Here come the tax acronyms; FATCA, AEOI, specified US persons & the potential for a tax residence licence in your wallet alongside your driver's licence

 By Gareth Vaughan

First we get FATCA then we'll get AEOI.

Apologies for the acronyms. FATCA in full is the United States Foreign Account Tax Compliance Act. And AEOI is an Automatic Exchange of Information.

The former is being foisted on the world by financial superpower the US, apparently chasing every last cent of potential tax revenue from Joe Public wherever in the world it may be hiding. And AEOI is a somewhat less frightening multilateral follow up involving the Group of 20 (G20) and Organisation for Economic Co-operation and Development (OECD).

FATCA requires global financial institutions to report to the US Internal Revenue Service (IRS) about details of US customers. FATCA's stated aim is to reduce tax avoidance by US citizens investing outside of the US, and failing to declare the investments and income from these investments. Its tentacles are being felt all around the world, including within New Zealand financial institutions and among New Zealand residents with US links.

The G20 and OECD are following up FATCA with the AEOI, which they want to implement as a global standard. It's an initiative New Zealand is supporting.

In an important difference to FATCA, the multilateral convention will tax based on people's residency rather than citizenship. This should avoid the worst aspects of FATCA where, unlike most countries, the US taxes on what's known as a citizenship basis, meaning US citizens retain tax obligations no matter how long they live overseas.

"New Zealand supports initiatives that seek to improve transparency and effective exchange of information internationally and therefore supports the AEOI initiative in principle. However, we are currently working through the implications for implementing the initiative in practice. We have raised the issue of AEOI with the FATCA consultation group (which includes the New Zealand banks), and will consult with and keep that group informed as this issue develops," the Inland Revenue Department (IRD) says.

Broad scope

The intergovernmental agreements between the US and other countries, including NZ, for FATCA have acted as a catalyst for the international AEOI initiative, the OECD says. And in an attempt to prevent taxpayers "circumventing" their plans, those behind AEOI are giving it broad scope.

"The financial information to be reported with respect to reportable accounts includes all types of investment income (including interest, dividends, income from certain insurance contracts and other similar types of income) but also account balances and sales proceeds from financial assets," the OECD says.

"The financial institutions that are required to report do not only include banks and custodians but also other financial institutions such as brokers, certain collective investment vehicles and certain insurance companies."

"Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations), and the standard includes a requirement to look through passive entities to report on the individuals that ultimately control these entities," the OECD adds.

A tax residence licence?

Ernst & Young tax partner Brad Wheeler says with Australia currently chairing the G20, it will almost certainly adopt the AEOI in 2015.

"So NZ is likely to follow suit, although we don’t have a clear picture on the IRD's current position on this. The detailed requirements are not likely to be available until later in 2014 with the customer classification requirements possibly in 2016," says Wheeler.

For individuals, they're facing more of a burden to prove their tax residence is solely in NZ to a sufficient level of proof so that their name, or identifying number, doesn’t then end up back on the, for example, French Revenue’s list, says Wheeler.

"The day of carrying around your ‘tax residence licence’ in your wallet alongside your ‘driver's licence’ could come!" Wheeler says, tongue-in-cheek.

Back to FATCA.

IRD recently confirmed negotiations between NZ and the US have progressed sufficiently for NZ to be treated as if an intergovernmental agreement for FATCA is already in place. This is good news for NZ financial institutions (banks, insurers, managed funds) as it means it'll be cheaper and simpler for them to comply with FATCA, because the IRD will be the middle man between the NZ institutions and the IRS.

IRD estimates it receiving information from financial institutions and passing it onto the IRS will cost NZ taxpayers between $5.667 million and $8.543 million over five years. As interest.co.nz reported in 2011, the New Zealand Bankers' Association (NZBA) had estimated complying with FATCA might cost banks $100 million. NZBA also raised concerns FATCA would contravene NZ privacy and anti-discrimination laws.

"FATCA is projected to raise US$8 billion world-wide over 10 years for the US IRS. The cost of compliance world-wide has been estimated at between US$10 and US$20 for every single dollar the IRS retrieves," NZBA regulatory director Karen Scott-Howman said in 2011.

