New Zealand has signed a unique intergovernmental-agreement (IGA) with the US allowing it to keep “low risk” accounts exempt from disclosure after the introduction of FATCA next month.
The IGA, signed today by Revenue minister Todd McClay and US chargé d’affaires Marie Damour, will grant immunity to information about Superannuation, KiwiSaver schemes, tax pooling accounts, registered charities, and Maori authorities.
It differs to those signed by other countries, which agree automatic information sharing liabilities on all accounts held by US taxpayers following the Foreign Account Tax Compliance Act’s implementation.
McClay said the agreement will stop additional costs being passed on to customers by making it easier for financial institutions to reach FATCA compliance.
“The IGA is reciprocal, meaning that New Zealand will also receive information about certain accounts held by residents with US financial institutions,” he said. “This will help prevent tax evasion and enhance the integrity of both countries’ tax systems.”
He added that the IGA will help to stamp out tax evasion.
FATCA is part of the US Hiring Incentives to Restore Employment Act. It ensures that US persons, wherever they are located and in whatever investment vehicle they hold their assets, are paying the correct amount of US tax.
It requires foreign financial institutions to report information to the Internal Revenue Service about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest.
When the act comes into force, those who are not compliant will suffer a 30% withholding tax on income and gross proceeds.
An IGA makes it easier for partner countries to comply with the provisions under FATCA. The benefits of an IGA include the relaxation of deadlines and increased clarity and simplicity around due diligence with country specific provisions.
For a comparison between the IGA model 1 and 2 click here.
Earlier this week, head of the US Internal Revenue Service (IRS), John Koskinen said the US tax authorities were set to make the amnesty programme aimed at encouraging US citizens to declare any offshore bank accounts more sympathetic.
He said the IRS was considering whether its “voluntary programs have been too focused on those wilfully evading their tax obligations and are not accommodating enough to other who don’t necessarily need protection from criminal prosecution because their compliance failures have been of the non-wilful variety”.