New Zealand will look to negotiate a FATCA tax information agreement with the United States, Revenue Minister Peter Dunne announced today.
The Foreign Account Tax Compliance Act (FATCA) was enacted by the United States in 2010, and requires overseas financial institutions – for instance, New Zealand banks, life insurers or managed funds – to enter into agreements with the US's Internal Revenue Service (IRS) and US Treasury to provide details about the affairs of their United States clients.
"New Zealand fully supports moves to clamp down on tax evasion through effective exchange of information between jurisdictions, but we want to ensure that the information goes through existing channels," Mr Dunne said in confirming that Cabinet this week agreed to lodge an expression of interest in negotiating a FATCA tax information agreement.
"Without an intergovernmental 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," he said.
These separate agreements are optional, but not having one means the US imposes a 30% withholding tax on an institution's American income. Mr Dunne said having an intergovernmental agreement would materially reduce FATCA compliance, as well as providing other advantages.
He said that the intergovernmental agreement would help address a number of concerns because financial institutions will not have to provide information directly to the American IRS.
"Rather, they would provide it to Inland Revenue which will submit the data on their behalf to the IRS.
"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," he said.
A joint working group comprising private sector representatives and officials is being formed to work through FATCA issues. Organisations that may be affected by FATCA can participate in the working group, by emailing Policy.Webmaster@ird.govt.nz