NZ latest to sign FATCA pact

New Zealand has finalized a tax information sharing agreement with the US as part of the Foreign Account Tax Compliance Act (FATCA). GPs and other foreign financial firms covered by the law must register with US tax authority the Internal Revenue Service ahead of the law’s July 1 go-live date.

New Zealand signed what’s known as a “Model I” agreement with the US. The Model I has GPs report FATCA information to their local regulator who will in turn share that information with its US counterpart. In return, the IRS will collect and share data on New Zealand account holders in the US.

The agreement will come as a relief to foreign financial firms based in New Zealand. FATCA goes into effect this July, and many non-US GPs reached a roadblock in their FATCA compliance action plans because it was unclear what type reporting agreement their local government would sign with the US.

“Many financial institutions have been deferring some or all of their preparation for FATCA until the IGA is finalized,” said PwC tax partner Mark Russell, in a statement.

“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.”

But, even New Zealand firms who will submit tax information to their home government, as opposed to entering into a direct reporting relationship with the IRS (as a percentage of GPs will need to do) must complete the online FATCA registration form.

Earlier this month the IRS published its first list of FATCA registered firms. For some firms, making this first list – which will be used by banks, custodians and other types of withholding agents to verify FATCA compliance – may be important in order to avoid withholding tax.

Firms operating in violation of FATCA, passed in 2010 to clamp down on tax avoidance, face a punitive 30 percent withholding tax on certain income travelling outside the US.