Global tax authorities to begin sharing information
Globalisation has made it easier for people to invest money outside their country of residence. This has also made it easier for people to hide their wealth from their local tax authority and evade tax in their home country.
New Zealand is one of 100 countries that has committed to an OECD-led global initiative on the automatic exchange of financial account information which aims to make it harder for people to avoid tax on foreign income in their home country. Under the Automatic Exchange of Information (AEOI) agreement, financial institutions around the world are required to collect information on financial accounts that are held by non-residents and report this information to their local tax authority. The tax authority will then provide this information to the account holder’s local tax authority.
If you are a New Zealand resident holding an account with an offshore financial institution in a country that is party to the AEOI, that financial institution will be required to report certain details of that account to their local tax authority, which will then pass that information to Inland Revenue. If you are a non-resident with an account with a New Zealand financial institution, that institution will be required to report certain details of that account to Inland Revenue, which will pass that information to the tax authority in your home country.
Coupled with the AEOI is a Common Reporting Standard (CRS) to ensure that the information collected and supplied is in a standard format. The CRS applies to financial institutions from 1 July 2017. If you hold an account with a financial institution (or if you hold an account for the benefit of another person), you may be asked to provide documentation and other information to assist that institution to carry out its due diligence and reporting obligations under the CRS. The first step is for the financial institution to determine whether you are a foreign tax resident (or the person that you hold the account for is a foreign tax resident) on which it needs to report.
About half the countries committed to AEOI have undertaken to commence exchanging information from 1 July 2017. Therefore, Inland Revenue will start receiving information on the offshore accounts of New Zealand residents later this year. The remaining countries, including New Zealand, have committed to commence exchanging information during 2018.
If you are concerned about how AEOI may impact on you, contact your Findex adviser.