New Zealand: AEOI on track for 1 July 2017 implementation

New Zealand: Tax legislation includes AEOI rules

The Finance and Expenditure Select Committee has reported back a tax bill (August 2016) with a number of changes.

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The bill (Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill) includes, among other items, measures concerning the automatic exchange of information (AEOI). The AEOI provisions provide for capping penalties, extending penalty defences, and clarifying the use of information by Inland Revenue. 

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 New Zealand-resident trustees. The changes made to the AEOI rules by the Finance and Expenditure Select Committee include:

  • Allowing AEOI information provided under the “wider” approach to be used by Inland Revenue for matching against non-residents’ tax rates and tax credits claimed (this includes information on residents of non-AEOI participating countries—referred to as “residual” information).
  • A maximum limit per New Zealand financial institution (per reporting period) of NZ$10,000 for absolute liability penalties and NZ$100,000 for lack of reasonable care penalties. (The legislation, as introduced, did not cap penalties for CRS/FATCA non-compliance.)
  • Extending the transitional period for the “reasonable efforts” penalty defence by three months (to 1 July 2019). A permanent defence of “circumstances outside a financial institution’s control” would also be available to New Zealand financial institutions.

KPMG observation

The substance of the AEOI legislation, as originally introduced, is unchanged. The Officials' Report on submissions and the Finance and Expenditure Select Committee 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 would be determined at the time of account “on-boarding” to remove the difficulty of identifying when a distribution is made. Tax professionals believe this is an impractical and arguably impossible option for discretionary trusts, and that it is disappointing that the CRS is seen to be so inflexible that practical local solutions cannot be applied. 

Foreign trust changes

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 New Zealand-resident trustees of foreign trusts. 

The Finance and Expenditure Select Committee recommended a number of changes to ease the compliance burden for New Zealand trustees that do not ordinarily perform trustee services, including: (1) allowing Inland Revenue to not charge fees for registration/annual reporting; and (2) giving more time to comply with the new rules. The rules are otherwise largely unchanged from introduction. 

KPMG observation

Tax professionals have 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 New Zealand financial institutions having to identify beneficial ownership of trusts for example. However, this approach has been rejected by Officials, resulting in duplication of reporting. 

Inland Revenue’s AEOI information sessions

In November 2016, Inland Revenue conducted information sessions on the progress of New Zealand’s AEOI implementation:

  • Indicating that draft guidance (as legislation is still pending) would be provided in December 2016, with detailed, finalised guidance in early 2017, following enactment of the tax bill
  • Requesting submissions on “excluded entities” and “excluded accounts” (i.e., entities/accounts not subject to AEOI due diligence and reporting obligations) by 31 January 2017

Read a November 2016 report [PDF 137 KB] prepared by the KPMG member firm in New Zealand

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