New Zealand Bankers Association on FATCA

Good comments:

Violation of NZ Human Rights Law

Violation of NZ Privacy Law

No Ability under NZ law to withold tax

Cannot comply with FATCA under NZ law

Suggest “Intergovernmental Agreement” (I am getting tired of this)

http://bsmlegal.com/PDFs/NZBA.pdf

There is an insert in the middle from the Australian Bankers Association

 

 

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33 thoughts on “New Zealand Bankers Association on FATCA

  1. Thanks Tim…
    I hadn’t yet had the time to read the Australian submission. Yes, they all seem to be ready to sign up for GGGATCA as the Government to Government Global Account Tax Compliance Act. 🙂

  2. Good job again Tim. Note that the New Zealand comments strike the same note Sweden did. These countries ARE NOT saying they are against the FATCA idea of sharing banking data bases with the United States, both are saying they want a deal like the Big Five got which was announced on February 8, the day the FATCA regs were published: make the banks turn over the names of their suspected American depositors to their respective governments who will in turn, turn them over to the IRS. It is almost as if the government said to their trading partners world wide with the enactment of FATCA, “gives us the names of your suspected American customers or we will force your banks to be our own withholding agents.” Works for the Europeans. As long as they get the dope on their citizens abroad, they will gladly give up their Americans.

  3. Just one slight correction…

    “As long as they get the dope on their ‘residents deposits in America’, they will gladly give up their Americans.”

    They don’t really care about their Citizens abroad. My wife is Australian, and Australia cares not one whit about her deposits, interests or accounts in America, as she is no longer resident in Australia.
    What she has in the US, is of no concern to them.

    But they do care about her brother’s deposits in America as he is still living in Sydney and resident there. That is where I am right now. Ironically we have just been discussing this very issue just a couple minutes ago. 🙂

    BTW…. ran into an Australian at breakfast this morning whose wife is American, and hasn’t filed a US return or FBAR in 30 years. Says he won’t tell her, so as not to upset her that she is non compliant. He also said, that he sometimes thinks he would like to live in America, as that is where is brother is, in West Seattle, BUT…. on second thought the tax consequences of becoming a US person, and the the cost of medical insurance has put him off. Likes visiting though! 🙂

  4. Six million Americans abroad are discovering they have a CANCER called “citizenship-based taxation.”

    FATCA is just one of the symptoms.

    1,788 just had the CANCER surgically removed.

  5. @Ben Franklin… Good one. Think I will try to squeeze that down to 140 characters and tweet it…

    6,000,000 US #Expats have a CANCER called “citizenship taxation.” #FATCA is one of the symptoms.1,788 just had surgery! http://reut.rs/IGJ3Dx

  6. — Repost; first attempt appeared to fail —
    @ S Mopsick
    “These countries ARE NOT saying they are against the FATCA idea of sharing banking data bases with the United States, both are saying they want a deal like the Big Five”

    I disagree. The Bankers Association is not saying that at all. They are saying that FATCA would be illegal in NZ and so it is dead on arrival and that the IRS is sh#t out of luck if that’s what they want to do. They are saying that if the IRS wants to get anything done it will have to be a govt-to-govt transfer agreement of the data. The NZBA does not “want” a govt-to-govt agreement; they are simply saying it is the only option that the IRS has to pursue.

    “As long as they get the dope on their citizens abroad, they will gladly give up their Americans.”

    Nope. As Just Me pointed out, they care about their **tax residents’** deposits in other countries. But it is not that simple. Assuming information on US persons is collected by NZ banks and handed to the NZ govt for possible govt-to-govt transfer, then the IRS’s troubles really begin. Here’s why:

    1) The NZ government will only act in a reciprocal manner. If the US govt is going to make US banks identify to NZ tax residency status (there are some tricky rules for this) and automatically transfer their account information to the NZ govt then this will work just fine. But the US govt has made no moves towards this. They’ve made half-hearted gestures such as the recent “DATCA” regulations, but these are not even close to being reciprocal measures (for reasons I’ve described in another post). When the day arrives that the US govt will automatically report (to the NZ govt) the accounts and income of a US Citizen that spent more than 183 days in NZ during a tax year, that’s when reciprocity will be sufficient. Not before then.

