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Red Tape - Why You're Seeing More Self-Certifications

21 August 2017

Over the past few years New Zealand has followed an international movement to tighten up its laws around tax evasion and money laundering.

The first step was the Foreign Account Tax Compliance Act (FATCA) which was passed into law by the United States of America (US) in March 2010, but came into force internationally on 1 July 2014. The purpose of FATCA is to identify tax evasion by US citizens through off shore entities. New Zealand has incorporated FATCA reporting requirements into New Zealand Law by amending the Income Tax Act 2007 and the Tax Administration Act 1994. In most cases, the New Zealand Inland Revenue Department (IRD) collects information in respect of offshore financial account holders and reports it to the US Internal Revenue Service (IRS). In a few cases, information may be required to be reported directly to the IRS.

More recently, New Zealand has committed to a global initiative led by the Organisation for Economic Co-operation and Development (OECD) on the Automatic Exchange of Information (AEOI) (which is also referred to as Global FATCA) using the Common Reporting Standards (CRS). This, as the name Global FATCA suggests, requires information in respect of all offshore account holders (not just US citizens) to be collected by Banks and reported on to the IRD, who will then submit the information to the OECD.

Self-certification means that the Bank/Accountant/Lawyer has to ask all clients to certify whether or not FATCA/AEOI applies. The Bank/Accountant/Lawyer cannot make that call on your behalf, even if they know a lot about your situation. So even if you think that the rules don’t apply to you because you have no offshore interests or connections, you may still be asked to self-certify as to your position.

The next step for New Zealand is the introduction the Anti-Money Laundering and Countering Financing of Terrorism Amendment Act (AML/CFT Amendment). The AML/CFT Amendment will require Lawyers and Accountants to have effective procedures for monitoring and managing compliance with AML/CFT standards and procedures. While these processes have been in place with Banks for some time, the inclusion of Lawyers and Accountants into the regime will mean they now need to take steps to identify the origins of client funds for each transaction. Where there is suspicion around the origin of client funds or the nature of a specific transactions, the transaction will need to be reported by the Lawyer or Accountant to the relevant authorities.

Banks, Lawyers and Accountants may already be contacting their clients to get the information they need to be compliant with all of these rules. Once this information is gathered, in most cases nothing further will be required unless the client’s circumstance changes. In some cases, the Bank, Lawyer or Accountant will need to ask for further information, or follow additional processes, depending on the specific circumstances.

So bear with us, once the regime is up and running the amount of paperwork should be significantly reduced. If you have any questions about the above, or if you are unsure whether this will apply to you, consult your Lawyer or Accountant.

 

Chris Steenstra is an Associate in the Commercial Corporate team at Norris Ward McKinnon, specialising in IT and Commercial Corporate law.  Email Chris at:  chris.steenstra@nwm.co.nz

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Jess Collett is a Solicitor in the Commercial Corporate at Norris Ward McKinnon. You can contact Jess at jess.collett@nwm.co.nz

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