New Zealand - Effective use of financial account data

Country Correspondent – John Nash

New Zealand is an active participant in the international exchange of financial account data with tax treaty partners, having implemented fully the OECD’s Common Reporting Standard (CRS). In our second year of such exchanges, Inland Revenue received almost one million account records from 74 jurisdictions on New Zealand residents with offshore investments. 

Based on our analysis of this information, we have piloted a number of compliance campaigns with varying objectives ranging from general customer education to active enforcement where we have seen a material mismatch between the CRS details and income returned. By the end of June 2020, we had contacted over 3,500 customers with multiple offshore accounts and we had received 307 voluntary disclosures to correct tax assessments in relation to offshore income. These disclosures resulted in a total tax shortfall of approximately NZ$5.5m.

More importantly, these campaigns achieved greater understanding and awareness in the community about offshore compliance obligations, especially among tax intermediaries. We ensured some coverage of customers in every region of New Zealand, not only the major cities. While the tax shortfall of $5.5m represents a good return on investment in itself, the deterrent effect of the tax administration being seen to use the information effectively has, without doubt, strengthened the overall deterrent effect of the CRS initiative.

The collection and exchange of financial account data internationally is yet another form of third-party reporting. In this regard, it is clear that the major benefit arises from improved reporting by customers in their tax returns who become aware that tax administrations have access to details of their offshore investments and are systematically matching this information to their tax returns. In this regard, a recent 2019 study from the United States is very reassuring - the US Treasury Inspector General for Taxation found that there is a 93% compliance rate when third party reporting applies as against 37% without.

We are now looking forward to the 2020 automatic exchanges of financial account data with several additional jurisdictions participating for the first time, widening our coverage even further. Offshore is truly no longer off limits for tax administrations!