    2) The information transmitted to the US govt will be used against NZ citizens in the USA (and US Persons living in NZ) in a discriminatory and disproportionately punitive way. There is no such thing as an FBAR here, no life-altering civil penalties for having a foreign bank account, and certainly no criminal liability attached to having one either. If you have unreported income from a foreign account then you just have to pay the tax owing, accuracy related penalties and interest. NZers perpetually travel and live around the world; giving the US govt the information to destroy a NZ citizen, who is temporarily living in the US, for a paperwork error (as the US govt is so keen on doing) is not something that the NZ electorate will allow. And I will personally and vigorously be letting my various parliamentary representatives know what FBARs are, my particular story and how the NZ govt would be facilitating the same shakedown for other NZers if they start transferring such data.

    The upshot is that the govt-to-govt transfer option (the only option) will result in what currently exists; a bilateral tax treaty where only individual requests for information are handled. It’s a bit like trade agreements; the US govt is all for them until they are confronted with the necessity to dismantle their tariffs, subsidies and protectionist policies. And then everything grinds to a halt.

  7. @All

    I think the one thing people don’t understand is in most countries banks ALREADY report everything on the non resident customers to the local tax authority. The exception are the US(soon to change), Switzerland, hardcore “tax havens” etc. For example in Canada they send form NR4 on their non resident customers to the Canada Revenue Agency for years. They don’t have any problem with doing this and have been doing it for years. As such CRA right now has not just NR4’s for this year but has ones going back eight years in their files on every non resident Canadian banking customer anywhere in the world. So right now Canada has about 90 tax treaties and TIEA where CRA is authorized to engage information sharing and some lesser number where at the moment full automatic sharing of information is taking place. For example a typical case of how automatic information sharing works is with lets say a Canadian living in the US with an RRSP back in Canada. When they make an actual distribution out of their account the Canadian bank sends a form to CRA in Ottawa who then turns around when seeing it has a US Address and send it Washington DC automatically.

    A couple of unconfirmed points that you shouldn’t bet your life on:

    1. I don’t believe the existing information sharing arrangement between Canada and the US has ever been used for Title 31 FBAR purposes. In fact there is a language in the treaty that I suspect says it can only be used to forfill Title 26 tax purposes.

    2. I don’t believe when the “automatic” information sharing between the CRA and IRS started back in 1995 there were people in either side of the border who caught with undeclared accounts on the either side that went to jail for it or anything like that. What did happen is both CRA and IRS fed all the data into a big computer and matched it to what people were actually declaring and when there was a discreprency “dinged” them.

    3. While the information sharing program began in 1995 the CRA gave the IRS all the “back” data going back to 1988.

    4. The actual mechanics of what happended were. If you were lets say a US resident with “undeclared” Canadian source income. You recieved an automated letter from the IRS saying Revenue Canada has informed us you earned xyz in Canadian source income this isn’t on your return please pay IRS abc amount you have 60 days to appeal this ruling.

  8. @Moby

    I will try to find it on the NZ Inland Revenue website but I almost certain that NZ Banks file a witholding form with NZ Inland Revenue on their NZ non resident customers. I know for a fact there is full automatic exchange of tax information between Australia and New Zealand and their has there has been for years. So systems are in place for non residents. Remember you Kiwi’s have a really sophisticated tax collection. system where you don’t even have to file a return no matter how much money you earn as long as it is from “traditional” domestic Kiwi sources. NZ Inland Revenue I am sure is already collecting quite a bit of information on non resident payees.

  9. And if you don’t believe a Global Tax Data Exchange regime (GATCA) is in the making, read this on Ireland. http://bit.ly/JcaSmO

    As the IFIA has pointed out, Ireland is negotiating the possible adoption of a model global agreement, which would not alter or amend the obligation to identify or report certain information under FATCA, but would outline an alternative pathway for reporting FATCA information. The IFIA expects this agreement to be concluded by the end of the year.

