NZ a model of tax transparency

By Geoffrey Cone

Lawyer Geoffrey Cone responds to last week's feature on foreign trusts.

Lets deal with the elephant in the room: New Zealand is not a tax haven. Photo / Getty Images
Lets deal with the elephant in the room: New Zealand is not a tax haven. Photo / Getty Images

At first glance recent media coverage about New Zealand foreign trusts makes it all sound like a sexy airport thriller involving exotic lands, wealthy people and complex financial deals. The truth, like most things to do with tax, is a bit more mundane.

First, let's deal with the elephant in the room: New Zealand is not a tax haven. The OECD maintains a list of tax havens and New Zealand does not, has never, and is unlikely ever to feature on it. The key characteristics of tax havens are that they impose no or only nominal taxes, that there is a lack of transparency, and that laws or procedures inhibit the exchange of information with other governments. We don't qualify on any of those grounds. Nor do we house a highly secretive private banking industry.

The gold standard for transparency is the 2002 OECD Model Agreement on Exchange of Information on Tax Matters, which supports the international exchange of information to administer or enforce domestic tax laws. New Zealand was one of the first countries to be placed on the OECD's white list for having substantially implemented the internationally agreed tax standard.

One way in which New Zealand has demonstrated leadership in tax transparency is in how it handles foreign trusts and the requirements placed on trustees - all of which go towards assisting other governments that request relevant information.

New rules in this area were introduced by Michael Cullen in 2006 after extensive consultation. Under this rigorous regime, a New Zealand resident trustee of a foreign trust is required by the IRD to submit a Foreign Trust Disclosure form (IR607) and to keep financial and other records for New Zealand tax purposes.

These include the trust deed, details of settlements and distributions (including the recipient's name and address), details of the trust's assets and liabilities, and money that the trustee receives and spends. If the trust carries on a business the trustee must keep information about the accounting system and charts and codes of account.

All records must be kept in New Zealand and recorded in English, and failure to do so attracts heavy penalties. These powers were enhanced in 2011 by the enactment of world standard money laundering legislation.

In most countries a person settling a trust must report the settlement of funds to their own revenue authorities, central banks and other authorities. This, coupled with the information settlors must report in their own countries, will give revenue authorities enough information to request details of a particular trust or transaction.

New Zealand has 39 double tax agreements. These are designed to reduce tax impediments to cross-border trade and investment and assist in the prevention of tax avoidance and tax evasion.

In addition, New Zealand has over 20 tax information exchange agreements with other countries. These are a limited form of double tax agreements and concerned only with assisting in the prevention of tax avoidance and evasion. And, of course, New Zealand has now signed up to a multilateral Convention on Mutual Administrative Assistance in Tax Matters. These are not the actions of a tax haven.

The majority of foreign trusts are used for asset protection and succession planning, as they are in New Zealand, not for tax planning. The reason that there has been such strong recent growth in the number of foreign trusts administered here is that New Zealand is internationally recognised as a safe, stable and high quality jurisdiction with good laws, a well-regarded judiciary and substantial legal and professional infrastructure. Our reputation as a safe place to base one's assets is positive for New Zealand's global reputation.

While some of the credit for this goes to the regulatory environment created by successive governments, much also goes to the calibre of those who act as foreign trustees. The majority of New Zealand service providers are lawyers and accountants and many are also qualified members of the international Society of Trust and Estate Practitioners (STEP). They usually work with counterparts who have the same responsibilities and skills in the countries where the clients live.

Respected New Zealand trust lawyers and accountants operating foreign trusts on behalf of international clients help enhance New Zealand's reputation in the OECD and amongst international taxation experts.

We don't compete with tax havens, but instead with jurisdictions such as Singapore, Britain and the US, all of which have a transparent tax system and apply similar taxation principles in relation to their foreign trusts.

Any concerns about the use of foreign trusts would be better directed at regulating our trust companies to ensure that they all meet the same high standards, and that our hard won reputation is not undermined by the occasional rogue operator.

Geoffrey Cone is a partner at Cone Marshall, a law firm that works with global families and their advisers.

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