The Inconvenient Problem with New Zealand’s Foreign Trust Regime

Bulletin for International Tax, Vol. 66, 2012

New Zealand Journal of Taxation Law and Policy, Vol. 18, No. 2, 2012

Trust and Trustees, Vol 18, Issue 9, Oct 2012

26 Pages Posted: 27 Mar 2012 Last revised: 19 Nov 2012

Jeremy Beckham

affiliation not provided to SSRN

Craig Elliffe

University of Auckland - Faculty of Law

Date Written: February 5, 2012

Abstract

This article considers the issue of whether or not New Zealand trustees must be recognized as valid parties in New Zealand’s treaty network by exploring the various approaches that may be adopted in the interpretation of tax treaties and the diverging constructions of the residence article.

New Zealand enjoys a substantial foreign trust industry because the Income Tax Act 2007 provides that, when settled by a non-resident, any foreign-sourced amount derived by a NZ trustee (a foreign trust) will generally be exempt from income tax. Without wanting to overdramatise this issue the foreign trust regime is the reason why some websites describe New Zealand as “one of the top ten” tax havens in the world.

While the New Zealand domestic tax treatment is clear that the foreign trust itself is not subject to New Zealand tax, it remains unresolved whether these NZ trustees must be recognised as valid parties in New Zealand’s network of double tax treaties. New Zealand is silent on the issue in its treaty negotiations and the topic of trusts has not been the subject of a direct OECD enquiry. As the position is far from definitive, it is up to the State of source applying a particular convention to make its own determination. The reasoning of a foreign court may differ between jurisdictions as will the actual wording of the treaty. Accordingly, this article takes a fresh look at this issue exploring the various approaches that may be taken to the interpretation of treaties and the diverging constructions of the residency article found in New Zealand’s treaty network.

Keywords: resident of a treaty, foreign trust, interpretation of treaties, New Zealand trustees, treaty benefits

JEL Classification: K34

Suggested Citation

Beckham, Jeremy and Elliffe, Craig, The Inconvenient Problem with New Zealand’s Foreign Trust Regime (February 5, 2012). New Zealand Journal of Taxation Law and Policy, Vol. 18, No. 2, 2012; Trust and Trustees, Vol 18, Issue 9, Oct 2012. Available at SSRN: https://ssrn.com/abstract=2029395

Jeremy Beckham

affiliation not provided to SSRN ( email )

Craig Macfarlane Elliffe (Contact Author)

University of Auckland - Faculty of Law ( email )

Private Bag 92019
Auckland Mail Centre
Auckland, 1142
New Zealand

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