In recent news stories, the media has taken the coverage about New Zealand’s foreign trusts issues out of hand and made it seem like some crazy story made for the movies. However, there is nothing exciting about tax laws the way the news has been reporting it. It all boils down to the fact that New Zealand is not considered a tax haven. For a government to be considered a tax haven, they have to impose minimal or low taxes and keep a certain level of tax transparency. New Zealand does not happen to follow these procedures and they are not hiding some private banking industry the way the news is making it seem.
New Zealand has long demonstrated that they are a leader in tax transparency. They have shown this through how they handle their foreign trusts and how they hold strong to their requirements placed on the trustees of the foreign trusts. These requirements are in place to help assist other governments in the event they request relevant tax information about foreign trusts. When it comes to the new rules set in place, New Zealand trustees of foreign trusts are required by law to submit disclosure forms. This is a requirement set by the IRD. Trustees must also keep detailed financial records for foreign tax purposes as well. The financial records must include things such as settlements and distributions, the trust deed, details of the trustee’s assets and liabilities and any money that is received and spent. If a trustee fails to keep accurate records, there could be tax penalties and fines to be paid.
In most other countries, the person who settles a trust is required to report that settlement of funds to the revenue authorities. In New Zealand, there are 39 types of double tax agreements in use. They are set in place in order to help reduce tax fraud and evasion for cross-border trades and investments. Additionally, New Zealand also has more than 20 other tax exchange agreements with regards to tax information with other countries. These are also in place to help prevent tax evasion and avoidance. All of these tax agreements are not typical for tax havens.
New Zealand does not try to compete with tax havens. Alternately, they interact with other jurisdictions such as Britain, the US and Singapore which have their own transparent form of tax system and apply taxation principles that are similar to the ones in New Zealand. If there is concern for using foreign trusts, it may be best to direct our attention towards regulating our own trust companies and ensuring they all meet the same quality of high standards.
Geoff Cone is a well known international tax and trust attorney who resides in New Zealand. He graduated with LLB honors from the University of Otago and has been practicing law for over 18 years. He specializes his practice in wealth planning in the countries of Spain, Italy and Latin America.
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