  10. and Private Equity Firms Urge Flexibility in FATCA
    http://bit.ly/KvvN3f

    Everyone wants more flexibility, or as New Zealand and Ireland seem to want, something like the 5 nation EU pact deal or a Global tax data exchange. Now, will the IRS listen? I do believe this is what they wanted anyway. Public hearings are May 15th, and we shall see.

  11. @Just Me, re the ‘flexibility’ and those inter-governmental exchanges, and what the IRS wants.

    I think it is like the story about a frog (and also how to cook lobsters?) where the water in the cooking pot is just lukewarm, and so the frog stays in and just swims around. Then the cook gradually turns up the heat – but the frog doesn’t notice the incremental changes, and continues swimming – until it is too late to jump out – and voila! It is has been cooked.

  12. Tim

    If you are non resident in NZ, and have an account with an NZ bank, there is a small Non Resident withholding tax that is reported to the IRD. Might that be what you are thinking about?

    In my years of having an accounts in NZ banks both resident and non resident, I am not aware of any withholding form that has been completed, but certainly aware that tax is withheld when interest is assigned to the account.

    The NZ bank produces a Tax certificate document at the end of the fiscal year showing what interest was paid, and what tax has already been deducted. The IRD already has your money, and your tax obligation has been met. For many, unless for some reason it was too much withheld, there really is no need to file a return, if that is all you have for income.

    Also, you are right about sophistication, as this story from September says, they really say they have no need for FATCA like rules

    http://bit.ly/nOJsoh

    Dunne said there were currently no plans for New Zealand to introduce rules similar to FATCA. He said New Zealand already has tools in place to track the movements of residents’ funds overseas, and the recent increase in the number tax information exchange agreements with countries that previously had strict tax secrecy laws – have been viewed as tax havens – has increased that ability.

    and then, when you begin to have hope that maybe the US isn’t going to get its way, there is this sobering reminder of the mindset by many…..

    ‘We can’t tell the US to get stuffed’

    People suggesting New Zealand ought to tell the US to “get stuffed” on FATCA were naive, McCalman said.

    “We couldn’t tell them that on Sarbanes Oxley (an act that toughened auditing rules after the demise of Enron). We live in a global financial market and we’ve got to cooperate in that respect,” said McCalman.

    “You’ve got to remember these are the people that got the Swiss banks to hand over customer data.”

  13. @Moby and @Just Me:
    You both have obviously given this a lot more thought than I have but I am focusing on the section of the NZ statement under “Partnership Agreement” para. 9 which refers favorably to the February 8 announcenent by the Big Five European governments. That paragraph the NZBA “welcomes…[that] approach to ..FATCA implementation…and the opportunity…for a similar approach..” with regard to New Zealand. That paragraph also talks about the “need to overcome legal impediments to compliance such as those we have outlined above in relation to New Zealand domestic laws.”
    I could be wrong, but it doesnt look like NZ or Australia are looking for a way out of the information sharing idea of FATCA. Why would they? The Australian and New Zealand banking industry does not want to be excluded from American banking markets any more than England, France, Germany, and Spain do. They want a piece of the action like every other industry in the world where the profit motive drives everything.
    Also remember that the “brilliance” of FATCA or the “evil” of it (depending on your point of view) is that the US is holding all the cards. FATCA says in essence to the whole world (and please don’t kill the messenger here) “we don’t care what your domestic laws say, if you want to play ball on our field you have to submit to the 30% hair cut if you refuse to become a withholding agent for the US government. You want more time, we’ll probably give you more time but either we get the names of your American customers from your banks or your friendly government but we are going to get the names.”
    Again, I could be wrong but I do not see any movement at all on the world scene by modern, industrialized, computerized, capitalist nations to avoid the essence of FATCA which is to produce a world-wide data base of people who bank internationally. It is well documented that the world’s major international banking institutions are comitting billions of dollars to use the implementation of FATCA as a reason to completely revamp their internal computer systems to get on board before they miss the train.

