Local banks have little choice but to comply with a controversial law that requires financial institutions around the world to hand over information about American citizens that will be passed on to the US tax department, the New Zealand Bankers' Association says.
The US Foreign Account Tax Compliance Act (FATCA), which will be phased in from July 1, aims to crack down on tax avoidance by US citizens who have financial accounts outside the United States.
The association said an amendment of this country's Tax Administration Act, passed yesterday, meant New Zealand financial institutions were now required to collect information to determine whether a client was a US citizen and if so disclose information on that customer to the Inland Revenue Department (IRD), which would in turn be passed on to the US Internal Revenue Service (IRS).
"Our banks and New Zealand have little choice but to comply with FATCA," said Bankers' Association chief executive Kirk Hope. "Not complying could see banks penalised by a 30 per cent withholding tax on principal and income from investments in the United States. US capital markets provide much of the funding most banks need to lend to New Zealand households and businesses. So there would be a huge impact on our economy if we didn't comply."
He said complying with FATCA also meant local banks could continue to provide services to US citizens and residents who have New Zealand bank accounts.
