A Tax Bill introduced this week implements New Zealand’s commitment to Automatic Exchange of Information (AEOI) through a specific set of rules that will give the OECD’s Common Reporting Standard (CRS), and its commentary, the force of New Zealand law.

• Requiring NZ financial institutions to undertake due diligence on all account holders (“the wider approach”). This will mean residents of a country that has not signed up to AEOI will need to be reviewed. NZ financial institutions will have the option to report these accounts to Inland Revenue (IRD).
• Allowing NZ Government regulations and IRD determinations to be made to determine which entities and financial accounts are excluded. These will also be used to prescribe the countries that New Zealand will exchange information with.
• Specific civil penalties for NZ financial institutions, and account holders, who fail to take specific actions or provide information required under AEOI. The account holder penalties will also apply to FATCA non-compliance.
• Confirming the 1 July 2017 start date and a 31 March mandatory reporting period for AEOI. 

The Tax Bill is consistent with the factsheet IRD published in July. You can read our previous update on that here.  

The Tax Bill and related commentary demonstrates New Zealand’s commitment to fulfilling NZ’s tax transparency commitments as a global citizen.

However, there is a potential for duplication of tax reporting. IRD’s Making Tax Simpler: Investment income information proposals will require monthly reporting of account holders’ income and details. Anti-money laundering and other Know Your Customer (KYC) regulations will (as currently proposed) also sit alongside AEOI. 

Officials’ concern is that AEOI imposes a higher standard than existing information requirements.  Adopting the standards imposed by other requirements could impact New Zealand’s international standing. However, we believe there is an opportunity to develop a single set of tax KYC rules for residents and non-residents, which meet both local and AEOI requirements.

Making the OECD’s CRS and its commentary part of New Zealand law is designed to help with global consistency. However, this will import any future changes automatically. NZ financial institutions will therefore need a system to keep up-to-date with the OECD’s position and notify customers accordingly. Alternatively, regular IRD updates will be required.

The AEOI proposals will affect a wide range of NZ entities. The FATCA rules apply to a range of entities who may not consider themselves financial institutions but are caught. (These include family trusts, depending on their investments and how they are managed.) As AEOI has slightly different definitions to FATCA, entities will also need to consider whether they have different obligations under each. The penalties regime will mean that ignorance of the rules is no defence. 

The Tax Bill is subject to submissions. The submission process should allow uncertainties in the legislative drafting to be addressed.  It is also possible that submissions may alter the proposals as introduced.  

Finally, while enactment by the end of 2016 is desirable, the more likely date of the Tax Bill becoming law is February or March 2017. This will leave little time for confirming AEOI compliance programs. Decisions by NZ financial institutions on the design of their systems and processes will need to be made ahead of the final legislation.

Participate to receive key information on how your financial services industry peers are preparing for the CRS requirements, as well as how things have changed in the last year. (Note: All responses will be anonymous and tallied and displayed in aggregate.)

Please click here to access the survey. The survey is open until the 31st August 2016.