Law Society reaches understanding with IRD on FATCA
The New Zealand Law Society says that following discussions with Inland Revenue and the New Zealand Bankers' Association it has now reached an understanding with Inland Revenue about application of FATCA to lawyers' trusts accounts.
FATCA is the United States' Foreign Account Tax Compliance Act. Its objective is to reduce tax evasion by US citizens, tax residents, and entities. US citizens and tax residents are required to report their worldwide income to the Internal Revenue Service (IRS) whether they live in the US or not.
FATCA is a reporting regime that ensures US persons (and New Zealanders with accounts in the US) meet their tax obligations. It requires all foreign financial institutions that are not exempt, including New Zealand financial institutions, to register with the United States Inland Revenue Service. They must report on US citizens and tax residents who have specified foreign financial assets that exceed certain thresholds.
The Law Society says its understanding with Inland Revenue is as follows:
(1) Where money is held in a law firm's general trust account on a pooled basis with the only person identified in relation to the bank account being the law firm, the law firm is not required to disclose the underlying client information to its bank for FATCA or CRS purposes.
(2) Where money is held on interest bearing deposit by a law firm for a client in a "designated" account for the purpose of collecting interest, due diligence and collection and disclosure of information for FATCA and CRS purposes is required, unless an account is exempted.
(3) The trigger date for the obtaining of self-certifications from clients is the date on which a law firms elects to be a NFFE.
(4) The above applies where a law firm has elected to be a NFFE and accordingly is an active NFFE.
Law Society recommendations
Having regard to this, the Law Society has made a number of recommendations:
Any law firm which intends to elect to be a NFFE and has not already done so, should make that election and notify its bank of its election. This should be done forthwith and in any event by not later than 31 March 2017.
Each law firm should immediately take steps to obtain self-certifications from each client in respect of whom non-exempt money is held on interest bearing deposit by the law firm from and inclusive of the date on which the law firm elected to be a NFFE. Self-certification forms are available on the Law Society's website, although individual banks may well require self-certifications to be on forms specified by the bank.
Each law firm should then by not later than 31 July 2017 advise its bank of the self-certifications received and of any clients who have not provided these when requested to do so.
Firms without trust accounts
The Law Society says any law firm which does not have a trust account would not normally be a financial institution and accordingly would not need to comply with the above recommendations.
Bankers' Association discussions
The Law Society says discussions with the New Zealand Bankers' Association have not concluded. It says once this occurs it will provide law firms with any further information which may be relevant.
Last updated on the 23rd March 2017