Trust requires trust changes

After the Panama papers trust story broke pressure has been heaped on John Key and the Government over New Zealand’s association, with accusations that New Zealand is a tax haven that harbours illegal money hiding and laundering.

Key has a difficult and very important job in dealing with this.

Calls have been made to change how we allow foreign trusts to be formed here, with far better disclosure than Key’s claimed “full disclosure”.

Vernon Small: New Zealand’s trusted reputation demands changes to foreign trust rules

NZ deserves points for good behaviour on this front.

However, this is now an issue of reputation and New Zealand’s standing in the world.

And to claim that the required level of record keeping is “full disclosure”, as Prime Minister John Key did this week, is a bleak joke. To claim it negates accusations NZ is a tax haven – because we do not have such levels of secrecy – is equally laughable. If it doesn’t make New Zealand a “tax haven” – and it sure looks like one – it at the very least makes it “a haven” from scrutiny. Just look at the advertisements spruiking New Zealand’s advantages to foreign trusts.

However you look at it, Key made a significant political blunder this week by instinctively defending the tax and trust regime (and by extension those who might exploit it) in the face of domestic and worldwide suspicion. Don’t ask me, ask the supporters of Donald Trump and Bernie Sanders.

To make matters worse he cited the benefit to New Zealand – some $24 million in fees harvested by lawyers and accountants setting up and managing the funds. What price New Zealand’s reputation – something IRD and other officials had already warned about? And is it morally defensible to effectively say any loss of revenue from trusts here is some other country’s issue and we are focused on defending our own tax base? An “each country for itself” approach hardly sits well with international steps, which New Zealand has enthusiastically joined, to deal with corporate profit shifting and base erosion.

By midweek Key was gently rowing back, pointing to OECD work on the issue and opening the door to change to improve the foreign trust regime.

But by appearing to side with the so-called “1 per cent” he handed a cudgel to his opponents to beat him with. It is the very characterisation of Key that they have tried – and struggled – to make stick; the rich former money trader whose sympathies rest with the world’s big money and corporates to the detriment of the “battlers”.

So what should or can the Government do about it?

The tax rules on trusts are probably fair enough, although they differ from many other jurisdictions. It’s the interaction between those and the level of secrecy enjoyed by foreign trusts that creates the problem. You can’t ask for what you don’t know exists. Australia recognised this in asking for the IRD to proactively supply information where an Australian is involved – hence that question on the IRD form.

New Zealand at the very least should ask for the country of origin of any settlor as a first line of disclosure and then make a call whether that should be provided to their home country – if only to buttress our reputation for clean dealing in the post-Panama Papers era.

To some countries that disclosure could be automatic. To others – or in the case of people and organisation with trusts and legitimate fears at home – we could take a more restrictive approach.

Or we could stop registering foreign trusts and have done with it.

It might not be simple to just suddenly scrap the foreign trusts.

But changing to more disclosure won’t be simple. If thousands of trusts have been set up in New Zealand on the understanding that there is a degree of confidentiality then it would be difficult to suddenly remove a shroud of secrecy.

But doing nothing and fobbing off concerns is not a good option.

To retain or regain trust New Zealand needs to address foreign trusts in a meaningful and demonstrable way.

Leave a comment

40 Comments

  1. Klik Bate

     /  7th April 2016

    The New Zealand connection?

    To paraphrase Lewis Carol, “Curiouser and curiouser!”

    Reply
    • “In this parallel universe where people want secrecy”

      There are entirely legitimate reasons for secrecy. The “nothing to hide, nothing to fear” mantra plays into the hands of people who would like you to treat the state as being godlike.

      Reply
  2. Foreign trusts are tricky because nation states typically don’t recognize the intangible nature of trusts and tend to treat them only as a vehicle for financial planning.

    Decisions about contested trusts were originally made in the Court of Chancery, aka the court of the king’s conscience. In English law the king was held to be without fault and sovereign, i.e. his conscience was clear. Of course in reality the men who held the title of king had their faults and weaknesses, but the law considered the ideal king rather than the men who acted in that role.

    The problem of finding a perfect judge of trust is compounded by the fact that many nations do not have an English cultural background to draw on when making decisions about trust. IMO foreign trusts should be avoided unless there is a way to determine if that trust is a sham or not.

    Reply
  3. Alan Wilkinson

     /  7th April 2016

    Trusts are entitled to the same privacy as ordinary people. If a foreigner writes to a NZ lawyer or accountant and asks him/her to manage overseas assets on their behalf this would not be anything other than a private contract. Why on earth should a trust be any different since it is exactly that in principle and practice?

    Reply
    • The difference is that contracts are based on a meeting of the minds and trust are based on conscience.

      Reply
      • Alan Wilkinson

         /  7th April 2016

        Trustees are bound by the terms of the trust and the contract to administer those. There is no difference.