What's a specified US person?

In terms of individuals in NZ who may be affected, a key definition is "Specified US Person."

"The United States taxes on what is known as a citizenship basis, meaning that US citizens continue to have tax filing obligations irrespective of how long they have lived overseas," IRD says.

"However, the number of people affected is not known because Inland Revenue does not keep statistics related to the potential offshore tax liability of individuals. The data released by Statistics New Zealand as part of Census 2013 recorded 21,462 people born in the United States that are 'usually resident' in New Zealand."

However, as BNZ points out in a submission on NZ's implementation of FATCA, many bank customers will be impacted.

"Although FATCA reporting is restricted to US persons/US specified persons whose account values exceed certain thresholds, in order to identify those customers there is an unavoidable impact on customers who are not US persons/US specified person who use New Zealand financial institutions. Specifically, those customers will still have to be asked various questions in order to determine that they are not US persons/US specified persons," says BNZ.

Just what "US specified persons" means is raising concerns at how wide the net will be cast. Will it drag in just US citizens? Or will their spouses, partners, children and business partners also be included? And what about green card holders?

"The only individuals that are to be reported on for FATCA purposes are persons who have been identified as being “Specified US persons” that hold (or in certain circumstances control) US Reportable accounts," IRD says. "It is expected that the definition of 'Specified US Person' will largely be synonymous with a person that is a United States taxpayer under US domestic legislation."

"A spouse, partner, child, or business partner of such a Specified US Person will not be reported on merely because of their relationship to such as person," says IRD.

"Various mechanisms are being put in place, both at the financial institution and Inland Revenue level that are designed to prevent over-reporting of spouses etc. who are not themselves specified US persons. This means that if, for example, a Specified US Person and their non-US person spouse have a joint account, only the information on the Specified US Person will be provided to Inland Revenue."

'It doesn't change anything'

IRD also maintains the intergovernmental FATCA agreement with the US won't change any substantive taxing rights the US may already have over NZ residents.

"Those rights already exist as a matter of United States law and it is not proposed that the intergovernmental agreement will change this," says IRD.

NZ's legislative base for FATCA is included in the bowels of the as yet unpassed Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill. Being overseen by Revenue Minister Todd McClay, the Bill had its first reading on December 10 last year. A select committee report on it is due by June 10, and the government's aiming to pass it by July 1, from when FATCA obligations for NZ financial institutions will kick in.

Financial institutions that fail to comply with the rules can have 30% of transactions associated with US financial instruments and other financial institutions withheld and paid to the IRS.

Concerns raised, emotions running high

FATCA has, not surprisingly, raised major concerns and passions among a significant number of individuals, professions and financial entities. Below are excerpts taken from some of the submissions to Parliament's Finance and Expenditure Select Committee. These submissions in full, and others, can be found here.

And below them is a list of questions interest.co.nz asked IRD about FATCA and the AEOI initiative, complete with IRD's answers in full.

Canadian lawyer John Richardson

Although FATCA has its difficulties, the problems are exacerbated by the U.S. system of citizenship-based taxation. Citizenship-based taxation is incompatible with the reality of life in a global world. To it's credit, the U.S. Senate Finance Committee is currently considering the appropriateness of “citizenship-based taxation”. I am hopeful that once the full implications of citizenship-based taxation are understood, that the U.S. will adopt the international norm - “residence based taxation”.

A move to residence-based taxation is essential to the interests of the United States and to its trading partners.

No country should participate in FATCA without understanding what U.S. citizenship based taxation really is, how citizenship-based taxation and FATCA interact, and how this interaction affects the economies of countries who have “U.S. persons” resident in the country. I, along with others have prepared a detailed submission on citizenship based taxation, which has been submitted for consideration by the U.S. Senate Finance Committee.

The submission may be found here: http://citizenshipsolutions.ca/2014/01/24/submission-to-the-senate-fina…- citizenship-based-taxation/

Given the current reality of U.S. citizenship-based taxation, it is impossible for New Zealand to participate in FATCA without ceding its sovereignty to the United States.

