FATCA and CRS update – are you prepared for Inland Revenue activity?

By Vinay Mahant, Vicky Yen & Troy Andrews
 

Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) reporting season is under way and New Zealand Financial Institutions (NZFIs) have until 30 June 2025 to submit their annual FATCA and CRS reporting information (for the year ended 31 March 2025) to Inland Revenue.

These regimes have been in effect for some time now and this year marks the 11^th and 8^th annual reporting cycles for NZFIs (for FATCA and CRS, respectively). Broadly, these regimes aim to improve cross-border tax compliance through a global automatic exchange of information.  This is achieved by requiring "Financial Institutions" to conduct due diligence on their account holder base and report certain information about their US/non-resident accounts to relevant tax authorities (through Inland Revenue).

The success of FATCA and CRS in terms of meeting their goals of achieving better tax compliance is largely driven by how effectively and consistently they are implemented across the world. In the context of CRS, the Organisation for Economic Co-operation and Development’s (OECD’s) Global Forum is tasked with monitoring compliance across participating jurisdictions. Of relevance, the most recently published Global Forum (November 2024), notes that most jurisdictions have appropriate CRS legal frameworks in place with the next step being the continuation of reviews of effectiveness in practice. From a New Zealand perspective, this involves Inland Revenue conducting review and oversight activities to demonstrate and report the level of compliance of NZFIs to the OECD Global Forum through the global peer review process.

It is clear that FATCA and CRS have matured past their educational phases and that the focus of NZFIs should now be on ensuring their operational and governance frameworks remain fit for purpose. In a sign of the maturity of the regimes, we thought it would be useful to share an update on the level of Inland Revenue activity in this space, as summarised below:

• Onsite reviews are common, including: sample reviews of self-certification forms completed by account holders; walk-throughs of account onboarding procedures with interest in the interaction of internal systems and how records are maintained; understanding processes for monitoring and responding to changes in circumstances; and reviewing written policies and procedures.
• Continued distribution of the CRS annual questionnaire. This year’s questionnaire is similar to the prior year though please note that it now requests the total number of “pre-existing accounts”, “new accounts” and accounts “with a valid self-certification”.
• Oversight activity including requests for the explanation of the CRS status of certain entities. For example, letters circulated to a number of trusts requesting an explanation as to why they have not registered as a NZFI noting that such entities can be NZFIs where they invest in financial assets (e.g. shares and bonds) and are managed by a discretionary investment management service provider (such as a wealth adviser or bank). We have also seen requests to confirm the criteria for non-reporting NZFI or excluded account status is met.  
• Focus on compliance with the FATCA missing tax identification number (TIN) rules to ensure that NZFIs correctly report missing US TIN codes for pre-existing accounts. In this regard, the IRS issued Notice 2024-78 in October 2024 which extends and adds to Notice 2023-11 (December 2022), which outlines the procedures that should be followed to avoid IRS activity that could start the process of potentially revoking FATCA status. This takes 18 months from notification of non-compliance and highlights a real economic cost as FATCA withholding could be suffered on any US-sourced income. To remain compliant, foreign financial institutions (FFIs) must report the date of birth and use prescribed TIN codes where a US TIN has not been obtained for a pre-existing account. There is also an expectation that FFIs have procedures in place to make reasonable efforts to obtain missing US TINs on an annual basis and evidence that these actions have been taken.
• Analytical review of reporting information submitted to assess the quality of data and request corrections and/or deletions before the exchange of information to foreign jurisdictions. Please note that Inland Revenue has a 3-month window to 30 September to review and exchange reporting information to foreign jurisdictions.

It remains critical that NZFIs continually monitor and review their FATCA and CRS compliance to ensure that their policies, procedures, systems, and controls are fit for purpose. We encourage NZFIs to thoroughly consider their responses to any Inland Revenue correspondence received and consider working through Inland Revenue’s CRS reporting year-end checklist to self-assess their overall compliance framework (available on Inland Revenue’s website, amongst other useful related resources). NZFIs can also consider completing health check reviews to identify and address any gaps/remediation required, as an action to demonstrate and maintain comfort of governance/compliance ahead of any potential Inland Revenue review activity. To the extent there are gaps or errors these should be actively addressed and remediated as Inland Revenue is encouraging voluntary disclosures with clear messaging that penalties will otherwise be considered (and applied).

Please contact your usual Deloitte advisor if you have any questions, would like assistance with your annual reporting or would like to discuss how we can help you complete a health check review of your FATCA and CRS compliance framework.

To learn more about FACTA, CRS and current Inland Revenue activity register for our webinar on 21 May 2025 11am