        Reply
        • No, trusts operate in equity and contracts operate in law. Equity and law are based on different principles. For example with a testamentary trust (a will), the settlor cannot make arbitrary demands on the trustees, eg he can’t demand that the beneficiaries receive the equity within a specific timeframe.

          Reply
          • Alan Wilkinson

             /  7th April 2016

            A Trust can specify termination time and conditions. Obviously a Will is a special case of that.

            Reply
            • Aequitas factum habet quod fieri oportuit.

              Equity looks upon that as done which ought to have
              been done.

  4. Gezza

     /  7th April 2016

    Good article by Small I thought. Very informative.

    Reply
    • Alan Wilkinson

       /  7th April 2016

      I thought the opposite. Very opinionated and uninformative.

      Reply
  5. Gezza

     /  7th April 2016

    I was thinking that about your comment but I didn’t want to say it.

    Reply
    • Alan Wilkinson

       /  7th April 2016

      of course you did.

      Reply
      • Gezza

         /  7th April 2016

        No, truly, I didn’t. Not until you snarked in on my comment. But lets let it go eh? It’s getting a bit kindergarten isn’t it?

        Reply
        • Alan Wilkinson

           /  7th April 2016

          I wasn’t intending to snark your comment, just point out I had exactly the opposite reaction. I honestly thought Vernon did a very poor job of informing the public about the issues and just jumped on the media bandwagon regarding solutions.

          (I might add he is an old chess-playing friend from student days.)

          Reply
        • Gezza

           /  7th April 2016

          Ok my mistake. Sorry Alan.

          Reply
  6. Alan Wilkinson

     /  7th April 2016

    Here’s a map that puts into perspective the shocking damage to New Zealand’s reputation being trumpeted by our media and loony Left:

    http://www.independent.co.uk/news/world/panama-papers-countries-scandal-map-hong-kong-virgin-islands-switzerland-a6971016.html

    Yeah, right.

    Reply
  7. Oliver

     /  7th April 2016

    There should be full and open disclosure. The public should have full access to the information.

    I’ll use a favorite expression used by the National party when ever they receive any criticism on brooding spy powers – “if you have nothing to hide then you have nothing to worry about”.

    Sums it up nicely. The elite wants to know everything thing about us – well it goes both ways.

    Reply
  8. Oliver

     /  7th April 2016

    NZ 100% pure tax haven.

    A hilarious take on NZ trust tax avoidance havens.

    Our PM and Tax Minister have both said there’s full disclosure in our foreign trust regime. I think full disclosure means zero disclosure. My impression is that the only disclosure required is the name of the NZ puppet (who I’ll call “the stooge”) who agrees to play the role of trustee. The NZ Government doesn’t want to know what assets (I’ll call it “loot”) are vested in the trust; who the beneficiary is of the trust; or the identity of the person (according to me, the “criminal”) who transferred those assets to the trust.

    This information exists, written in the trust deed, but this document is secret and untouchable within the the office of the lawyer (my technical description, the “scammer”) who set up the foreign trust (“scam”).

    It seems to me it doesn’t matter if the loot is containerloads of cash, dripping in blood from the exit wounds of your competing drug cartel, or an arms deal that would be illegal if anyone found out, or if the money comes from the treasury of that country of which you are president – the New Zealand Government won’t embarrass you with questions. Apparently none of these details are our business. After all, it’s not like anyone’s accusing you of infringing Hollywood copyright.

    http://m.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=11618057

    Reply
    • Alan Wilkinson

       /  7th April 2016

      Why should they be our business? They are not owned or located here. The trustee just has a contract to administer them. They are none of our business, none of your business and none of Raybon Kan’s business. Unless you want yours and his business also publicly published to the world.

      Reply
      • Oliver

         /  7th April 2016

        Your missing the obvious point. The trusts are being used for illegal means; money laundering and illegal arms deals not to mention tax avoidance. We have a moral and ethical obligation to make sure we are not help criminals commit crimes.

        Hey, if they have nothing to hide than they have nothing to fear, right?.

        Reply
        • Alan Wilkinson

           /  7th April 2016

          You are missing the obvious point. The only identified use of these NZ trusts is legal tax avoidance. You have no evidence of anything else.

          Reply
          • Oliver

             /  7th April 2016

            How do we know that? there’s no transparency. That’s the whole point isn’t it.

            Reply
            • Alan Wilkinson

               /  7th April 2016

              Yes, it’s called privacy. It has a Commissioner and an Act of Parliament and is provided for in the international convention NZ is party to:

              The New Zealand Bill of Rights Act 1990 was enacted to affirm, protect and promote human rights and fundamental freedoms in New Zealand. The Act also affirms New Zealand’s commitment to the International Convention on Civil and Political Rights (ICCPR) on which the rights and freedoms it contains are based.

