Inland Revenue: "No place to hide overseas income"

By Stephen Walker and Nick Cooke

In September 2018, Inland Revenue received its first wave of information under the OECD’s Automatic Exchange of Information (AEOI) framework from 66 different overseas tax authorities. Inland Revenue is now in the process of following up on this information and has started contacting taxpayers giving them the opportunity to provide an explanation or to submit a voluntary disclosure. According to an article recently published by Inland Revenue, the AEOI is “proving a potent tool in the fight against tax evasion.”

What is AEOI?

Under the AEOI, participating jurisdictions collect and exchange financial account information concerning residents who invest or maintain assets in a country other than the one in which they are tax resident. The “Common Reporting Standard” (CRS) is, broadly, a set of guidelines that provides the technical detail of how the information is collected and exchanged. As of August 2017, 102 jurisdictions around the world (including New Zealand) had committed to exchanging information under the CRS via the AEOI framework.

Inland Revenue’s initial approach

In September 2019, armed with the information received from overseas tax authorities over the previous year, Inland Revenue sent letters to the first group of taxpayers identified as having overseas accounts. These letters gave a brief background to the AEOI and requested that taxpayers confirm their tax position by either completing a voluntary disclosure or making a declaration to confirm that their tax affairs are “up to date”. The letters received by taxpayers in this group were all the same, suggesting it was a “one size fits all” approach, meaning in a lot of instances the letters were not fit for purpose. For example, taxpayers that are transitional residents are not generally required to declare overseas passive income. This meant that the declaration Inland Revenue was asking the individual to make, which included the wording “…I have declared all my offshore income and gains”, was not applicable.

A change in tactic

Following feedback from Deloitte and no doubt a number of other tax agents, Inland Revenue has now adapted its approach with a second wave of letters having been released with a more targeted approach. So far, we have identified up to 6 different versions of the letter which have been tailored to the taxpayer’s position and most likely, the information received from overseas tax authorities. This is evident from statements such as “We have received financial account information from one or more foreign jurisdictions that indicates you are a New Zealand tax resident. However, our tax records indicate that you are not a New Zealand tax resident.” Whilst the consideration of the taxpayer’s specific circumstances is a welcome update from Inland Revenue, the letters are still not without their limitations and so care should be taken when responding to them.

What if further explanation is needed?

What is interesting is the facility for taxpayers to provide further information to help Inland Revenue understand their circumstances. Inland Revenue explains in the letters that such information “…may include changes in your tax residency (including dates of when this occurred), how any attributable income has been returned and the nature of your foreign accounts.” This facility has likely been provided as a result of feedback from tax agents and will, in the majority of cases, allow taxpayers to reassure Inland Revenue that their tax returns filed to date are complete and correct. Taxpayers should consider whether to provide additional information very carefully and it goes without saying that any information that is provided to Inland Revenue must be correct. In the event that the information received by Inland Revenue doesn’t add up, Inland Revenue may seek further clarification or notify the taxpayer of their intention to complete an audit of their tax affairs.

If you have received an AEOI letter or would like further advice in relation to your New Zealand personal tax affairs, please reach out to Stephen Walker, Nick Cooke or your usual Deloitte tax advisor.

December 2019 Tax Alert contents

• Inland Revenue: “No place to hide overseas income”
• “You Do The Math” – 10 Simple Ways to Keep Inland Revenue Away
• Corporate Tax Governance – From the Top Down… 
• Tax Policy: What to expect in the twenties
• Don’t hold back; investment income reporting is almost 
• OECD consults on “GloBE” global minimum corporate tax rate
• Snapshot of Recent Developments