  14. @ Steve: “a piece of the action” LOL. A piece of of a debauched dollar and sinking economy. You are working on assumptions that don’t work anymore. Consider that China has a current monopoly on rare earths. I have an idea. Let’s let China dictate the terms of the world economy now. Or India, they are beginning to own most of the world’s gold. The US is becoming irrelevant. And it is analogous to the Pope: he was declared infallible only after he’d lost dominant political power over Europe. FATCA is a sign of US waning power and influence, not of its ability to tell the world what to do.

  15. @Steven…

    I do agree a global exchange of data is coming. Banks can put up with a lot of stupid regulations, but they would like uniformity and not one countries unilateral FATCA actions.

    Exactly what form GATCA it will end up being, and will US Citizenship taxation make it convoluted? Well only time will tell. Maybe this realization of the added complexity of the US taxation model will force changes to a territorial system back in the US. Maybe not. I really don’t know. There is a lot of moving pieces and cross currents to this entire thing, and will be something we will be looking back on 20 years from now, and scratching our heads asking “how did this happen?”

    Right now I will be interested if anything of importance or significance comes out of the May 15th public hearings. Sadly, you will not hear about it on Brian Williams NBC 22 minutes of World News nightly! 🙂

    and I got a chuckle out of your “(and please don’t kill the messenger here)” Point taken!

  16. @Petros

    Unfortunately, as long as the U.S. continues to have the worlds largest military scattered around the world, continues to spend more on so called “defense” than the rest of the world combined, and continues to expand its drone wars everywhere, it will not be irrelevant. Actually it could become more relevantly dangerous, is my fear.

    http://bit.ly/ISSeTh

  17. @Just Me: The regulations hearing process at the IRS generally accomplishes two things. It gives the IRS an understanding of any technical problems which were unanticipated by the drafters of the Regulations once the industry effected by the Regs. has a chance to take a look. But more importantly, it serves as a weather vane for the IRS to determine the depth of the reaction from the public in terms of the volume of comments and the number of people who request to speak, even though the comments may not result in an immediate change once the regulations are adopted in final form as opposed to “proposed” or “temporary” status.
    Mr. Joe Green from Democrats Abroad is scheduled to speak and he will report to the IRS that in a recently anounced survey concerning banking issues for American expats on their website, 1500 people responded within a few hours and there are over 300 “stories” to be told which are now being edited for publication on the Democrats Abroad web site.
    American expats living around the world are finding their voices through Democrats Abroad, the Isaac Brock Society and American Citizens Abroad and their is a rising crescendo that is articulating the injustice of citizenship-based taxation at least as it applies to the expatriate community.
    All Isaac Brock Society readers should go to the Democrats Abroad website and take the survey. This is one opportunity to speak to the government which will definitely be heard if not immediately acted upon.

  18. @Steven. I definitely took the survey, emailed Joe Green (no response) and posted my story on their web site. From the looks of the post about the Dems Abroad effort, http://bit.ly/IGbzXq a lot of Isaac Brockers did so too, so that is good.

    However, as you know, when it comes to general public awareness, there is essentially none in the MSM, so not sure how they will gauge the wider public interest, which is focused on jobs at home, how to avoid foreclosure and have never heard of FATCA, or if they have think it must be about FAT CATs.

    Still, I am glad there is this public meeting, and will watch with interest. I have to assume, but should check, that C-span will cover it.

  19. @JustMe

    My guess is while when you had a non resident NZ Bank account you may have never actually filed out a witholding form yourself your NZ bank had all of your information(proof of where you lived and who your were) on file as matter of NZ KYC/AML law and thus had all the informationa to submit the witholding form to NZ Inland Revenue on your behalf. If you were a Australian resident at the time ATO(Australian Tax Office) definately would have the received the information from NZ Inland Revenue. (The one exception may have been if the interest amount was really low like 50$ or something like that no tax agency cares about).

