The agreement will give New Zealand financial institutions certainty in proceeding with the implementation of the systems required for FATCA and will enable them to finalise detailed planning for the 1 July 2014 deadline, according to professional services firm PricewaterhouseCoopers (PwC).
PwC partner Mark Russell said many financial institutions have deferred some or all of their preparation for FATCA until the inter-governmental agreement is finalised.
“The clarity provided by the IGA about which entities are exempt from reporting requirements or meet other concessions allows financial institutions to prepare in detail for dealing with FATCA,” said Mr Russell.
PwC said most superannuation and KiwiSaver schemes, the NZ government and the Māori authorities have been excluded from the FATCA reporting requirements.
The FATCA rules were first introduced in the US in 2010 and come into effect in stages from 1 July 2014, according to PwC.
They require global financial institutions to report to the US Internal Revenue Service (IRS), the US government agency responsible for tax law enforcement, about details of its US customers.
PwC said the aim of FATCA is to reduce tax evasion by US citizens investing outside of the US and failing to declare offshore investments and income.
Financial institutions who fail to abide by the rules can have 30 per cent of the transactions associated with US financial instruments and other financial institutions withheld and paid over to the US IRS.
PwC also said implementing FATA under an IGA reduces compliance costs for New Zealand financial institutions as it simplifies the reporting process and allows them to report to and make arrangements with the New Zealand Inland Revenue Department rather than the US IRS.
It also eliminates the prospect of 30 per cent of payments being withheld, which is a major business risk.
The US Treasury announced in April 2014 that 19 countries, including New Zealand, will be treated as having entered into an IGA for the purpose of applying the rules by the end of 2014.
