Sourcing information

Recent publicity about the socalled ‘‘Panama papers’’ highlights two things: 1, No information is ever totally secret, whether the disclosure is by a whistle blower or by accident; and 2, It is comparatively easy to send vast amounts of data.

Combine these with the multitude of double tax agreements (DTAs) and tax information exchange agreements (TIEAs), Inland Revenue and other tax authorities do obtain enormous amounts of information.

New Zealand has 36 DTAs with countries from Australia to the United States as well 17 TIEAs Information Exchange Agreements with countries or selfgoverning colonies from Anguilla to Vanuatu. Inland Revenue can use the DTAs and TIEAs to obtain information from banks, other financial institutions, lawyers and trust companies in these 53 countries.

In addition, the Organisation for Economic Co-operation and Development (OECD) provides the mechanism for the exchange of information. Last year, European Union nations agreed on rules for the exchange of information. Information is now being exchanged between EU member states tax authorities with respect to

Interest, dividends, and other similar types of income; and

Information on account balances, sale proceeds from financial assets, and income from certain insurance products.

EU tax authorities will be able to use one single format for exchanging information both within and outside the EU. EU member states have also committed to further improve the rules in 2019 by adding more information fields and to consider any other necessary adjustments. Already the US tax authority (the IRS) has ‘‘obtained the agreement’’ of financial institutions and other tax authorities to provide information on bank accounts owned, debt owed and income earned by its citizens overseas.

I fully expect that the Panama papers will result in more information gathering and sharing by the IRS and other foreign tax authorities, some of which will flow through to the IRD, some of which will relate to overseas trusts established by New Zealand tax residents.

Such trusts are likely to be noncomplying trusts, distributions from which, other than the original corpus or trust capital, to New Zealand tax residents are subject to tax at the punitive rate of 45 per cent. There is a question in the IR3 tax return asking whether the taxpayer received overseas income.

A fact often overlooked is that IRD is not time-barred on issuing revised assessments where returns are: fraudulent or wilfully negligent; or failed to include income of a particular type or from a particular source, for which a tax return is required.

Murray McClennan is the director of Tax Central Ltd. Email: murray@taxcentral.co.nz. The above comments are of a general nature only and are not a substitute for specific advice.