Today the Governments of the Kingdom of Norway and the United States of America released a FATCA InterGovernmental Agreement (IGA) and an accompanying Memorandum of Understanding (MOU).
The release of an MOU is a departure from what has happened with the release of other IGAs and provides further clarification on the implementation and enforcement of FATCA under an IGA. However, without definitive guidance from the New Zealand government, uncertainty over the implementation of FATCA in New Zealand will remain.
Implications of the Norwegian MOU for New Zealand
One of the key challenges that New Zealand financial institutions are facing is determining the position if the New Zealand IGA and enabling legislation is not in force before the FATCA implementation date of 1 January 2014. New Zealand financial institutions face the possibility of a 30% withholding on income from the US or having their accounts with offshore financial institutions closed.
According to the MOU, the Norwegian government proposes to introduce domestic legislation to have its IGA in force by 30 September 2015. The MOU also provides that the United States intend to treat Norwegian financial institutions as complying with, and not subject to, the withholding requirements of FATCA.
Whilst a similar approach in New Zealand may eliminate the withholding exposure for New Zealand financial institutions (and their customers), privacy and human rights challenges may make it difficult for New Zealand financial institutions to comply with other FATCA requirements such as closing customer accounts and collecting the prescribed information on customers.
The financial services industry will be looking for clear direction from the New Zealand government on how it proposes to overcome these remaining challenges so the industry can continue to implement the changes required to be FATCA compliant from 1 January 2014.
The IGA is business as usual...almost
The IGA itself largely follows the template that the New Zealand Government submitted to the IRS back in February of this year. One notable difference is the Norwegian IGA includes a provision which expressly allows Norwegian financial institutions to rely on definitions in United States Treasury regulations provided the use of the regulations does not frustrate the purposes of the IGA.
If this provision finds its way into the proposed New Zealand IGA, it would provide welcome clarification for the various terms which are defined in the regulations but not in the IGA. We imagine that following a definition in the regulations would provide a ‘safe-harbour’ from US enforcement of the IGA and it will be interesting to see what will happen if financial institutions choose an alternative interpretation of terms not defined in the IGA which provide a different result.