    In terms of FATCA. I think in terms of FATCA the US goes hot and cold on whether it wants an intergovernmental agreement. For a long time it was telling countries like Australia that all its financial institutions had to report directly to Washington. Since last fall I think in private it has been backing down on that stance.

    Canada is the one exception to the genius of FATCA. True, the US could cut Canada off from the US Financial System but in doing so because of interconnectedness of the two countries would damage itself quite badly and probably bring down the banking systems of both countries. Thus the as much as might pain certain believers in American exceptionalism in Washington they actually really do need a FATCA deal with Canada of some sort. (They also need to stop the renounciations from growing in Canada too). The other neat problem the US has is the Canada Revenue Agency appears to be on the early stages of creating its own CATCA system(I am planning a future post on CATCA as I find out more) whose burdens will fall heavily of US banks who invest in Canada and because of sucky nature of the US economy right now a lot of US residents and US banks really want to invest in Canada. Where it gets really interesting is Canada appears to already have struck a CATCA intergovernmental agreement with none other than Switzerland while US financial institutions are left in the cold. Unfortionately CRA has already had to postpone the implementation of this “CATCA” system because the US doesn’t like the taste of its own medicine. One interesting angle is whether US banks will demand the US enter into a CATCA intergovernmental agreement and whether that gives Canada some more cards on FATCA.

    More on “CATCA”

    http://www.ey.com/Publication/vwLUAssets/Tax_Alert_2011_No_24/$FILE/TaxAlert2011No24.pdf

  20. Just Me wrote:

    @Petros

    Unfortunately, as long as the U.S. continues to have the worlds largest military scattered around the world, continues to spend more on so called “defense” than the rest of the world combined, and continues to expand its drone wars everywhere, it will not be irrelevant. Actually it could become more relevantly dangerous, is my fear.

    So the US will move from republic to empire. Sounds like Star Wars or the Roman Empire. Seriously, though, it is because of its waning influence on the economic front that the United States will move towards brutal militarism. We should all fear that that could happen, or is happening actually.

  21. @ Just Me, Also, my response to Steve is that it is taken for granted that everyone wants to invest in the United States, that they want and need access to our markets. Well, it’s like saying Constantinople will always buy Chinese silk through Persian dealers. The United States is waning, and the dollar as the world reserve currency cannot survive another term of Obama. It won’t survive Romney either. Already, the world is making arrangements to circumvent the United States. One must never assume that investors will want US investments, no matter how costly and odious the United States becomes. Doctrines of investing, like “diversification” are all under scrutiny because of the volatility and insecurity that bad US fiscal policy has created in the system. I for one do not think the world will tolerate this crap much longer. And then the US dollar will suddenly plunge and the world will stop using the United States as the economic hub. It is sheer arrogance on the part of United States to think that they can insist upon all manner of odious regulations that violate all previous trading relationships and agreements, just so as to have continued access to the US market.

  22. @Petros

    The role of the dollar I have always thought is a little weird. In Canada for example very little is priced in US Dollars despite our proximity to the US. Even things like oil and jet fuel are priced in CAD(and metric units too). Our oil industry is probably one of the last places on earth using old style 1950s posted prices and using metric units. Our payments system(Interac)is also fairly independent of the US Visa Mastercard duopoly.

    http://www.imperialoil.ca/Canada-English/Files/investors_Refsup/cruprices.pdf

    Where you really find the US Dollar is still king is a lot of developing world. The Carribean, Panama, South America lots of Asia still. There other competitors like the Euro and the Yuan but they still have there flaws. Then you have countries like Canada that have pretty solid currencies while aren’t used outside the country are used for almost all transactions inside. As I pointed out earlier the US really does need a FATCA deal with Canada as much as Canada’s needs one. Given the huge trading relationship to cut off Canada under FATCA would hurt the US almost as badly especially with Canada developing its “CATCA” quasi retalitation. If there are to big issues to watch between Canada and the US one is whether the US allows Canada into the TPP without onerous conditions and second is a FATCA “deal” and sometype of resolution to everything we discuss here.

