Turning the compliance screws on FATCA and CRS

As a reminder, the due date for New Zealand Financial Institutions (NZFIs) to submit their annual FATCA and CRS reporting information for the year ended 31 March 2023 to Inland Revenue is 30 June 2023.

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.

In light of increased audit activity, which to date has included on-site reviews and questionnaires covering a number of risk-based questions, the focus of NZFIs has been on expanding their internal risk and governance functions and monitoring their ongoing compliance. To date Inland Revenue’s focus has been to review compliance of “large” NZFIs however we expect they will naturally expand these review actions to cover a wider population/smaller NZFIs as the next phase of this process.

An additional governance step initiated by Inland Revenue has been to develop a high-level annual FATCA and CRS disclosure that has recently been distributed to many NZFIs. Though most of the questions are areas that we would expect NZFIs to normally work through as part of their annual reporting, there are a few questions that may require additional thought including whether an NZFIs internal systems document/capture the total number of accounts with changes in circumstances/are treated as excluded accounts and questions in relation to procedures in place to identify avoidance schemes. The information provided will assist Inland Revenue to better understand the business and operating models of NZFIs and the quality of data submitted. Please note that the annual disclosure is also due by 30 June 2023. NZFIs that have not received a disclosure for 2023 year may still benefit from reviewing/considering the questions asked as part of their governance measures to ensure their policies and procedures remain up to date (while also noting that the disclosure is expected to be more widely distributed next year). Please let us know if you would like to discuss the disclosure questions with us.

Inland Revenue has also recently published a year-end checklist (set out below) to highlight issues NZFIs could review to ensure their systems remain fit for purpose. A number of these items are also included in Inland Revenue’s new annual FATCA and CRS disclosure and previous risk-based questionnaires. We are increasingly seeing NZFIs complete health check reviews of FATCA and CRS compliance 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. This checklist sets out a very useful framework of questions that could be worked through as part of such an exercise. 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.

Inland Revenue: year-end checklist for financial institutions

1. Does your enterprise-wide tax governance process cover sufficiently the CRS system (including reporting to senior management or the board of directors)?
2. Are your CRS policies, procedures and controls documented fully and periodically tested or reviewed for any changes that have taken place
3. Have you maintained technical training (especially of new staff members with responsibilities pertaining to CRS work) and retained subject matter experts to answer the more difficult issues that arise?
4. Do you have back-up plans where there is considerable reliance placed on one or two key individuals?
5. Do you maintain quality controls when CRS system functions are outsourced offshore, especially given that New Zealand financial institutions have ultimate responsibility for complete and accurate CRS record-keeping, due diligence, and reporting?
6. Do you maintain documentation as to steps undertaken and evidence relied upon for performance of CRS due diligence procedures, including the identification and actions taken in respect of false certifications?
7. Are self-certifications obtained every time a new account is opened, and their reasonableness confirmed?
8. Are you still monitoring effectively for changes in circumstances in relation to the identity or reportable status of account holders and/or controlling persons?
9. Are you collecting tax identification numbers, dates of birth and full addresses for account holders (and controlling persons) as well as making reasonable efforts to collect TINs and DoBs for pre-existing accounts not already in your records?
10. Are trusts (including family trusts) properly classified and reported (including the reporting of account holders and controlling persons of the trust)?
11. Are undocumented accounts properly classified, reported and reducing in volume?
12. Are you keeping a watchful eye for potential CRS circumvention arrangements when opening a new account, such as the misuse of citizen/residence by investment schemes?

May 2023 - Tax Alerts