1. All “U.S. persons” (however the U.S. chooses to define them) are subject to tax on ALL of their income, under the Internal Revenue Code “IRC” wherever they reside in the world.

2. All “U.S. persons” are subject to EXACTLY the same provisions of the “IRC” regardless of where they live. The law in its “majestic equality” treats U.S. Residents the same as U.S. citizens abroad.

3. The primary tax obligation of the “U.S. person” is to the United States. This means that U.S. persons must first pay tax to the United States according to U.S. and only to U.S. laws. This tax calculation is without consideration of the fact that “U.S. persons resident in Zealand” also pay taxes in New Zealand.

4. This application of U.S. law means that “U.S. persons resident in New Zealand” will be subjected to taxes on things that are NOT taxable in New Zealand. ONE example is the taxation of an ACTUAL capital gain in general and on the sale of a principal residence in particular. This is ONE example of the principle that “U.S. taxpayers resident in New Zealand” are subject to additional taxation from the U.S.

KPMG

With relation to the United States we consider that New Zealand already recognises the ability of the US to tax its citizens and former citizens (ie 'US persons') on a worldwide basis. This is the effect of article 1(3) of the New Zealand US Double Taxation Agreement (the DTA). Article 22 (1) of the DTA means the US must credit New Zealand taxes against a US tax liability, while article 22(2) of the DTA requires New Zealand to do likewise for US taxes.

The practical effect in our view is that;

For any US sourced income, the US is presently able to tax the income of a New Zealand resident/US person, but limited to the rates allowed under the DTA.

New Zealand taxes the worldwide income of its residents and allows a credit for tax paid to the US, in accordance with the DTA, on US sourced income.

The US taxes the worldwide income of US persons allowing a credit for US taxes and New Zealand tax already paid.

The DTA therefore already allocates, between New Zealand and the US, the taxing rights over a person's income.

New Zealand bases its tax system on the worldwide taxation of its residents rather than its citizens. However, th e residence concept , as it is currently being applied by Inland Revenue and the New Zealand Courts , is arguably moving close r to a citizenship basis of taxation . ( A s an example , we refer the Committee to Taxation Review Authority decision 43/11, where a person who had lived outside New Zealand for 10 years was held not to have sufficiently severed his ties to New Zealand to be come non - resident for the first 4 years of that absence.)

The point is that New Zealand’s own tax system is vulnerable to claims of overreach (in terms of the personal and economic “ties” which will create a NZ tax liability on worldwide income ) and to t axing amounts which ought not to be taxed (for example, a debt forgiveness or release is taxable despite the lack of a capital gains tax).

The OECD has been working on a standard for the automatic exchange of information between countries . We have advised our clients that we expect the reporting of information will not be restricted to US Persons but will extend to residents (and possibly citizens) of other countries as well . We expect that the Bill’s provisions would allow compliance wi th those further o bligations. The OECD released a draft of the agreement and the standards on 13 February 2014.

Finally, we acknowledge that there are personal rights and obligations at stake, which must be weighed against the operation of New Zealand’s tax system, includin g tax sharing agreements and expected future tax agreements. A lthough the current submissions on the Bill appear to be focused on US Persons who are also New Zealand residents, similar issues may arise for New Zealand residents who are also treated as res idents or citizens of other countries. Our submissions are focused on the effective operation of the New Zealand tax system . Balancing that against the personal rights and obligations of those affected is a task we consider belongs to the Committee and Parliament.

New Zealand Law Society

The proposed amendments explicitly authorise New Zealand financial institutions to obtain and provide certain information to Inland Revenue in respect of their account holders, in order to overcome concerns that such collection and provision would be in breach of the Privacy Act 1993 in the absence of legislative authorisation. The proposed amendments do not, however, extend to the provision of information by account holders to New Zealand financial institutions and do not protect them against potential Privacy Act breaches.