              When it was enacted, the Bill of Rights Act did not create any new rights but merely confirmed existing common law rights. The Act does not reflect all ICCPR rights; however, section 28 provides that, just because a right or freedom is not expressly provided for in the Act, that does not mean that the right or freedom does not exist or is otherwise restricted. The right or freedom is given effect by other legislation and by common law. For instance, while the ICCPR contains a right to privacy, the Bill of Rights does not. Nonetheless, the Privacy Act 1993, together with the common law tort of privacy, provides for rights of personal privacy.

              http://www.justice.govt.nz/policy/constitutional-law-and-human-rights/human-rights/domestic-human-rights-protection/about-the-new-zealand-bill-of-rights-act

    • Gezza

       /  7th April 2016

      I thought this was quite interesting and informative, from the comments.

      Impi The sudden flurry of ill-informed and parochial criticism of New Zealand Foreign Trusts is irrational and the people making them should really try to stick to their own knitting.

      The Panama papers have revealed what we all know – that some people in the world are criminal, and sometimes use international structures to facilitate their criminal activities. This doesn’t make the structures themselves bad. Some criminals use cars to facilitate their criminal activities. Do you want to ban those too?

      There is nothing wrong with owning legitimately acquired great wealth, and wanting to keep it safe and private from the potential reach of kidnappers and fraudsters – this is in fact a good thing.

      Trusts are centuries old legitimate vehicles for estate planning and asset protection. We live in a global village, and owning assets in different jurisdictions it is perfectly normal and legitimate – and facilitates ease of doing business in many cases.

      What the Panama papers have revealed is instances of great wealth which could have been acquired through illegitimate means. This is wrong and bad and should be dealt with. But deal with that crime, not the vehicles used to hold the proceeds.

      Meantime, things will keep rolling along. Wonder if there’s anything else we should all be paying attention to anywhere.

      Reply
      • Nelly Smickers

         /  7th April 2016

        😎

        Reply
        • Gezza

           /  7th April 2016

          Exactically. 🐻

          Reply
          • Nelly Smickers

             /  7th April 2016

            I hear Radio Live keep leading their news bulletins about some ‘high profile New Zealander who can’t be named,’ that’s facing sexual assault charges 😦

            Wonder if that’s got anything to do with it?

            Reply
            • Gezza

               /  7th April 2016

              Probably not. The time to distract if that’s the case would be at the end of the trial, and the odds are whatever the outcome of the trial is the name suppression of the defendant and complainants will be permanent I should imagine.

            • Gezza

               /  7th April 2016

              I think pretty well everybody who wants to know who it is has already figured it out. No one in their right mind is going to say the name in any public forum and the person concerned is entitled to the presumption of innocence.

        • Oliver

           /  7th April 2016

          Maybe the National Party released the panama papers to distract the public from the failed flag referendum and diary crisis etc…….

          Reply
    • Dougal

       /  7th April 2016

      If you are coming here to stir the shit why are you not able to post something that is your own work instead of passing off other peoples as your own!

      Reply
  9. Clemgeopin

     /  7th April 2016

    I simply do not trust this untrustworthy government. A government full of lies, spin, BS, hype and hypocrisy. A government which primarily works for the welfare of the wealthy, corporates and foreigners in spite of dishing out a few stolen social scraps to the poor and the ordinary people for cunning political expediency.

    Reply
    • Oliver

       /  7th April 2016

      Whats really sad is their are people like Wilky who blindly follow the National government. I think the disorder is called “learned haplessness”

      Learned helplessness is behavior typical of an organism (human or animal) that has endured repeated painful or otherwise aversive stimuli which it was unable to escape or avoid. After such experience, the organism often fails to learn escape or avoidance in new situations where such behavior would be effective. In other words, the organism seems to have learned that it is helpless in aversive situations, that it has lost control, and so it gives up trying. Such an organism is said to have acquired learned helplessness.

      let’s help these people by showing them the way.

      Reply
      • Oliver

         /  7th April 2016

        Greens (29%, 1,547 Votes)

        Labour (26%, 1,392 Votes)

        National (18%, 941 Votes)

        NZ First (16%, 859 Votes)

        MANA (8%, 415 Votes)

        ACT (2%, 130 Votes)

        Maori Party (1%, 73 Votes)

        United Future (0%, 18 Votes)

        Latest polling, it’s pretty telling.

        Reply
        • Dougal

           /  7th April 2016

          The Greens on 29% ROFLMFAO…Almost spat my coffee all over my keyboard. Then I saw you had Mana on 8%. Oh god, there is dreaming and then there is just pure insanity. Nice try but no cigar, amateur.

          Reply
      • Dougal

         /  7th April 2016

        More copy, paste nonsense.

        Reply
    • Alan Wilkinson

       /  7th April 2016

      You and Oliver deserve each other. I hope you’ll be happy together.

      Reply
  10. Clemgeopin

     /  7th April 2016

    Reply

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