Chapter 4 - Compliance framework

Addressing significant non-compliance of tax authorities

4.1 The Multilateral Convention and New Zealand’s bilateral tax treaties contain strict provisions that require information exchanged to be kept confidential and limit the persons to whom the information can be disclosed and the purposes for which the information may be used. As noted, it is anticipated that AEOI exchanges will predominantly (if not exclusively) be carried out under the Multilateral Convention.

4.2 Importantly, a mechanism exists under the MCAA that enables participating jurisdictions to determine which Multilateral Convention signatories it will actually engage in AEOI exchanges with. In this regard, New Zealand proposes basing the majority of its decisions on which jurisdictions it will exchange information with on the outcomes of the reviews on confidentiality and data safeguards currently being undertaken by the Global Forum. (That is, if the Global Forum assesses a jurisdiction’s confidentiality frameworks and data safeguards as satisfactory, in the absence of other factors New Zealand will include that jurisdiction as an exchange partner.)

4.3 The MCAA mechanism will also enable Inland Revenue to suspend the exchange of information with another participating jurisdiction’s tax authority if it determines that there have been breaches in in respect of matters such as:

  • substantial non-compliance with the information confidentiality and data safeguard provisions;
  • a material failure to provide timely or adequate information; or
  • narrowing the scope of entities or accounts covered by the CRS to such an extent the purposes of the CRS are frustrated.

4.4 Similarly, another participating jurisdiction’s tax authority would be able to suspend the exchange of information with Inland Revenue if it determined that there was significant non-compliance by New Zealand.

Consultation question

  • We welcome any submissions on whether conducting AEOI exchanges under the Multilateral Convention in the manner outlined above raises any concerns.

Implementing domestic legislation

4.5 Under the CRS, a jurisdiction must have rules in place to ensure the effective implementation of, and compliance with, the reporting and due diligence procedures as set out in the CRS.[33]

4.6 Such CRS domestic compliance rules include:

  • anti-avoidance rules designed to prevent financial institutions, persons, or intermediaries, from adopting practices intended to circumvent the CRS reporting and due diligence procedures;
  • record keeping rules requiring reporting financial institutions to keep CRS related records of relevant due diligence and reporting steps undertaken, including any evidence relied upon for the performance of the procedures and adequate measures used to obtain those records; and
  • effective enforcement provisions to address non-compliance. A critical element of compliance, in this regard, will be ensuring that rules are in place requiring that self-certifications are always obtained where required by the CRS.[34]

4.7 Legislation will therefore be required to ensure that reporting financial institutions undertake their CRS due diligence and reporting obligations.

Consultation questions

4.8 Submissions regarding how such compliance issues can best be addressed in legislation are invited. In particular, we would appreciate your views regarding:

  • What anti-avoidance rules should apply to prevent New Zealand reporting financial institutions, persons, or intermediaries, from adopting practices intended to circumvent the CRS reporting and due diligence procedures?
  • If the main CRS compliance rules were incorporated into current Part 11B (Foreign account information-sharing agreements) of the Tax Administration Act 1994, is current section 22(2)(lc) of the Tax Administration Act 1994 sufficient to ensure CRS record keeping by relevant “persons”?[35]
  • Should CRS related records be required to be retained for the current 7-year statutory period that relates to tax-related records?
  • What penalties and procedures (including timeframes and procedures for providing corrected information) should apply when a New Zealand reporting financial institution has not complied with its due diligence and reporting obligations?
  • Should an account holder be required to keep the New Zealand reporting financial institution (that maintains the account) informed on a timely basis about material changes in circumstances regarding the account?
  • What rules should be in place to ensure that self-certifications are always obtained in the circumstances where the CRS requires such certifications?
  • What are the ways that the CRS requirements regarding due diligence and reporting compliance can be implemented in New Zealand in a way that minimises compliance costs for reporting financial institutions and account holders?
 

33 CRS Section IX.

34 The CRS states, in this regard, that it is expected that jurisdictions have strong measures in place to ensure that valid self-certifications are always obtained for new accounts.

35 Section 22(2)(1c) of the TAA, which currently relates to FATCA record keeping, requires every person to keep sufficient records regarding their compliance with Part 11B of the TAA.