To comply with their obligations under the proposed amendments, New Zealand financial institutions will have to obtain information from account holders that includes whether they are holding funds on behalf of other persons and, if so, the personal details (including name, address and tax identification numbers) of such persons. Account holders could potentially be in breach of the Privacy Act by providing the requested information to financial institutions.

Given that the provision of such information is necessary to enable New Zealand financial institutions to comply with their obligations under the proposed amendments and the New Zealand Government to comply with its obligations under the IGA and other foreign account information-sharing agreements, the Law Society considers that account holders should be afforded the same legislative protection against potential Privacy Act breaches that are given to financial institutions.

The Law Society considers that solicitors are not “financial institutions” as defined in the IGA in respect of their relationship with their clients and in particular in relation to solicitors’ trust accounts. However, given the potential breadth of term “a person as described in a foreign account information-sharing agreement” and the onerous implications of being such a person, the Law Society seeks clarification that the proposed amendments are not intended and do not apply to solicitors in respect of solicitors’ trust accounts.

Marvin Van Horn

FATCA should not be hidden in ‘stealth’ inside a bill without the New Zealand public understanding what it represents. This is WAY WAY MORE than just a little remedial matter! What is being asked of Parliament is a BIG ASK, modifying New Zealand privacy laws to satisfy the demands of a foreign jurisdiction. Would you do that for Russia, China or North Korea? Why not? With this bill you are setting that precedent.

Parliamentarians should be given adequate time to study up on the complex matters being proposed, and there should be enough media coverage to educate constituents and to allow for input to their MPs about what they think of FATCA compliance and changes in your Bill of Rights. This “Remedial Matters” Bill does none of that.

My interest in this Legislation: As a tax compliant American who has a long association and appreciation of New Zealand, I am embarrassed to see what my country, the USA, is now demanding of countries around the world generally, and New Zealand specifically, in pursuit of an ideological War on Offshore Tax Evasion.

The FATCA FACTS: CBC News, the respected Canada Broadcasting Corporation has eloquently made the point about the impacts of FATCA on ALL, in a recent article. Canada is another Commonwealth country that is NOT a Tax Haven. It is in the fore front of resistance to American overreach. FATCA facts: What Canadians need to know about new U.S. tax law.

FATCA = U.S. Spying: Frankly FATCA financial data collection is just another aspect of the USA Total Global Awareness Program that has the NSA spying on everyone’s communications everywhere around the world.

Carrie Fisher

I was born in the US and came to live and work in New Zealand in my twenties. I loved this country, its people, and its societal norms. I became a citizen as soon as I was eligible. I proudly recited the Oath of Citizenship, swearing that I would be faithful and bear true allegiance to Her Majesty Queen Elizabeth the Second, Queen of New Zealand, Her heirs and successors, according to law, and that I would faithfully observe the laws of New Zealand and fulfil my duties as a New Zealand citizen.

I have lived the majority of my life in this country, have renounced my US citizenship, and feel no affiliation with the US.

For this reason, I must write this submission as I feel that New Zealand laws are being breached and serious financial impacts may be realized if this section of the bill were to be agreed.

I have two children who are New Zealand citizens. They were not born in the US and have never lived in the US, but unfortunately, are classified as “US Persons” by the US government. They are therefore subject to US taxation statutes and data information sharing under this legislation from their New Zealand bank accounts.

The implementation of FATCA and the IGA currently being negotiated will affect my children and subject them to unfair discrimination within the New Zealand financial system. They will not have privacy of their financial data – all because of the US strong-arming governments around the world to report bank accounts belonging to “tax cheats” to the US.

New Zealand Bankers' Association

Overall we support the Bill. We also strongly support the prompt passage of the Bill into law. Without the legal protection provided by the Bill, New Zealand financial institutions would be at risk of breaching the Human Rights Act 1993 and the Privacy Act 1993 if they perform the due diligence and provide the information required to comply with FATCA. Failure to comply with FATCA is not an option for the financial industry as significant penalties would be imposed.

We think the Bill adequately addresses the concerns that we have identified in relation to privacy and human rights laws insofar as the reporting obligations of New Zealand financial institutions are concerned.

