CRS and AEOI Explained

Common Reporting Standard (CRS) and Automatic Exchange of Information (AEOI)

From 1 July 2017, New Zealand financial institutions are required to undertake due diligence on their account holders, including the controlling person of certain entity accounts. The purpose of the due diligence, is to identify non-resident account holders and controlling persons, and once identified, the accounts associated with those entities/persons, will be regarded as reporting accounts. Certain information extracted from reporting accounts will be reported to the Inland Revenue Department (IRD) each year. IRD will then make an automatic exchange of this information with various listed reporting jurisdictions.
The new rules will affect anyone who is not a New Zealand tax resident but holds financial assets in New Zealand, as their financial information will be reported back to the jurisdictions where they are tax resident; And anyone who is a New Zealand tax resident and holds financial assets in other participating jurisdictions, will find that their financial information will be reported back to the New Zealand IRD by those other jurisdictions.

How did this regime develop?

Several years ago, the US government signed bilateral agreements under FATCA (Foreign Account Tax Compliance Act) legislation, with many countries including New Zealand. Since then, the OECD crafted the Multilateral Convention and Multilateral Competent Authority Agreement, which has been signed by over 100 jurisdictions. The participating jurisdictions committed to the automatic exchange of information using the CRS.

Who is responsible for collecting the information?

Reporting New Zealand Financial Institutions (NZFI) are responsible for collecting defined information and reporting to IRD. There are four types of financial institutions: custodial institutions, depository institutions, investment entities and specified insurance companies. New Zealand institutions and overseas institutions’ with a New Zealand branch are defined as New Zealand financial institutions.

Whose Financial information should be collected and consequently subjected to exchange?

If account holders in Reporting NZFI who are not New Zealand tax residents are identified, the information regarding themselves and the accounts they hold will be collected by the NZFI and reported to IRD. The account holders can be individuals or entities. Entities could be companies, partnerships, trusts and any other non-individual ownership structures. For non-active, non-financial entities (Non-active NFE), if the controlling person of the accounts is not New Zealand tax resident, they will be subject to the same rules as account holders. The status as a New Zealand tax resident is defined by the provisions of a relevant double tax agreement, if an individual or entity is a dual tax resident of two jurisdictions.

How to identify the reporting accounts

For accounts to be opened after 1 July 2017, questions will be asked and self-certification will be required to be completed by all account holders and the controlling person of Non-active NFE.
For pre-existing accounts on 30 June 2017, there are different requirements, dependent on the following scenarios:

• Pre-existing individual high value accounts (with balance greater than US$1 million on 30 June 2017), to be identified before 31 March 2018 and must sign self-certification
• Pre-existing entity accounts with balances less than US$250,000, have no need to be identified
• Pre-existing individual low value accounts and entity accounts with a balance greater than US$250,000, to be identified before 31 March 2019, require less information to be provided than high value individual accounts

It should also be noted that IRD may use information that it has available, to overrule a reporting NZFI’s due diligence determination, and therefore still require certain information to be provided.

What information will be collected and when is it reported to the IRD?

For the account holders and the controlling person of non-active NFEs, the following identification information should be collected; name, address, jurisdiction(s) of residence, TIN(s) and date of birth (for individuals only).
For the reporting accounts, the following financial information should be collected; account number(s), the name and identifying number of the reporting NZFI, the account balance or value, income and distribution during the period.
The first period to be reported is from 1st July 2017 to 30th June 2018. Reporting NZFI should collect information and report to IRD by 30th June 2018. Automatic exchange of the information by IRD should occur by 30th September 2018. From then on, in each financial year, reporting NZFI and IRD will need to meet the same reporting and exchange deadlines.

How, and with who, is the exchange made?

IRD is yet to publish with who the first information exchange will be made. By default, all countries that signed the agreement will be participating jurisdictions. OECD will need to be satisfied that the information exchange can be only used for taxation purpose and not be misused in other way. So, New Zealand IRD will publish a list of reporting jurisdictions with whom they will exchange information with shortly.