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Tax haven row won't go away

NZ NewswireNZ Newswire 8/04/2016 Peter Wilson, Political Writer

Opposition parties say New Zealand is a tax haven, the government says it isn't.

That difference of opinion isn't going to be cleared up any time soon.

It's being claimed wealthy foreigners hide their money here to avoid or evade paying taxes in their own countries.

It's not a good look, and the Department of Inland Revenue knows it.

In 2013 it warned in a report: "Our foreign trust rules continue to attract criticism, including claims that New Zealand is now a tax haven in respect of trusts ... the mismatch between our rules and those of other countries may result in income not being taxed either in New Zealand or offshore.

"To protect our international reputation, it may be necessary to strengthen our regulatory framework for disclosure and record-keeping."

Nothing happened, and no one would be paying any attention now if there hadn't been a huge leak from a Panama-based law firm that specialises in setting up foreign trusts.

Those 11.5 million documents revealed the existence of 214,000 trusts in more than 200 countries and territories.

New Zealand was one of them - 11,645 foreign trusts have been set up here.

There's no single, precise definition of a tax haven

Here's Wikipedia's take on it:

"A tax haven is a state, country or territory where, on a national level, certain taxes are levied at a very low rate or not at all.

"It also refers to countries which have a system of financial secrecy in place. Financial secrecy can be used by foreign individuals to circumvent certain taxes. As the funds themselves are invisible to the country the individual is from, such taxes can be avoided."

Other haven websites - and there are many of them - show New Zealand isn't a "pure" refuge.

It's not in the same league as the Cayman Islands, for example.

But it does offer what is referred to as "asset protection" by law firms specialising in setting up trusts here.

And a degree of financial secrecy exists, because trusts in New Zealand don't have to register details of who owns them or what's in them.

That information is kept by the trustee - the lawyer who sets up the trust - and IRD can ask for it if a country which has an information-sharing agreement asks for it.

The point opposition parties keep making is that if those countries don't know a trust exists, how can they ask for information about it?

If an Australian sets up a trust here, the information is automatically supplied.

That's because Australia asked for the arrangement, something no other country has done.

New Zealand, unlike many other countries, doesn't tax income in a trust which hasn't been earned here.

So IRD isn't really interested, although it says that if it comes across any "dubious activity" it proactively shares information with other countries.

Massey University's tax law expert Deborah Russell says New Zealand is caught up in international tax avoidance.

"It is very easy indeed for foreigners to channel money through trusts with a New Zealand trustee," she said.

"It pushes us dangerously close to being a tax haven, and in fact there are plenty of tax consultants and trustee firms advertising their services to enable people to take advantage of our laws."

Prime Minister John Key uses a broad brush when he says New Zealand can't be described as a tax haven because it has a "full disclosure" regime.

And he isn't giving the impression he's worried about New Zealand being perceived as a tax haven.

"It's ridiculous to suggest New Zealand is a tax haven," he told parliament on Tuesday.

"We have a strong tax treaty and information exchange network that helps discover and prevent tax avoidance through exchanging information."

Key has several times made the point that the laws around trusts were set by a Labour government in 1988, the OECD reviewed them in 2013 and gave New Zealand "a clean bill of health".

By Thursday, the government was saying it was open-minded about changing the rules.

"We don't want other countries seeing us as a tax haven, we don't believe that's a correct characterisation of what goes on here," said Finance Minister Bill English.

That could be seen as a subtle change of stance, but unless the OECD pushes for change it doesn't seem likely there will be any.

It isn't clear why it's worth allowing them at all - the only beneficiaries appear to be the lawyers who earn about $20 million a year managing them.

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