BNZ

For New Zealand Financial Institutions, FATCA requires the use of enhanced due diligence procedures to identify US persons who have invested in either non-US financial accounts or non-US entities. The intent behind FATCA is to keep US persons from hiding income and assets overseas.

There are significant compliance costs for New Zealand Financial Institutions in developing and maintaining a solution to deal with FATCA. There are also significant withholding penalties which can be imposed on the US sourced income of non-participating foreign financial institutions. To be effective, the Foreign Account provisions must ease the burden of compliance in a manner which balances the impact on financial institutions with the impact on their customers.

For example, although FATCA reporting is restricted to US persons/US specified persons whose account values exceed certain thresholds, in order to identify those customers there is an unavoidable impact on customers who are not US persons/US specified person who use New Zealand financial institutions. Specifically, those customers will still have to be asked various questions in order to determine that they are not US persons/US specified persons.

ANZ

ANZ submits that the amount of work involved for a financial institution to collate and provide the information to IRD in the prescribed form is significantly more than the work involved for IRD to pass the information to IRS. Accordingly, the timeframes should be reversed so that financial institutions have four months to provide the information to IRD, leaving IRD two months to pass the information onto IRS.

IRD questions & answers

Q) Now that NZ has as good as secured an intergovernmental agreement with the United States for FATCA, I'd be interested in the nuts and bolts of how it's actually going to work.

A) The Inter-Governmental Agreement (IGA) with the United States is still being negotiated at present. However, it is important to note that the proposal is for financial institutions to collect information on customers that are, or are likely to be, United States taxpayers.

This collecting will not be performed by Inland Revenue. Instead, Inland Revenue will act as an intermediary between New Zealand financial institutions and the Internal Revenue Service. The Government’s involvement in FATCA is simply to ensure that New Zealand financial institutions are able to comply with their expected obligations in the most efficient way possible and thereby ensuring that our financial institutions can continue to operate in the US market.

The IGA will not alter any substantive taxing rights that the United States may have over New Zealand residents. Those rights already exist as a matter of United States law and it is not proposed that the IGA will change this.

Q) Does IRD have an estimate of how many people in NZ will be directly impacted by FATCA?

A) As you have noted in your questions, the United States taxes on what is known as a citizenship basis, meaning that US citizens continue to have tax filing obligations irrespective of how long they have lived overseas. However, the number of people affected is not known because Inland Revenue does not keep statistics related to the potential offshore tax liability of individuals. The data released by Statistics New Zealand as part of Census 2013 recorded 21,462 people born in the United States that are “usually resident” in New Zealand: http://www.stats.govt.nz/Census/2013-census/data-tables/total-by-topic…

This is an indication of the number of US citizens potentially affected by FATCA reporting.

Q) Are those in NZ who you expect to be directly impacted solely US citizens? What about green card holders?

A) The terms of an IGA between the United States and New Zealand are still being negotiated.

A key definition in the IGA will be the definition of “Specified US Person.” The only individuals that are to be reported on for FATCA purposes are persons who have been identified as being “Specified US persons” that hold (or in certain circumstances control) US Reportable accounts.

It is expected that the definition of “Specified US Person” will largely be synonymous with a person that is a United States taxpayer under US domestic legislation. In this regard, for individuals, we direct you again to the information provided by the U.S. Internal Revenue Service at the websites below:

http://www.irs.gov/Individuals/International-Taxpayers/Immigration-Term…

http://www.irs.gov/Individuals/International-Taxpayers/Taxation-of-Nonr…

Q) And what about spouses, partners, children and business partners of US citizens or green card holders, will they have their data reported?

I ask these questions because I noticed these comments in the IRD's regulatory impact statement; "For the purposes of this statement, it is worth noting that the United States is one of the very few countries that taxes individuals on a 'citizenship' basis. This means that a United States citizen remains liable to file tax returns (and pay tax if necessary) in the United States irrespective of how long they have been living abroad."

