New Zealand's foreign trust laws will be reviewed by an independent expert after a back-down by Prime Minister John Key amidst continuing fallout from the "Panama papers".
The review will be headed by highly regarded tax expert John Shewan, the former head of PricewaterhouseCoopers and a past member of the Tax Working Group.
Mr Shewan will report by June 30.
The Government has acted after coming under pressure as New Zealand is described as a "tax haven" in some international media coverage of the leak.
Last week, Mr Key repeatedly insisted that trust laws had been largely unchanged since 1988 and no tweaks were required, and pointed out the $24 million in income they provided through accountancy fees.
However, he took a proposal for a review to Cabinet today.
Finance Minister Bill English said ministers had decided that, in light of the Panama papers, it was worth looking at whether disclosure rules on trusts were fit for purpose.
"As we've said, we're open to considering changes to disclosure rules if that is warranted. So we've asked Mr Shewan to take a thorough and independent look at the current regime to check that it's fit for purpose," Mr English said.
The terms of reference include reviewing foreign trusts' disclosure rules as they apply to record keeping, enforcement and the exchange of information with other tax jurisdictions.
Revenue Minister Michael Woodhouse said claims New Zealand was a tax haven were wrong, and stronger disclosure rules were introduced under the previous Labour government in 2006.
"Just three years ago the OECD rated New Zealand as compliant in this area - the highest possible rating. It's due to look at our tax transparency rules again next year.
"In the meantime, the OECD has called a specially-convened meeting in Paris this week to consider issues raised by the 'Panama Papers' and our Inland Revenue is sending a representative to that meeting.
"We will certainly consider any issues raised there and we're prepared to look at changing the disclosure rules if Mr Shewan's review finds this is warranted."
The leak of more than 11 million documents from Panama-based law firm Mossack Fonseca drew attention to New Zealand's tax-exempt foreign trusts, which have been reported to be attractive to offshore investors because of minimal disclosure requirements.
The documents showed that a senior Malta politician and a Mexican tycoon had opened trusts in this country. About 60,000 of these documents are believed to relate to New Zealand and more details are beginning to emerge.
New Zealand-based "foreign trusts" have been actively marketed overseas for benefits including their exemption from New Zealand tax on foreign sourced income, minimal compliance and reporting requirements, and no requirement for public disclosure of the beneficial owners.
Earlier today, Labour leader Andrew Little said a full, independent inquiry was needed. New Zealand's reputation was being "sullied around the world" because of the revelations, Little said.
"One tax expert isn't going to solve this, especially one appointed by a Prime Minister who doesn't think hiding their finances behind tax free funds is morally wrong."
Green Party co-leader James Shaw said National were in damage limitation mode.
"Last week we had the unedifying spectacle of the Prime Minister denying that New Zealand was being used as a tax haven, whereas everyone from Inland Revenue, Transparency International and a whole group of international experts were saying that there was [a problem]."
New Zealand First leader Winston Peters said the expert used by the Government would need to have the respect of both Transparency International and the UK Tax Justice Network.
Mr Key said last week that the Government was "quite happy" to tighten up the rules if it received any recommendations. It would have to be certain, however, that any amendments did not undermine New Zealand's tax base.
The IRD warned about the reputational risks related to foreign trusts in 2013, but changes were not considered in part because of the department's large work programme.
Today the Australian Financial Review reported that in 2012 Mossack Fonseca's New Zealand staff reported advice they received from an executive at Nexus Trust: "NZ has very weak laws in regard to due diligence; they only require utility bill and passport. Trust companies are not required to hold a licence."
There was no need to register who put assets into a foreign trust and, according to documents the AFR has seen. A Staples Rodway lawyer reportedly explained another advantage: "The New Zealand definition of 'beneficial owner' is different to that of many other jurisdictions, in that we do not require due diligence on the person/s who will benefit from the funds."
New Zealand's foreign trust laws
# 1988: Tax changes established rules around foreign trusts that are largely in place today.
# 2006: Changes to disclosure rules for foreign trusts - such as trustees having to have some financial details available if demanded by the IRD - brought in with law change, backed by Labour, National, and NZ First. The Greens and Maori Party abstained from voting.
# 2013: The IRD warned in a tax policy report about the reputational risks related to foreign trusts. Then Revenue Minister Todd McClay consulted on the issue at the time, but work was not progressed as the department already had a large work programme.
# Today: Government confirms an independent expert will review New Zealand's foreign trust laws, after the leak of the "Panama papers" drew attention to New Zealand's tax-exempt foreign trusts.