  23. @Tim

    I’m not arguing that IRD doesn’t have some information. They do have a lot (account balances, withholding tax etc), including information on non-residents’ accounts.
    What they DON’T do is:
    1) Track which other countries these people have tax obligations to
    2) Automatically transfer information to other countries (Oz is a special case)
    Both these points are required by FACTA.

    Australia and NZ have a very close relationship, shared history and culture, very similar public policy settings, and a lot of economic/legal integration points to underpin this. It is not an analogue for FATCA.

  24. @Steven and JustMe

    I believe if you look at some of industry groups presenting(Swedbank, Australian Bankers, etc) a lot of the presentations are dealing with the Americans abroad issue which is kind of interesting because as many have said no one was thinking of that at when the legislation or the idea of FATCA was being developed. There are actually three big issues as I see it from the comment letters in totality. One is the proposed rules apply to basic checking and savings accounts which really earn little interest anywhere in the world in this day in age so there really isn’t any “tax loss” to begin with. Two is a lot of countries have mandatory service laws for ALL local residents like Canada, Aus, NZ, Sweden, France(and eventually I suspect most countries will go in this direction). Third in a lot of countries they aren’t local Americans to make setting up the W9 reporting systems are at all cost effective for 0.5% of your customer base.

    In the big meeting last month Joe Green actually asked the Treasury point blank to exclude all non resident US Persons from the application of FATCA to which the Treasury replied they would need to actually change the legislation to do that however my sense is they understood they very much have a problem on there hand. Like I said it will be interesting to the extent that EVERY presentation deals with the Americans abroad issue does it effectively start to snowball. I saw from the Australian Bankers Association comments they have a whole delegation coming to Washington for the whole week so I assume they have additional meetings on Capital Hill etc. My sense also is Democrats Abroad hasn’t had much contact with the industry groups so the hearing will I suspect be a good opportunity to make some industry contacts for them.

  25. @Tim…

    Very interesting. What you say about NZ IRD withholding makes sense to me. My greencard Auzzie wife, originally opened the account, and then only later did I sign on them much later, so maybe some withholding form was created that I didn’t know about.

    Very informative stuff on CATCA. I would love to see the US get some of its own medicine, so will look for your future post. The knowledge you bring to these subjects is very helpful…

  26. @Steven

    I think you’re reading the corporate double-speak too literally by interpreting that the NZBA “welcomes” ANY of this stuff. No one outside of the US wants FATCA in ANY way shape or form, regardless whether the arrangement is bank-to-irs or bank-to-govt-to-irs. They are simply informing the IRS that the IRS has no other choice, and they are using a mindless platitude to communicate the message by “welcoming” the framework being used with other countries. As for the “need to overcome legal impediments..” they are referring to to the IRS’s need, not the NZBA’s need.

    “it doesnt look like NZ or Australia are looking for a way out of the information sharing idea of FATCA”
    This is irrelevant. They don’t need to. FATCA is ***ILLEGAL*** in NZ and will not happen without the explicit consent and action of the NZ govt. The NZ govt will need to explicitly act to put in place a mechanism that allows the FATCA requirements to be met. And the NZ govt will not act until the US govt puts in place reciprocal measures (and not just half-arsed ones) and removes its public policy conflicts it has with NZ (i.e. barbaric FBAR penalties that will be used to discriminate against NZers).

    Now you might think any country would do anything for access to US markets. The US govt tries this trick all the time. It frequently demands that the NZ govt change legislation to allow draconian sanctions for music downloading, and to dismantle public health care drug purchasing mechanisms that “rob US pharmaceutical companies of the profits that they deserve”. The US govt demands this in exchange for paltry reductions in the US’s protectionist stance towards NZ. Through FATCA, the US govt isn’t promising a reduction in protectionist policy in return for a NZ public policy change, it is threatening an increase in the protectionist policy in unless the NZ public policy change is implemented. Thankfully (and hopefully this continues) the NZ government rarely caves.

