The US Treasury has given New Zealand's banks and other financial institutions the green light to register under a controversial new regime under which they will be obliged to pass customer information to US tax authorities.
In a clampdown on tax evasion, the US passed the Foreign Account Taxation Act (FATCA) which requires overseas financial institutions to pass information about customers who are US citizens and tax residents to the Internal Revenue Service.
Banks that don't comply face a punitive 30 per cent tax on their US investments when the rules take effect in July this year.
The Government is currently negotiating an Intergovernmental Agreement (IGA) with the US to enable local banks to forward account information about New Zealand-based US citizens and tax residents to the Inland Revenue Department which will then pass it on to the IRS.
But given the large number of countries seeking to enter into an IGA, it is taking some time for the agreement to be concluded, creating uncertainty for New Zealand banks.
However, the US Treasury yesterday said it has reached an 'agreement in substance' with New Zealand on the terms of IGA.
PwC partner Mark Russell said the announcement `` allows New Zealand financial institutions to go ahead with registering for FATCA".
``Most financial institutions have been deferring registration until the IGA is finalised. However the deadline for registration is looming and organisations want to get on with the process."
Parliament is currently passing legislation to give effect the IGA. Without the law change, banks' forwarding of some customers' details to the IRD and IRS would be in breach of the Privacy and Human Rights Acts.
Unusually, the US requires all of its citizens to comply with US tax obligations whether they live in the US or not.
About 27,000 US citizens live in New Zealand but the FATCA regime casts a wider net, requiring the information of all ``US persons for tax purposes" which includes New Zealanders who have previously worked in the US.