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Real Estate Investar Blog

Thousands of bank customers called on to reveal US connections

cash_finance_small.jpgChristchurch company director Jo Scott was taken aback by a recent letter from Kiwibank​ asking if she was an American and whether her company had financial links to the US.

She isn't and her company doesn't.

So she was even more surprised when the letter went on to warn that, if she failed to fill out the accompanying four page declaration, Kiwibank​ would provide information about her accounts to New Zealand Inland Revenue (IRD) which would pass it onto the US Internal Revenue Service .

"It was such a heavy handed letter. I complied, but I did think 'why is my bank helping find American tax dodgers?' As a New Zealander I was quite shocked to hear that my New Zealand Bank has to enforce American law."

Kiwibank was in fact attempting to meet its obligations under a 2014 tax law change requiring it to comply with America's Foreign Account Tax Compliance Act (Fatca), a controversial piece of legislation aimed at reducing tax evasion by Americans with financial accounts outside the US.

The New Zealand Bankers' Association (NZBA) said that as part of the initial Fatca​ implementation, it was agreed all existing bank accounts would be reviewed by June 2016 to identify those that were classed as US persons or entities, and they would continue collecting the information for new accounts.

If a customer chose not to provide the information requested, the bank could pass on the customers's name, address, account number and balance, US tax number, and interest payments.

An NZBA​ spokesperson said banks estimated about 1.5 per cent of their customers came under the scope of Fatca, but the costs of building and maintaining systems to comply with the legislation were significant.

Kiwibank​ communications manager Bruce Thompson said at the beginning of April several thousand letters were sent to holders of business and trust accounts opened since the tax law change.

A large number of people who received that letter wouldn't have any issue at all because they wouldn't have any dealings with the US, but the bank had to prove it had been in touch to ensure it complied with the law, he said.

In response to Scott's complaint about the tone of the letter he said that in seeking information "sometimes you can appear to be a little bit blunt, but if you try to bury it in soft language, you may not get the message through. There's no intention to cause distress or offence, it's to cut to the chase: this is what we require, this is what we have to do."

On its website IRD said the US tax system was unusual in taxing all US citizens and those granted permanent residency (green card holders), whether they live in the US or not.

It said New Zealand financial institutions had to collect information on accounts that "look like they might belong to a US person," and could ask customers about their citizenship or tax residency status.
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