"In practice, this may mean that a New Zealand resident that is also a United States citizen/taxpayer may be caught by FATCA reporting, even if they have been living in New Zealand for many years and maintain no links to the United States (apart from continuing to be a United States citizen). People in this position that have not consistently complied with their United States reporting and payment obligations are therefore likely to be concerned that being reported on to the IRS may potentially expose them to significant tax and penalty charges."

A) The only individuals that are to be reported on for FATCA purposes are persons who have been identified as being “Specified US persons” that hold (or in certain circumstances control) US Reportable accounts. A spouse, partner, child, or business partner of such a Specified US Person will not be reported on merely because of their relationship to such as person.

Various mechanisms are being put in place, both at the financial institution and Inland Revenue level that are designed to prevent over-reporting of spouses etc. who are not themselves specified US persons. This means that if, for example, a Specified US Person and their non-US person spouse have a joint account, only the information on the Specified US Person will be provided to Inland Revenue.

Q) How will NZ trusts be regulated under FATCA?

A) Our answer to this question is based on an assumption that New Zealand will sign an agreement with the United States on the same terms as that set out in the “Model 1A” agreement (see our response below here*).

A New Zealand trust will be an “entity” for FATCA purposes. An entity can be either a financial institution or a Non-Financial Foreign Entity (“NFFE”), an entity that is not a financial institution from the US perspective. Therefore, a New Zealand trust can be either a financial institution or a NFFE.

An entity will be a financial institution for FATCA purposes if it is a custodial institution, depository institution, investment entity, or specified insurance company. This will turn on the nature of the activities that the entity carries on.

A New Zealand trust that comes within any of these definitions will be a New Zealand financial institution. In certain circumstances where a trust is professionally managed by an investment entity, that trust can also itself be deemed to be an investment entity, and therefore, a financial institution. These definitions are explained in detail in the FATCA registration guidance notes on the IRD website: http://www.ird.govt.nz/resources/f/d/fd5e6983-545e-44ef-b761-6d14c5ab73….

The issue of whether a New Zealand trust is a New Zealand financial institution, as opposed to being an NFFE, will depend on the nature of the activities that it carries out and whether it is professionally managed.

A New Zealand financial institution will be either a Reporting New Zealand financial institution or a Non-Reporting New Zealand financial institution. These definitions are also explained in detail in the FATCA registration guidance notes on the IRD website. Reporting New Zealand financial institutions will have FATCA obligations. Non-Reporting New Zealand financial institutions can also (depending on the circumstances) have some limited FATCA obligations.

A New Zealand trust that is a Reporting New Zealand financial institution will need to carry out FATCA registration, due diligence, and reporting (if it identifies any reportable accounts). However, there will be scope for the trustee of the trust to carry out FATCA due diligence and reporting on behalf of the trust (referred to as a “trustee documented trust”). A trustee documented trust will not need to register for FATCA purposes, but the trustee will need to carry out the above-mentioned FATCA responsibilities on behalf of the trust.

Where a New Zealand trust is not a financial institution, it will be classified as an NFFE for FATCA purposes. Where the trust is a NFFE and holds an account with a New Zealand financial institution (such as a bank) that institution will need to carry out FATCA due diligence on the trust. If the trust is identified as being a passive NFFE that is controlled by Specified US Persons the bank will (unless the account is exempted or otherwise excluded) need to report the account.

Q) What is the full list of what's included in the definition of financial institutions? EG, banks, life insurers and managed funds.

A) The types of entities that will be “financial institutions” for FATCA are custodial institutions, depository institutions, investment entities, and specified insurance companies, which are described more fully in the FATCA registration guidance notes on the IRD website (see link provided in previous question). We note that banks, insurers (to the extent that they come within the definition of specified insurance company) and managed funds would be financial institutions.

Q) NZ is negotiating a reciprocal agreement with the US. Where is this at, when might it be finalised, and what is the ultimate outcome you expect from this?

A*) New Zealand is negotiating an agreement based on model agreements published on the US Treasury website: http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA… Until this agreement has been signed, we are unable to provide further details of its content. However, the Model on which the New Zealand agreement will based is:

• “Reciprocal Model 1A Agreement, Pre-existing TIEA or DTC”;

• “Annex I to Model 1 Agreement”; and • “Annex II to Model 1 Agreement”.

