PwC welcomes progress on FATCA agreement with US Treasury
Thursday 3 April 2014
PwC welcomes progress on FATCA agreement with
the US Treasury
The US Treasury today announced it has reached an ‘agreement in substance’ with New Zealand on the terms of an inter-government agreement (IGA) for the implementation of the Foreign Account Tax Compliance Act (FATCA) rules. This will provide greater certainty to New Zealand financial institutions preparing for the rules going live on 1 July 2014.
The US introduced the FATCA rules in 2010, yet they will come into effect in stages from 1 July 2014. The rules require global financial institutions to report to the US IRS about details of their US customers. The aim is to reduce tax evasion by US citizens investing outside of the US and failing to declare the investments and the income from those investments.
Financial institutions that fail to adhere to the rules can have 30% of transactions associated with US financial instruments and other financial institutions withheld and paid over to the US IRS.
The US Treasury has been negotiating with a number of countries on IGAs, which establish a co-operative basis for implementing FATCA. In October 2012, the New Zealand and US Governments announced they were negotiating an IGA.
Implementing FATCA under an IGA reduces compliance costs for New Zealand financial institutions by simplifying the reporting process and allowing them to report to and make arrangements directly with the NZ IRD rather than the US IRS. It also generally eliminates the prospect of 30% of payments being withheld, which would be a major business risk.
Given the large number of countries seeking to enter into an IGA, it is taking some time for the agreements to be concluded. To date, 26 countries have agreed an IGA, but a large number of countries are still in negotiations, including New Zealand. The delay has created uncertainty for New Zealand financial institutions as the registration process for FATCA differs between IGA and non-IGA countries. Institutions faced the prospect of having to implement FATCA systems and processes by 1 July this year without certainty that they would be implementing under an IGA and local New Zealand laws rather than US laws.
The US Treasury announced today that 19 countries, including New Zealand, will be treated as having entered into an IGA for the purposes of applying the rules until the end of this year, when it is expected the IGAs will have been concluded. More countries are expected to be added to this list.
PwC Partner Mark Russell says, “The announcement allows New Zealand financial institutions to go ahead with registering for FATCA. Most financial institutions have been deferring registration until the IGA is finalised. However the deadline for registration is looming and organisations want to get on with the process.
“There is also benefit from registering before 5 May which is the cut-off date for being included on an initial list published by the IRS of qualifying institutions. This should make it significantly easier to establish an organisation’s FATCA status when dealing with other financial institutions because they can simply look up the list,” concludes Mr Russell.
Notes to editor:
A copy of the PwC Global’s Information reporting news brief is available at: http://www.pwc.com.au/newsletters/assurance/Global-IRW-Newsbrief-Feb12.pdf