Using New Zealand Trusts to Escape Other Countries' Taxes

Abstract

The New Zealand tax system was until recently so structured as to allow foreigners to use the country as a tax haven. Specifically, it allowed them to use trusts established in New Zealand (referred to as “foreign trusts”) to avoid and evade the tax they would otherwise have had to pay in their home country. It would seem to have been possible, too, for foreigners to use such trusts for other illicit purposes, in particular money-laundering and financing terrorism. In April 2016 the publicity given to the Panama Papers attracted attention to this aspect of the New Zealand tax system. The government responded by appointing a distinguished accountant, John Shewan, to advise. He recommended that the law be changed and the government accepted his recommendations. This paper explains how the foreign trust rules work, and how the amending legislation was designed to preclude this form of abuse.