New Zealand signs controversial tax agreement with U.S.

New Zealand and the United States on Thursday signed a controversial agreement aimed at fighting tax evasion, but critics fear it could undermine the rights of New Zealand taxpayers.

Revenue Minister Todd McClay and United States Charge d' Affaires Marie Damour signed an intergovernmental-agreement (IGA) in response to the U.S. Foreign Account Tax Compliance Act (FATCA) information-reporting regime, which will take effect from July 1.

FATCA requires non-U.S. financial institutions to provide information about their U.S. customers to the United States, as U. S. taxpayers have a worldwide tax responsibility to their government.

"Under the IGA, rather than individually sending account information for U.S. taxpayers to the U.S. IRS (Internal Revenue Service), New Zealand financial institutions will instead provide this information to (New Zealand's) Inland Revenue, who will exchange it with the IRS," McClay said in a statement.

The agreement would make it easier for New Zealand financial institutions to comply and thereby reduce additional costs being passed on to New Zealand customers.

"The IGA is reciprocal, meaning that New Zealand will also receive information about certain accounts held by New Zealand residents with U.S. financial institutions. This will help prevent tax evasion and enhance the integrity of both countries' tax systems."

The IGA imposed no extra taxes or changed taxing rights, but simply enabled New Zealand financial institutions to comply with U. S. law, McClay said.

Last month the main opposition Labor Party called on McClay to release the text of the IGA before Parliament was asked to pass the corresponding legislation, which could affect tens of thousands of New Zealanders who were born or had worked in the United States.

Labor's Revenue spokesperson David Clark said at the time that the government had left its negotiation run on the agreement too late.

"It appears to have backed itself into a corner. It must now pass this law or the U.S. will place unsustainable penalties on the New Zealand banking system," he said in a statement.