The Tax Policy Advice Division of New Zealand’s Inland Revenue released news on October 15 2015, that a Competent Authority Arrangement (Arrangement) has been signed by the Competent Authorities of New Zealand and the United States.
The Arrangement became operative on the later of (i) the date the Intergovernmental Agreement (IGA) enters into force or (ii) the date the Arrangement is signed by the U.S. and the New Zealand Competent Authorities.
The IGA was signed on 12 June 2014 and came into force on July 3, 2014. The Arrangement was signed on 28 September 2015 and this being the later of the two dates, is now in force.
The objective of the Arrangement is to establish the procedures for the automatic exchange obligations of each country under the IGA for:
1. Reporting New Zealand Financial Institutions,
2. Non-Reporting New Zealand Financial Institutions that would be treated as a deemed-compliant FFI under the IGA including:
– Financial Institutions with a Local Client Base, as described in Section III(A) of Annex II of the IGA.
This category of the financial institution must meet various criteria to qualify for this classification, for example, at least 98 per cent
of the financial accounts by value maintained by the financial institution must be held by residents (including residents that are
entities) of New Zealand or Australia.
– Trustee-Documented Trusts, as described in Section IV(A) of Annex II of the IGA.
This category includes trusts established under the laws of New Zealand to the extent that the trustee of the trust is a Reporting
U.S. Financial Institution, Reporting Model 1 FFI, or Participating FFI and reports all information required to be reported pursuant to
the Agreement with respect to all U.S. Reportable Accounts of the trust.
– Sponsored Investment Entity, as described in Section IV(B)(2) of Annex II of the IGA.
This category includes financial institutions which are either:
a) an Investment Entity established in New Zealand,
that is not a qualified intermediary, withholding foreign partnership, or withholding foreign trust pursuant to relevant Treasury
Regulations, and,
an entity has agreed with the financial institution to act as a sponsoring entity for the financial institution, or,
b) the financial institution is a sponsored controlled foreign corporation if:
the financial institution is a controlled foreign corporation organized under the laws of New Zealand, and
is not a qualified intermediary, withholding foreign partnership, or withholding foreign trust pursuant to relevant Treasury
Regulations, and,
the financial institution is wholly owned, directly or indirectly by a Reporting U.S. financial institution that agrees to act, or
requires an affiliate of the financial institution to act as a sponsoring entity, and,
the financial institution shares a common electronic account system with the sponsoring entity that enables the sponsoring
entity to identify all Account Holders and payees of the financial institution and to access all account and customer information
maintained by the financial institution including, but not limited to, customer identification information, customer documentation,
account balance, and all payments made to the Account Holder or payee.
To qualify as a Sponsored Investment Entity the financial institution must comply with the following requirements:
a) The sponsoring entity is authorized to act on behalf of the financial institution (such as a fund manager, trustee, corporate director, or managing partner) to fulfil applicable registration requirements on the IRS FATCA registration website, and:
b) The sponsoring entity has registered as a sponsoring entity with the IRS on the IRS FATCA registration website, and:
c) If the sponsoring entity identifies any U.S. Reportable Accounts with respect to the Financial Institution, the sponsoring entity registers the financial institution pursuant to applicable registration requirements on the IRS FATCA registration website on or before the later of December 31 2105, and the date is 90 days after such a U.S. Reportable Account is first identified, and:
d) The sponsoring entity agrees to perform, on behalf of the financial institution, all due diligence, withholding, reporting, and other requirements that the financial institution would have been required to perform if it were a Reporting New Zealand Financial Institution, and:
e) The sponsoring entity identifies the financial institution and includes the identifying number of the financial institution in all reporting completed on the financial institution’s behalf, and:
f) The sponsoring entity has not had its status as a sponsor revoked.
– Sponsored, Closely Held Investment Vehicles, as described in Section IV(C) of Annex II of the IGA; and:
3. Reporting U.S. Financial Institutions.
Under the IGA both countries are required to exchange information with each other, as prescribed under Article 24 of the income tax treaty/double tax agreement which is in force between the two countries.
The Arrangement’s objectives are to establish procedures for the automatic exchange of information that the IGA requires including:
- The registration of Reporting New Zealand Financial Institutions as required with applicable registration requirements on the FATCA registration website.
- Issuance of a Global Intermediary Identification Number (‘GIIN’) to Reporting New Zealand Financial Institutions
- The inclusion of New Zealand Financial Institutions on the IRS FFI list.
- Removal from the IRS FFI list if an issue of significant non-compliance remains unresolved after 18 months.
- The time, format and manner of the exchange of information, notably the requirement to use the International Data Exchange Service (‘IDES’), and to report information for any given year within nine months after the end of that particular year.
- Procedures for significant non-compliance, including that the New Zealand Competent Authority must notify the New Zealand Financial Institution of a significant non-compliance determination including the date of notice provided from the U.S. Competent Authority.
- The New Zealand Financial Institution has 18 months after the date the U.S. Competent Authority provided notice to the New Zealand Competent Authority to remedy the non-compliance.
- If the non-compliance is not remedied, the New Zealand Financial Institution’s name will be removed from the IRS FFI List and may be subject to 30-per cent withholding tax on payments due to the Financial Institution.
- 2014 and 2015 years are a transition period for remediation and enforcement for the purposes of the enforcement and administration of any data collection, due diligence, information reporting, automatic information exchange and withholding requirements described in the IGA.
- Confidentiality and data safeguards including requirements to notify the other Competent Authority of any actual or potential breach of security, and/or intended changes to the data safeguards agreed upon.
New Zealand has a Model 1 IGA in force with the United States. Under the IGA, foreign financial institutions which are required to report under FATCA to the United States government must report information to the Inland Revenue – which in turns passes the information to the United States government. This is a reciprocal agreement.
The Arrangement is one of the first three known arrangements to be signed, with Australia and the United Kingdom being the other two – 15 October 2015.