What would happen if New Zealand didn’t pass a law to allow FATCA reporting?
If there was no change to New Zealand law, financial institutions in this country would, unless certain exceptions applied, have to pay a 30 percent withholding tax on certain US income. This financial cost would undoubtedly be passed on to a broad range of New Zealand consumers.
Most New Zealand banks receive some US income. For instance, US Treasury bonds play an important role in setting global interest rates, and are often used by banks to reduce their exposure to interest rate risk.
If New Zealand did not pass a law to allow FATCA reporting, banks and other financial institutions in this country may be unable to comply with FATCA without breaching the privacy principles relating to the collection and disclosure of client information.
If New Zealand did not negotiate an IGA with the US, the effect on American citizens and green card holders resident in New Zealand would be that it would be easier for them to avoid meeting their obligations to pay tax in the United States. [Why should New Zealand care about this?]
However, a significant portion of these tax obligations can be discounted by tax paid in New Zealand under the US-New Zealand double taxation agreement.
For these reasons, the Privacy Commissioner has not opposed the negotiation of the FATCA IGA with the US, and the amending tax law to implement the IGA.
Will information about New Zealanders with no US connection be sent to the US?
No. Only those accounts covered by the terms of the IGA can be sent to the IRS. Financial institutions have to collect information on accounts that look like they might belong to a US person, in accordance with a set of criteria.
In the 2013 New Zealand Census, 21,462 people indicated they were born in the US. This is an indication of the number of people potentially affected, as birthplace is one of the IRS criteria.
@monalisa. Any letters are going to be threatening, its coming from form nation.
@George – of course there are no guarantees and what the government decides to do in the past is no guarantee of future conduct etc. BUT the US Canada Tax Treaty essentially only applies to taxes in place on March 17, 1995 and those that replace existing taxes and are substantially similar. They US has promised all over the place in the Treaty to provide full deductions for Canadian taxes such that none are owing however the AMT, among other little jewels, simply ignores it (to say nothing of their different taxation of all kinds of things like primary residences).
@George, I know many on here say I’m a worrywart but still wonder if there will inevitably be former US persons who will still, in error, also face threatening letters post FATCA (especially those who didn’t properly certify five years’ tax compliance via 8854). People who believed they’d expatriated by taking another citizenship but who didn’t formally relinquish and receive a CLN could be hassled if discovered by FATCA; the IRS will probably still consider them US persons for tax purposes unless they’ve formally done all the legal compliance and paperwork.
@monalisa, When I read the IGA agreements it appears that they have been written “three minds.” They are NOT the product of a single train of thought.
One of the writers understands that a CLN is not required for relinquishment and likely an appreciation for the Expatriation Act 1868.
There is another mind and writer that wanted to search out Americans by indica which is a throwback to Germany. I do not throw that around casually as I grew up amongst many survivors of the holocaust.
Mark Hubbard is a New Zealand blogger who actually “gets” FATCA. He weighed in on a Twitter exchange with the NZ Privacy Commissioner last night and has blogged about it here: http://lifebehindtheirondrape.blogspot.co.nz/2014/04/fatca-nz-disgrace-bullying-loss-of-our.html