Buried deep within the massive omnibus tax bill now before the Select Committee in Parliament is a provision that if enacted as it is, will strip an entire class of New Zealanders defined by national origin, association or mere accident of birth, of their privacy and civil liberties under the Privacy Act and the New Zealand Bill of Rights Act. Further, the Government is taking this action at the behest of the foreign state.
The United States practices what they call “citizenship based taxation”. Essentially anyone whom the United States, at its sole discretion, defines as a “US person” is subject to American tax on their worldwide income. US persons who live abroad are required to file complicated annual tax returns and reports of all their financial assets and activity even if no tax is owing. There are ruinous fines and the threat of prison even for inadvertent non-compliance.
Last year the US Congress also passed the Foreign Accounts Tax Compliance Act (FATCA) which requires all financial institutions worldwide to report all accounts held by US persons under penalty of onerous financial sanctions. Since for a New Zealand financial institution to do so would violate several provisions of the Privacy Act and the New Zealand Bill of Rights Act, the Government proposes to amend tax law and enter into an Inter-governmental Agreement to allow this information to be transmitted to the IRD for onward relay to the American IRS. Part 11B of the Bill will require all New Zealand financial institutions to audit, gather and report to the IRD information on all accounts that at any time during the year have a value of $50,000 or more held by US persons.
Who is a US person for purposes of this Act?
The Government would have you believe that they are merely assisting our American friends in stopping tax evasion by a few wealthy individuals. This is far from the truth. First, any US citizen is a US person even if they also hold New Zealand citizenship. One may become a US citizen by naturalization, by birth in the US, or by birth overseas to a US citizen parent. There are an estimated 7 million US citizens abroad by that definition.
Note that one can be a US citizen through the accident of birth even if you don’t want to be, have never claimed to be and have never set foot in the US. For example, a child born to a New Zealander studying or working temporarily in the US automatically becomes a US citizen at birth. No registration or positive claim is required. Likewise, a child born in New Zealand to a US citizen parent will almost always be a US citizen. In both of these cases, the Kiwi is required to report and pay taxes on their worldwide income and in both of these cases a New Zealand financial institution will be forced to give their bank details to the US IRS. Second, any holder of US permanent residency (the famous “green card”), is a US person subject to the same requirements even if the person no longer lives in the United States unless they have formally surrendered the residency. Thus, an innocent Kiwi, who may not even know she is a US citizen for tax purposes, will have her bank details sent to US authorities and will be subject to all the taxes, interests, fines and penalties provided for in American tax law.
The above cases above would be bad enough. However reporting is also required when a US person has a beneficial interest in an account. Thus, the spouse, partner, child or other close relative of a US person will have their financial data reported to the US even if they have no other connection to America. And it doesn’t stop there, anyone with a joint account with a US person will be reported. Family trusts with even one US person as a beneficiary? Reported. Businesses where a US person has signing authority over an account? Reported. Companies where US persons hold 10% or more of the shares? Reported. Joint beneficiary with a US person of life insurance policy? Reported. And as we’ll see the reporting doesn’t stop there, based on instructions from the IRD thousands of people unconnected in any way to the US or a US person will have their private financial details reported to the American tax authorities.
How do the banks know which accounts to report?
The IRD has issued compliance instructions to financial institutions as to which accounts must be reported. The reporting is based on indicia which may show that the holder is a US person or that US person has beneficial interest in the account. The indicia, which can found on the IRD’s web site are:
- Indication of a place of birth in the US. (Born in the US but left as a child? Reported)
- Current US phone number, mailing or residential address (Kiwi working or studying temporarily in the US? Reported)
- Standing instructions to transfer funds to a US account. (Send pocket money to your son or daughter studying, working or travelling in the US? Reported)
- An account with an “in care of” or “hold mail” address as the sole address. (Out of NZ for awhile and getting your mail in care of a mate? Reported.)
Implications for Civil Liberties
The 2006 Census recorded 21,000 New Zealanders with a place of birth in the US and this is the number usually offered by the Government as the number affected. Clearly though, the number will be far, far higher than this. Based on average family size and immigration, I think that 100,000 is probably a better estimate of the number of innocent Kiwis who, without their consent, will have their private financial information transmitted to a foreign tax authority. No suspicion or probable cause is required. The rules are based solely on national origin and association.
Section 19 of the New Zealand Bill of Rights Act, referring to the grounds of discrimination spelled out in the Human Rights Act (1993), expressly prohibits discrimination based upon “ethnic or national origin, which includes nationality or citizenship”. It also prohibits discrimination based upon marriage, civil union or de-facto partnership with a particular person” or upon “being a relative of particular person”.
Yet the Government’s proposed legislation will set up an entire class of New Zealanders who will be outside the protection of the Bill of Rights Act based solely upon an accident of birth or a choice of association. In New Zealand’s impoverished democracy, of course any Act passed for any reason that contravenes the Bill of Rights Act takes precedence. That makes it legal, but it doesn’t make it right. To allow the whims of a foreign government to dictate which New Zealanders have rights and which may be safely discriminated against is a violation of natural justice and a dangerous precedent.
As it is written, the bill is not confined to the American situation. The IRD can enter into these agreements with any country that passes similar laws. If the UK or South Africa, to say nothing of China or Zimbabwe, decide they would like to have the bank details of anyone born in those countries, will New Zealand hand them over? Further, in many countries, banks and insurance companies now decline to do with business with “US persons” even for something so basic as a savings account. Standard Chartered Bank in Hong Kong places the words right on their website: “We regret this account cannot be opened for US residents”.
One would have thought that the argument over categorizing people by national origin, registering their assets and stripping them of their rights was settled in 1945. Most of us remember a previous Prime Minister who tenaciously and successfully defended New Zealand’s sovereignty even against the US Navy. Are we to believe that the current Government cannot even stand up to the American tax man?
This guest article has been published anonymously at the request of the author.