Automatic Exchange of Information (“AEOI”) on track for 1 July 2017 NZ implementation
The Finance and Expenditure Committee of Parliament (“FEC”) has reported back the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill with a number of changes.
This Tax Bill contains draft legislation to implement the Common Reporting Standard (“CRS”) for AEOI in New Zealand and also imposes new registration and annual reporting requirements on foreign trusts with NZ-resident trustees.
The FEC’s key changes to the AEOI draft legislation are:
The substance of the AEOI legislation, as originally introduced, is unchanged. The Officials' Report on submissions and the FEC have stayed close to the OECD’s CRS framework. This ignores the practical difficulties of implementing AEOI.
For example, Officials consider that the status of all trust beneficiaries should be determined at account “on-boarding” to remove the difficulty of identifying when a distribution is made. This is an impractical and arguably impossible option for discretionary trusts. It is disappointing that the CRS is seen to be so inflexible that practical local solutions cannot be applied.
The foreign trust legislation creates additional disclosure obligations (e.g. of settlements and distributions and also trust beneficiaries and settlors/controllers) on trust establishment, and annually thereafter, for the NZ-resident trustees of foreign trusts.
The FEC has recommended a number of changes to ease the compliance burden for NZ trustees that do not ordinarily perform trustee services, including: allowing Inland Revenue to not charge fees for registration/annual reporting and giving more time to comply with the new rules. The rules are otherwise largely unchanged from introduction.
KPMG has suggested that additional information on foreign trusts, collected under these new rules, could be used by Inland Revenue for CRS purposes (or vice versa). This would avoid the difficulties outlined above, in relation to NZ financial institutions having to identify beneficial ownership of trusts, for example. However, this approach has been rejected by Officials, resulting in potential duplication of reporting.
In November, Inland Revenue conducted information sessions on the progress of NZ’s AEOI implementation. Inland Revenue: