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Shewan sheds light on murky trusts

NZ NewswireNZ Newswire 30/06/2016

Neither the government nor the Labour Party did themselves any favours with the way they handled the foreign trust issue, says NZ Newswire political writer Peter Wilson.

Neither of the main parties has come out of the Panama Papers controversy with any credit.

The government tried to pretend there wasn't a problem, while Labour hyped it to absurd levels.

John Shewan, in his 124-page report released this week, set the record straight.

New Zealand isn't a tax haven, but when it comes to foreign trusts it's far from squeaky clean.

"Existing foreign trust disclosure rules are inadequate," Shewan said.

"The rules are not fit for purpose in the context of preserving New Zealand's reputation as a country that cooperates with other jurisdictions to counter money laundering and aggressive tax practices."

Shewan had concluded that under current rules "the risk of detection by authorities is low ... the inquiry considers that the disclosure requirements can be justifiably described as light-handed".

He set out a raft of recommendations to tighten up those rules, which the government says it will implement when the IRD has studied them.

Shewan's report shows that Prime Minister John Key's persistent claim that New Zealand had a "full disclosure" regime and gave information to other jurisdictions whenever it was asked for wasn't the full story.

New Zealand authorities actually hold minimal information and foreign jurisdictions don't know what to ask for in the first place.

Labour, on the other hand, claimed New Zealand was a tax haven and the government was protecting wealthy crooks who were hiding their money from tax authorities in their own countries.

Opposition parties twisted the issue to fit what they believe is one of their strongest angles of attack against Key - that he and the National Party look after their "rich mates" and don't give a damn about anyone else.

Labour leader Andrew Little attacked Shewan, claiming he had once advised the Bahamas on ways to maintain its tax haven status.

Shewan took offence, proved Little was wrong, and asked for a retraction and an apology.

He got a two paragraph retraction - issued on a Saturday two hours before an All Blacks Test match.

Little said Shewan hadn't asked for an apology during their first discussion, which was correct.

But when a retraction wasn't forthcoming, Shewan emailed Little and asked for an apology as well. That email has been published.

Little has not apologised.

Throughout the Panama Papers saga opposition MPs claimed New Zealand's reputation as a good international citizen was in tatters.

Shewan didn't think so.

He examined local and international media reports, and came to the conclusion that the most damage had been done at home.

"The inquiry noted one local media statement that New Zealand's reputation had suffered a `huge blow' as a consequence of the Panama Papers, and other statements suggesting long-term reputation damage has occurred," he said.

"The inquiry's review of international media on the topic does not support that conclusion.

"With the exception of a small number of articles in the Australian media, references to New Zealand in the international press appear to have been cursory."

The most damage, he said, had occurred in New Zealand.

"In part this has been caused by the incorrect conclusion that wealthy New Zealanders can use foreign trusts established in New Zealand to avoid or reduce their tax.

"The foreign trust regime cannot be used in this way."

Shewan also noted frequent references to New Zealand as a tax haven, and deals with that in detail in his report.

"The tax treatment of foreign trusts follows New Zealand's long-established and principled policy of not imposing New Zealand tax on foreign source income derived by non-residents," he said.

"It does not result in New Zealand being a tax haven under established OECD criteria."

Hopefully, that's the end of it.

The prime minister isn't anxious to say any more about it and neither is Andrew Little because he knows that if he does he'll be asked why he hasn't apologised to Shewan.

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