Dr Deborah Russell –
PricewaterhouseCoopers Chairman John Shewan’s report on the use of New Zealand foreign trusts for illicit purposes has many excellent recommendations.
Mr Shewan, who was appointed to investigate foreign trust disclosure rules following the Panama Papers saga, has recommended that trustees of foreign trusts should report much more information to Inland Revenue Department (IRD).
Although New Zealand’s tax system is highly robust, it turns out that our foreign trusts could be used to shelter illegal activity, including tax avoidance.
Mr Shewan said that trustees should be required to register foreign trusts when they are set up, and that they should file annual returns with details of settlors, beneficiaries, and full financial statements.
Greater disclosure
I have been vocal in urging the government to take action with respect to foreign trusts, including much greater disclosure to IRD.
I have argued this would enable legitimate use of foreign trusts and, at the same time, stop them from being used for tax avoidance and other illegal purposes.
Mr Shewan has delivered a very strong recommendation for action.
Just knowing that information is being collected should be enough to deter foreigners who want to use trusts in New Zealand for tax avoidance and other illicit purposes.
Eliminating risks
The foreign trusts problem never created any risk to the amount of tax collected in New Zealand – but it created a risk to our reputation. The actions recommended by Mr Shewan will eliminate that risk.
The onus now rests with the government. It will be up to them to decide whether or not to implement Mr Shewan’s recommendations.
It is unusual to ask the trustees pay a fee of $500 for registration and impose an annual filing fee of $500.
No other taxpayers are required to pay fees for the privilege of giving information to IRD but it might be justified because government does not expect to collect any tax from foreign trusts.
Dr Deborah Russell is Senior Lecturer in Taxation at Massey University.
