“Foreign trusts are a likely vehicle for tax abuse and need to be opened up with increased disclosure and reporting requirements”.
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Shewan’s report has shaken the complacency: “The rules are not fit for goal in the context of preserving New Zealand’s reputation as a country that co-operates with other jurisdictions to counter money laundering and aggressive tax practices”.
Shewan has ruled existing disclosure rules are inadequate and has found fault with enforcement of current rules.
John Key came prepared to his post-Cabinet press conference yesterday on foreign trusts.
The Panama Papers revealed the inner workings of Panama-based Mossack Fonseca, a law firm specialising in setting up foreign trusts for its wealthy clients.
“However, based on the work undertaken, including a review of IRD files, the inquiry considers it is reasonable to conclude that there are cases where foreign trusts are used in this way”.
Community campaigning group ActionStation supports the recommendations of the Shewan Review into New Zealand’s trust laws and say the proposed register of trusts should be publically accessible, as per option 3 in the options for reform of the trust laws.
An independent review of the rules around foreign trusts has concluded they’re not strong enough to protect New Zealand’s reputation.
“It probably means that there will be some sectors of the foreign trust industry that will simply have to close down because they are serving people who do want to hide their activities, or do want to avoid paying tax, or are hiding criminal activities”.
Among the recommendations are that foreign trusts be required to register on being established, with the register of foreign trusts searchable by regulatory agencies but not the public.
“What it says is what we already know that we had a cavalier system with respect to the non-transparency of practices which led to a massive build up of foreign trusts in New Zealand”, he said.
Although the report finds the current rules aren’t fit for goal, it concludes that New Zealand isn’t a tax haven under OECD criteria.
“A formal response to the inquiry is expected next month”, Key said.
New Zealand has always been identified by lawyers and legal experts as offering a trust regime popular with the offshore trust business because its foreign trusts are not subject to tax.
“The government will look to implement the recommendations after officials have examined the inquiry in detail and reported back to ministers”, English said in a statement.
New Zealand was pitched to its clients as an attractive location due to its stability and the secrecy that shrouds its trust regime.
“This report contradicts that stance”, Mr Robertson said.
Mr Shewan said he expected the number of foreign trusts to fall if the government adopted his recommendations.
It bans the publication of any audit reports provided by the DIA under anti-money laundering and anti terror financing legislation.
The foreign trust regime does not appear to be inconsistent with any specific obligations under current worldwide agreements to which New Zealand is a party.
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But Green Party Co-leader James Shaw disagrees.
