FATCA and CRS update - could your NZ trust have obligations?

By Vicky Yen, Vinay Mahant & Troy Andrews

The Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) reporting season is upon us again with the due date for New Zealand Financial Institutions (NZFIs) to submit their annual FATCA and CRS reporting information for the year ended 31 March 2024 to Inland Revenue being 30 June 2024.

By way of background, the FATCA and CRS regimes were introduced to improve cross-border tax compliance. They require NZFIs to conduct due diligence on their account holders and to report certain information about their US/non-resident account holders to relevant tax authorities.

Inland Revenue has continued to increase its audit and oversight activities in this space, and while its focus has previously been on compliance of “large” NZFIs, over the last year we have seen an expansion of review actions to cover a wider population and smaller NZFIs, including a significant number of family trusts (we explain why below). Inland Revenue’s activities have included on site reviews, requests for completion of the Administrative Compliance Oversight Questionnaire, completion of the CRS Annual Questionnaire, and letters requesting for explanation about entities’ CRS statuses.

CRS Annual Questionnaire

At a high level, similar to the previous year, the Annual Questionnaire requests:

• breakdowns of reported and non-reported information (e.g., the number of accounts in total, that are undocumented, new and reportable, with missing Tax Information Numbers or date of births etc); and
• information to give Inland Revenue insight on back-end operations (e.g., number of accounts subject to changes in circumstances and Day 2 validations, the extent to which third-party service providers or non-resident associated persons are involved in fulfilling CRS obligations, and whether control deficiencies have been identified).

This year’s questionnaire includes a new table of “financial institution information” requiring recipients to set out the details for each financial institution in the group, including their financial institution classification type.

There is also a new question on whether the Global Intermediary Identification Number (GIIN) list is solely relied on when evaluating if an account holder is a Financial Institution (FI) (highlighting Inland Revenue’s expectation that NZFIs must look beyond a GIIN to ensure an entity claiming to be an FI is indeed an FI).

Could your NZ trust have obligations?

Inland Revenue’s annual compliance checks also include a process of identifying entities that they believe should be registered for CRS but are not. In the current year, this has resulted in a large batch of trusts being sent letters requesting an explanation on why they have not been registered as a Reporting NZFI. 

“Financial Institutions” under FATCA and CRS encompass not only entities such as banks and custodians (which fall within “traditional” definitions of a financial institution) but also in some cases, partnerships, trusts and corporate trustees.

For example, a family trust may be deemed to be a financial institution if it has investments in financial assets (e.g., shares and bank deposits) and has a discretionary investment management service provider (such as a wealth advisor or Bank) that has discretion over its investments. In some cases, where a corporate trustee or a related party of the corporate trustee (e.g., a law firm) is remunerated for services related to managing or administering the trust’s financial assets, the corporate trustee and the trust itself may also both be financial institutions for the purpose of these rules. 

It is therefore timely for entities to review their FATCA and CRS status and for NZFIs to review their systems to ensure they remain fit for purpose, including working through the Inland Revenue’s CRS reporting year-end checklist (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) – a clear step up on enforcement measures compared to prior years.

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.