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.

Hawkes Bay good, Otago bad luck

The Government have announced some generous support of a Hawkes Bay event:

Steven Joyce@stevenljoyce

Announced two years of support for Hawkes Bay Art Deco Weekend thru Major Events Fund. Great event for the region. …

The media release says:

The Government is investing $530,000 through the Major Events Development Fund to support the 2014 and 2015 Art Deco Weekends in Hawke’s Bay, Economic Development Minister Steven Joyce announced today.

“Art Deco Weekend is unique to the region and New Zealand and provides an opportunity for visitors to immerse themselves in 1930s culture, music, history and heritage,” Mr Joyce says.

A cynical hack from the South responded:

Would that be in a National-held seat where the MP is retiring and you have hopes of retaining, by chance?

Fair point Mr Joyce.

Government don’t even need to “invest” any additional funds in Invermay. Unlike Tiwai.

All we want is for Government to stop gutting Otago.