New Zealanders with investments in US financial institutions.
Who is caught by the IGA
Financial Institutions are primarily impacted under FATCA. The IGA defines ‘Financial Institution’ very broadly and can capture entities traditionally viewed as financial institutions such as banks, investment funds, finance companies and insurers. FATCA can also apply to entities not typically viewed as financial institutions such as family trusts with professional trustees and some investment advisors as well as lawyers and accountants in certain circumstances.
The Memorandum of Understanding that accompanied the IGA includes some useful comments for charities and companies with employee share or option plans.
Inland Revenue has also been working on various guidance notes which will provide Inland Revenue’s view on how FATCA should be implemented in New Zealand.
The IGA does not contain the same transitional rules included in the updated model IGA released by the US on Friday so we would expect guidance from officials on whether the transitional relief the Model IGA or US Notice 2014-33 will be available to New Zealand financial institutions.
In the absence of such guidance, FATCA compliant on-boarding processes need to be in place by 1 July 2014 for accounts opened for both individual and entities. The final piece of the regulatory puzzle will be the passing of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill which contains the enabling provisions for FATCA. Whilst it is expected that the FATCA provisions will have effect from 1 July 2014, it is hoped that the Bill will be passed before then.