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Automatic tax information sharing is coming

Automatic tax information sharing is coming

Important changes are coming in the world of international investment, and will affect individuals, trusts and companies who hold investments in countries outside their place of tax residence.

If you hold investments in a foreign country you should be aware of changes coming up that will increase the information available to Inland Revenue about those investments.

If you are a non-resident who holds investments in New Zealand financial institutions, you should be aware that more information about those investments is likely to be made avail-able to the tax authorities in your country of tax residence.

These new rules involve the Automatic Exchange of Financial Account Information (AEOI) between tax authorities throughout the world and will be effective over the next two years, and on-going.

What is happening globally?

Most (but not all) countries tax individuals and related trusts based on where they are tax resident, and will tax their income from sources anywhere in the world.

Tax authorities around the world are making no secret of their displeasure at their tax residents hiding money offshore and not declaring it. There has been on-going negotiations over the last 15 years as OECD members have made agreements between themselves and put pressure on “tax haven” countries to provide information when requested.

The issue for tax authorities is that, under most information sharing agreements, they had to lodge formal requests for information on specific taxpayers with other tax authorities to gather that information. This requires some existing knowledge for tax authorities and is a potentially wasteful and time-consuming process.

The much greater willingness of tax authorities to co-operate, together with digital information gathering tools enables the collating and analysis of information much more effectively and efficiently, which will result in much greater co-operation in the future.

The US broke ground in this respect with their disclosure rules. These generally applied only to US citizens or residents who held investments in non-US financial institutions (including New Zealand). Under FATCA regulations, which have been in place since 1 July 2014, those financial institutions had to provide information on US-related investors to Inland Revenue. Inland Revenue would then provide that information to the US tax authorities.

Greatly expanding the scope of those FATCA regulations, over 100 countries (including most of the countries New Zealand does business with) will be implementing these new AEOI rules between each other in a co-ordinated and relatively consistent way. To simplify the processing further for financial institutions gathering the information and providing it to tax authorities, countries have agreed that information will be provided under a Common Reporting Standard (CRS). However, no one knows exactly how the new rules will work in practice.

What is happening in New Zealand?

Inland Revenue published guidelines for financial institutions in July, setting out their requirements under both AEOI and the CRS. From 1 July 2017, New Zealand financial institutions will need to review the accounts held or (in some cases) controlled by non-residents and collect and report that information to Inland Revenue. Financial institutions will be requesting information from their account holders where they believe there is an international connection or, most likely, from all their clients. Where required, Inland Revenue will then share that information with other tax jurisdictions in the specific countries.

When is it effective from?

Going forward, financial institutions will report financial information on affected accounts (i.e. those held or controlled by non-residents) on a tax year basis. The first year will be a part year from 1 July 2017 to 31 March 2018. The reporting deadline will be 30 June each year.

The jurisdictions Inland Revenue will share information with are, as noted, most of the countries that New Zealand does business with.  Each country has agreed to implement the rules from either 2017 or 2018, but individual application dates vary from country to country. Further countries are signing up to AEOI all of the time.

For instance, the following dates apply for these countries to start providing information to Inland Revenue:

  • UK from 2017
  • France from 2017
  • Japan from 2018
  • China from 2018
  • Australia from 2018
  • Singapore from 2018

Recommendations

Although the exact operation of these new rules is uncertain, the sensible assumption should be that there will be much more transparency around international investments between tax authorities.

If you are a non-resident holding investments in New Zealand, we recommend you review these to ensure correct compliance with both New Zealand and your overseas jurisdiction.

For New Zealanders with investments held in foreign countries, we recommend you take advice to ensure you comply with New Zealand requirements and, if necessary, make voluntary disclosures to Inland Revenue.

Part of the review should include confirming your tax residence status and whether any protection available under double tax treaties may be available to you.

Contact your Staples Rodway tax advisor for further information.

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This article was featured in the Spring 2016 issue of NUMBERS. NUMBERS covers a wide range of business topics, including: Accounting, Tax, Audit, Business Advice, Investments, IT, HR and Women in Business, as well as keeping you in the loop with what is happening at Staples Rodway’s offices around the country.

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