Tuesday, October 30, 2012
The New Zealand government has announced its intention to negotiate a Foreign Account Tax Compliance Act (FATCA) tax information agreement with the US.
FATCA was enacted by the US Congress in March, 2010. It is intended to ensure that the US tax authorities obtain information on financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest, at Foreign Financial Institutions (FIIs) including banks, investment funds, insurance companies, foreign trusts and foreign corporations. FIIs are required to enter into agreements with the US Internal Revenue Service (IRS) and Treasury, to provide such details. Failure by an FFI to disclose information would result in a requirement to withhold 30% tax on US-source income.
According to New Zealand's Revenue Minister Peter Dunne, while New Zealand fully supports the move to clamp down on tax evasion, the government wants to ensure that information is exchanged through existing channels. He explained: "Without an inter-governmental agreement, financial institutions would have to enter into separate agreements with the IRS, withhold tax on certain accounts, and risk being in conflict with New Zealand's privacy and human rights laws".
An intergovernmental agreement would materially reduce FATCA compliance, Dunne said, and would also help address a number of concerns because financial institutions will not have to provide information directly to the IRS.
The Cabinet has agreed to lodge an expression of interest in negotiating a FATCA tax information agreement. "This agreement will mean we can help to support FATCA's objectives and play our part in dealing with international tax evasion, while at the same time ensuring that the compliance costs for New Zealand institutions are manageable," Dunne stressed.
A joint working group comprising private sector representatives and officials is being formed to work through FATCA issues.