On this basis, it is expected that the agreement will be reciprocal in the manner set out in the model. This has been the case with every signed IGA based on that model (see the agreements set out at the above link).

It is expected that the agreement will be finalised in the near future. To recognise that negotiations have progressed, the US Treasury has included New Zealand on a list of countries that have an “agreement in principle” (http://www.treasury.gov/resource-center/tax-policy/treaties/pages/fatca…). This means that New Zealand financial institutions will be treated as if they operated in a country where an IGA has been agreed.

Q) In terms of GATCA (Global Account Tax Compliance Act), I understand the OECD is developing a similar reporting framework to FATCA on a global basis, with principles being finalised. Is NZ participating in this? And what timeframes is it working to?

A) The term “GATCA” that is sometimes being used informally to refer to the initiative, is not used in any of the official documentation on this issue. The term used is “AEOI” (Automatic Exchange of Information). AEOI is an initiative of the G20 (of which Australia is the current chair), with the OECD and the Global Forum on Transparency and Exchange of Information for Tax Purposes setting different aspects of the standards.

The OECD has developed the “Common Reporting Standard”, and is currently finalising the supporting technical modalities. The Global Forum is working through issues involved in implementing AEOI as a global standard.

New Zealand supports initiatives that seek to improve transparency and effective exchange of information internationally and therefore supports the AEOI initiative in principle. However, we are currently working through the implications for implementing the initiative in practice. We have raised the issue of AEOI with the FATCA consultation group (which includes the New Zealand banks), and will consult with and keep that group informed as this issue develops.

As noted, the Global Forum is working on issues related to implementation of AEOI as a global standard. They have not yet provided any indication on the issue of timelines.

Q) And what might GATCA ultimately mean for a) New Zealand, b) people resident in NZ regardless of their nationality, and 3) NZ financial institutions?

A) New Zealand is still working through the specific implications. As mentioned above, Inland Revenue is communicating with the financial services sector on these issues. Generally, it should be noted that effective exchange of information is a critical element in maintaining the integrity of New Zealand’s tax system. Anyone who is resident in New Zealand for tax purposes is liable for New Zealand income tax on their worldwide income.

From the general perspective of “fairness”, New Zealand taxpayers need to be confident that those earning foreign-sourced income are correctly reporting that income for New Zealand tax purposes. New Zealand has therefore for many years been an active participant in information exchange under our various tax treaties (double tax agreements, tax information exchange agreements, and the OECD/Council of Europe Multilateral Convention on Mutual Administrative Assistance in Tax Matters). Such exchanges help ensure that the correct amount of New Zealand tax is being paid. Improvements to the effectiveness of exchange of income that raise the level of confidence that tax evaders will be caught are therefore generally in New Zealand’s overall interests.

However, this needs to be balanced with the need to ensure that sensitive personal and financial information is used only for legitimate purposes and is not inadvertently disclosed. In engaging in information exchange under our tax treaties, Inland Revenue therefore operates within a strictly controlled legislative framework. Inland Revenue is concerned with ensuring that developments in exchange of information are carefully considered and fit within the framework of legitimate use and high levels of protection. Consultation with financial institutions is therefore a key part of our strategy before making any decisions on this issue.

Finally on this point, it is important to note that the Multilateral Convention, unlike FATCA, is based on tax residence rather than citizenship. This means that reporting should only occur on individuals that are tax resident in other countries, not merely because they have a non-resident citizenship status.

Q) Is NZ working on a one to one basis with any other countries on FATCA type deals?

A) FATCA and AEOI are the only specific initiatives of this type that New Zealand is involved with.

Q) When do you expect the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill to be passed by Parliament?

A) The bill is currently being considered by the Finance and Expenditure Committee. It is a matter for the Committee whether it will be reported back to Parliament before the usual six-month deadline. However the Government is conscious of the desire of the financial services sector for the bill to have received Royal Assent prior to 1 July 2014.