New light on trusts welcome
Tax expert John Shewan has produced a lucid inquiry into New Zealand’s foreign trust regime. Strikingly, it confirms the suspicions thrown up by the Panama Papers scandal.
‘‘There is a reasonable likelihood that the regime is facilitating the hiding of funds or evasion of tax,’’ Shewan says.
Forget the semantic disputes about whether the country is technically a tax haven – this was always the main objection to the regime, and it is what matters most. It means that New Zealand’s rules are ripe for abuse. It means that the country has provided an avenue for criminality, and likely made itself party to a shameful global pandemic of tax avoidance.
It is also an indictment on the Government for its sunny assurances that the foreign trust regime was sound, and even ‘‘world class’’.
It isn’t, and Shewan, no high-tax evangelist, carefully explains why – from ‘‘absolutely minimal’’ disclosure requirements for those wanting to set up a trust here, to the likelihood that no government agency will ever take a look at their records.
Instructively, Shewan also outlines how Australia’s concerns over the trust regime’s apparent use for tax avoidance were handled: from 2006, New Zealand began automatically informing Australia when its citizens set up a trust here.
While the overall number of foreign trusts has grown five times as large since then, ‘‘there is now virtually no participation in foreign trusts from Australia’’, Shewan reports. That says it all.
Information and transparency, then, are the answer. The Government has never given a good reason why those who use New Zealand’s trust law purely as a vehicle for moving wealth around overseas should not have to explain who they are.
If Shewan’s recommendations are adopted, they will have to do so – Prime Minister John Key was plain wrong to insist in Parliament this week that there would be no significant increase in disclosure requirements.
The Government’s lethargy on this issue was inexcusable – after the Australian experience, after IRD warnings, and after growing global efforts to confront tax cheats. If the reason was to placate a cottage industry of trust lawyers, including the prime minister’s old friend and personal lawyer Ken Whitney (whose assiduous lobbying on the matter was one more alarming element to this story), that is deeply worrying. If it was simply an aversion to meddling with the cross-border transactions of the megawealthy, that is scarcely any better.
It took an international scandal to finally force action. The heat from the Panama Papers led to the Shewan inquiry and the likely new rules. They should have been enacted long before the scandal broke.
Lastly, Shewan floats but then dismisses one more means of deterring ‘‘aggressive tax planning’’ – a public register of foreign trusts. Instead, he opts for a version searchable only by government agencies.
Here he has too much regard for the privacy of wealthy foreigners. Those who want to use New Zealand’s law for complex and remote purposes of their own, even to ‘‘manage family wealth’’, whatever that might mean, should accept transparency as the price for the privilege.
It took an international scandal to force action.