New Zealand has recently adopted what is known as the ‘Common Reporting Standard’ (CRS). The CRS was developed by the Organisation for Economic Co-Operation and Development (OECD) to assist with the detection and deterrence of offshore tax evasion. Over 100 countries have signed up, including New Zealand.
Under the CRS, New Zealand ‘Financial Institutions’ are required to conduct due diligence of financial accounts to identify reportable information. This information is then given to the IRD who in turn exchange it with New Zealand’s international partners.
While we are unlikely to be deemed to be a financial institution for the purposes of the CRS, as a law firm we are obliged to comply with the reporting standards.
There are two situations where we may be required to complete due diligence.
Interest Bearing Deposit
When we place funds in our Trust account, we hold them on our client’s behalf. However, when we place funds on interest bearing deposit the funds are actually held in the name of the client, not in ours. Our bank treats every interest bearing deposit account (IBDA) as if it is a deposit account directly made by the client, and therefore each IBDA will be subject to CRS due diligence. The bank can request that we as a firm conduct this due diligence in the interests of time.
If we hold funds on Interest Bearing Deposit we may be asked by our bank to conduct due diligence and we may request you provide us with further information.
In some situations, a client’s trust may be deemed to be a financial institution and therefore attract similar due diligence requirements.
The starting point is that if a trust is deemed to be a ‘Financial Institution’ it will be covered by the CRS regime. A trust will be a Financial Institution if:
If a trust is deemed to be a ‘Financial Institution’ it will be covered by the CRS and may have reporting obligations. A trust will be required to report if there is ‘foreign element’ to the trust. To put this simply, a trust will have a ‘foreign element’ if anyone involved in the trust is a tax resident in a country other than New Zealand.
If your trust meets the above criteria, you may be legally obliged to conduct due diligence and report this back to the IRD. Your first stop should be to contact your accountant. We are also happy to advise and if you have any queries, do not hesitate to contact us – Partner Sarah Manning (DDI 03 343 8456 / firstname.lastname@example.org) or Law Clerk Joshua Hitchcock (DDI 03 343 8588 / email@example.com).