No easy foreign trust and tax fix

It’s easy for opposition parties to jump on the ‘foreign trust bad, foreign companies bad, fix it now!’ bandwagon.

It’s a lot more difficult to do anything worthwhile that will address the problems.

Dene Mackenzie at ODT points this out in No easy foreign trust fix seen.

Changing New Zealand’s tax laws relating to foreign trusts will not be easy, despite calls from opposition MPs and others calling for tax loopholes to be closed.

The easiest way to solve the problem would be for overseas countries to adopt tax rules similar to New Zealand’s, rather than trying to change the trust laws in this country, tax professionals say.

It would obviously be easiest for new Zealand to do nothing and have other countries change, but that’s not just going to happen on it’s own.

Labour Party leader Andrew Little…

…yesterday lambasted the Government’s inquiry into foreign trusts saying Transparency International had warned the inquiry into trust disclosure rules failed to address fundamental issues raised by the Panama Papers.

Transparency International warned the narrow terms of reference meant the inquiry “will merely investigate foreign trusts rather than tackle the broader spectrum of financial crime risks associated with New Zealand companies and trusts”, he said.

But beyond the Opposition rhetoric:

Tax professionals contacted by the ODT said the problem was not so simple.

“I think it’s fair to say they [opposition MPs] sense a political opportunity to fire a shot at the PM without understanding the big picture. It’s not unusual for IRD to have things on their work list and then remove them just as quickly as other priorities come up,” one expert said.

Governments around the world were concerned about big companies circumventing tax laws by parking profits offshore and about multinationals not paying enough tax.

But Governments around the world a struggling to find effective ways of improving things.

New Zealand’s foreign trust laws had a loophole that could be exploited by overseas people, despite the law being in place to protect New Zealand’s tax base.

Because of the way New Zealand’s law worked, overseas people could set up a New Zealand foreign trust to park profits that New Zealand could not tax.

If the trust had no New Zealand resident beneficiaries, no tax would be paid.

And because the trusts had to be set up and administered correctly under New Zealand law, some New Zealanders had made money by setting up trustee services to run the trusts.

Some New Zealanders are now saying this country should be seen as having a regime that allows tax avoidance.

But unlike a tax haven, which attracts capital, the foreign trust regime was not put in place to do that, tax professionals said.

“This is not easy to change as it is a fundamental building block of our tax system. We want New Zealand residents to pay tax here.”

Foreign trusts are not really a New Zealand problem…

Most tax experts believed the foreign trust issue was not a New Zealand problem and the Government should be telling overseas administrations to tighten their rules which allowed their residents to set up foreign trusts to avoid paying tax.

Even if New Zealanders had investments in a tax haven overseas, eventually the money could find its way back to New Zealand and be taxed.

…but Opposition politicians are trying hard to make it a political problem here.

One of the worst things that could happen as a result is making changes to try and appease voters but that weaken our tax and trust laws.

It’s good to see some balanced analyse of the overseas trust and foreign company tax issues from the ODT.

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11 Comments

  1. Brown

     /  6th May 2016

    If you limit the argument to what’s legal and ignore the ideology that no-one (apart from the elite) should have money or privacy there is no problem to address.

    Reply
  2. alloytoo

     /  6th May 2016

    Perhaps if we sent the opposition to some basic economics and taxation courses…..

    Reply
    • Alan Wilkinson

       /  6th May 2016

      …. and made all MP’s pass an entrance exam.

      Reply
  3. Hall

     /  6th May 2016

    It’s quite simple there is no benefit to greater NZ, in fact it is harmful to our image so close the tax haven down. It’s as simple as that.

    Reply
    • Ratty

       /  6th May 2016

      I agree, If we closed the loophole, It wouldn’t make one Iota of difference here

      Reply
      • Iceberg

         /  6th May 2016

        Little would have to find something else inconsequential to bitch about, and a new group of citizens to smear.

        Reply
        • Ratty

           /  6th May 2016

          well he is opposition, thats his job.. If he didnt moan about it, then he is not the Opposition..

          Thick as fuck… but still has responsibility to pretend to be The Opposition

          Reply
    • David

       /  6th May 2016

      There is a benefit with around 300 jobs so go tell these peoples families the future looks bleak because Little and the media want to have a crack at Key because his lawyer does a bit of trust work.
      How many people have to suffer for Littles latest witch hunt on his way to 3%. The rules were set up under Labour for goodness sake and were never an issue and by definition Key cant have a foreign trust.

      Reply
      • Ratty

         /  6th May 2016

        Key has a Blind Trust (Understandable why too).. not a Foreign Trust, and even if he did have a Foreign Trust, any Income would still be assessible in New Zealand ..

        Reply
    • patupaiarehe

       /  6th May 2016

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      Reply

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