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Russell McVeagh welcomes signing of FATCA agreement with US

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Russell McVeagh welcomes signing of FATCA agreement with US

12 June 2014

Law firm Russell McVeagh has welcomed the signing of an Inter-governmental Agreement (or IGA) between New Zealand and the US as a further step in implementing the FATCA regime in New Zealand. Tax specialist Greg Neill noted that, while FATCA has been far from popular given the costs of compliance, the release of the signed IGA would give New Zealand businesses increased certainty as to their FATCA obligations.

FATCA refers to provisions of the US Internal Revenue Code enacted to address the evasion of US tax by US residents holding assets outside the US. The provisions require non-US financial institutions to report information concerning their US customers, and impose onerous withholding taxes on those that do not meet the reporting requirements.

The IGA permits New Zealand financial institutions to report the required information to the New Zealand Inland Revenue, with Inland Revenue then providing the information to the US authorities. Without the IGA, New Zealand entities might have to provide such information directly to the US authorities which would raise privacy and other legal issues.

As the implementation of FATCA approaches, Mr Neill noted that many businesses were now wanting to close out some of the more detailed legal issues raised by FATCA.

"The sorts of questions we have been looking at are whether certain types of entity are subject to FATCA, the scope of some of the exemptions and, if FATCA does apply, what specific due diligence and reporting processes will be necessary. Having the signed IGA will provide greater certainty on those issues and enable affected businesses to ensure that their legal documents and compliance procedures are up to date in time for FATCA's implementation."

Mr Neill also noted that this was only the first step in a global drive for increased tax transparency. "It is likely that an increasing number of jurisdictions will seek to implement information sharing arrangements along similar lines to FATCA which will give rise to additional legal issues in the future."

ENDS

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