    If the US govt wants to shut its markets to the rest of the world, then so be it. The US govt controls US policy and is free to shut its markets to the outside world; the NZ govt controls NZ policy and will continue to do so.

  27. @Tim and Moby…

    I see the NZ financial Services industry has put in a submission…http://bit.ly/IEKsub

    I notice that they point out breaches to the New Zealand Privacy Act and the New Zealand Human Rights Act of 1993, but find it surprising that Mike Moore representation from the government does not!! http://bit.ly/JoOjcp

    They are also concerned about Kiwi Saver and retirement schemes and want them excluded.
    That is their only area of recommendations.

  28. For the record Here is the actual Testimony at the FATCA May 15th public hearing from Australia/New Zealand Banking Industry…

    All right. So, Mr. Burke, you’re up.

    MR. BURKE: Good morning. My name is Anthony Burke, Policy Director of the Australian Bankers’ Association. I’m accompanied by Mr. Michael Barber, General Manager, Tax at Westpark Group, and today we’re representing both the Australian Bankers’ Association and the New Zealand Bankers’ Association.

    I speak Australian and a little bit of Kiwi, so I will speak carefully within my 10 minutes. But an American colleague of mine has volunteered to do simultaneous translation if it’s a problem.

    We appreciate the opportunity to appear before you today and the many opportunities we’ve had to work with the Department and the Service on the development of rules to implement FATCA. Working toward a balanced approach to implementation of FATCA is a top priority for our member banks and we have diverted substantial effort to the tasks through our many comments and our several trips to Washington. We wish to underscore our support for the act’s objectives and express our appreciation for the changes that the Department and Service have made in response to comments by us and many others.

    Many challenges and difficult issues remain, and this morning I want to promote further discussion by highlighting key aspects of our April 30 submission.

    Our key priorities are: Simplifying the customer identification reporting obligations through alignment with existing processes; an intergovernmental between Australia and the United States and between New Zealand and the United States; deemed compliant or comparable status for superannuation funds, retirement funds, and other low-risk of tax evasion entities; allowing for the quarantining of branches/affiliates in countries where compliance cannot be achieved; and development of a workable pass-through withholding mechanism.

    Firstly, alignment with AML/KYC practices. Home country AML/KYC laws should be applied except in those cases where the mandatory provisions affect or preclude such an approach. We urge the Treasury and the IRS to continue to work in that direction, so that there’s an operational system which can be simply and readily complied with through existing systems and administrative procedures at the banks.

    We commend Treasury and IRS for acknowledging that there needs to be greater reliance on existing AML/KYC practices, but note that there remain a number of areas in the proposed regulations where further alignment is needed which are detailed in our written comments.

    AML/KYC is fundamental to customer identification, verification, and reporting by financial institutions worldwide, including Australia and New Zealand. And a high level of alignment, a factor with AML/KYC, will assist in compliance and result in a more efficient and effective framework for FATCA identification and reporting.

    Some examples of where an enhanced environment would be a significant benefit are: Reliance on government issued identification even where such identification does not strictly meet the requirements of the draft regulations, for example, a passport doesn’t have an address; no need to retain documentation used to identify a customer, with citing and noting of pertinent details being sufficient; no requirement to re-identify our customers with documentation that was initially used to identify has expired unless the FFI becomes aware of a change in circumstances or risk; reliance on current AML standards to identify U.S. ownership and the standard for AML is 25 percent with a requirement to look down to a FATCA ownership level of 10 percent, only if there are indications of the existence of such small ownership interests and acceptance of the identification processes for pre-existing clients.

    IGA Framework and transition period. We have long advocated reliance on existing government to government reporting mechanisms, and are pleased with the initiative underway to develop and maintain the IGA framework which will provide both simplification and relief from certain home country legal restraints that would otherwise be faced by FFIs in countries which enter into an IGA. The ABA is working with the Australian government and the NZBA is working with the New Zealand government on the expectation that both countries will enter into an IGA. We are firmly of the view that an IGA is the best path to allow the resolution of a number of threshold legal issues that may otherwise inhibit the proper implementation of the FATCA regime by Australian and New Zealand FFIs.

    We acknowledge in our submission that negotiation and finalization of an IGA will have or require considerable time and effort. Accordingly, we have requested that once MOUs between the United States and our two countries have been signed, which demonstrate an intention to enter into an IGA, branches and entities operating in our countries can proceed on the basis that the provisions contained in the IGA apply.

    Low risk of tax evasion. We appreciate that the Department of Service have exercised their discretionary authority provided by FATCA to exempt certain funds that present a low risk of tax evasion. We urge the further step of clearly classifying our superannuation funds as deemed compliant for providing them the comparable relief. We have said yesterday — modified regulation for deemed compliance status for superannuation funds. To be deemed compliant, the fund would have to satisfy the following elements: The account is supervised and tax-favored; it is subject to substantial penalties for excessive contributions and early withdrawals; all contributions are employer, government, or employee contributions; there are regular reports to national tax authorities and the home country as part of a tax treaty or IGA with the United States.

    Quarantining of noncomplying branches. The proposed regulations allow for FFIs that are domiciled in Australia and New Zealand to be compliant even when those FFIs have limited affiliates or branches that are located in countries whose laws and regulations make it impossible for them to fully comply with FATCA. Now when such compliance expires on 31 December 2015, exacerbation rises two points. First, we have requested an extension of time to 31 December 2017 to allow for our FFIs to persuade local governments to allow for FATCA compliance in these jurisdictions. And to the extent the legislative change is not forthcoming, to develop strategies to address the inability to comply in those jurisdictions. Secondly, we have proposed that the FFI should be able to quarantine or orphan the limited affiliate or branch and treat such affiliate branch as a nonparticipating FFI without impacting the compliance status of the FFI and its other complying branches and affiliates.

    Pass-through. Pass-through remains a difficult and challenging topic. We appreciate the postponement in the proposed rules of the effective date for this requirement, as well as the relief from pass-through withholding for recalcitrant account holders who would accompany entry into an IGA.

    We had previously offered a pass-through proposal and our April 30 comments offer a new one focused on the Blocker concept. The Blocker proposal is intended to address, in a construction manner, concerns that some have in terms of gaining access to U.S. capital markets remains that will enable them to do so without exposure to FATCA.

    A Blocker can be broadly defined as an entity whose primary business is recharacterizing U.S. source income as foreign source income. In order to be classified as a Blocker, the following needs to apply on our suggestion: The entity must be a participating FFI. It would not be an FFI as defined in the regs that accepts deposits on the ordinary course of banking or similar business on the basis that it’s highly unlikely that the potential — prudential regulator, rather, of an FFI would approve risk management practices that allow for disproportionately large allocation of the FFIs assets to be invested in a single market, especially outside the home jurisdiction. Participating FFI classifications of Blocker would be determined by reference to specific tests such as an ownership test and an assets test. In addition, any participating FFI with more than 50 percent of interest held by nonparticipating FFIs, or recalcitrant account holders, would automatically be classified as a Blocker. The Blocker will be obliged to deduct and withhold tax with respect to foreign pass-through payments by applying the pass-through payment percentage made to recalcitrant account holders and nonparticipating FFIs. If payment and withholding tax levels are above a specified but realistic and practical de minimis level which suggests that withholding tax be deducted on any payments if withholding tax amount exceeds the de minimis level.

    We seek your guidance on how best to proceed with this approach. For each of our recommendations in our submission, we’ve suggested revisions to the pertinent proposed regulation. Our submission also includes data on some other more technical issues not covered in my remarks today.

    I look forward to continuing to work with the Treasury and the IRS, tomorrow for example, and the implantation of the act and the development of multilateral approaches to combating tax evasion. Thank you very much.

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