taxing foreign trusts in New Zealand

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Forums › Finance and wealth management › taxing foreign trusts in New Zealand

kingdragonfly

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#289923 9-Oct-2021 11:33

Maybe it's time we debate taxing foreign trusts in New Zealand.

They are still being used by scoundrels to squirrel away money.

New Zealand is unusual in not taxing foreign trusts.

1 News: Pandora Papers: $300 million hid in NZ trusts by Catholic order

As part of the explosive Pandora Papers series, 1News can reveal a Roman Catholic order caught up in an international paedophilia scandal squirrelled nearly $300 million in assets in secret New Zealand trusts.

...Tuesday's revelations show how in 2010, the Vatican announced it would seize the assets of the troubled Legion of Christ Order and launch an investigation into widespread claims of sexual abuses.

...The [New Zealand] trusts used a shell company to invest heavily in US rental properties, including in apartment complexes where tenants were evicted during the coronavirus eviction moratorium.
...

gzt

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#2792227 9-Oct-2021 13:40

The One News articles have no depth so far. The SpinOff has the best overview I was able to find:

https://thespinoff.co.nz/business/06-10-2021/is-nz-a-tax-haven-for-the-rich-and-dodgy-the-pandora-papers-reignite-the-debate/

It's not clear to me if the recent documents date from before or after NZ's rule changes in 2017. Apparently there are remaining loopholes too.

nztim

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#2792228 9-Oct-2021 13:51

Lawful tax avoidance loopholes that need to be closed

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Tzoi

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#2792349 9-Oct-2021 17:32

I don't agree with taxing foreign trusts because it doesn't fit with how the NZ tax regime works in general and would result in double tax, but I do agree that further information requirements should be placed on them (on top of the 2017 changes) and that information should be shared with the overseas revenue authorities where either the assets of the foreign trust or the beneficiaries of the foreign trust are situated because the main issue is that this information is not easily available and therefore those other countries don't know the correct amount that should be taxed

kingdragonfly

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#2792355 9-Oct-2021 18:10

If it's double taxing, why do only handful of countries, mostly dubious players, don't tax foreign trusts?

Australia doesn't get a single mention in the Pandora papers,

In Auckland we have 4 of the 14 firms mentioned.

You wouldn't have a conflict of interest?

Business Desk: NZ in a rogue’s gallery in Pandora Papers disclosures

GV27

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#2792371 9-Oct-2021 18:57

Tzoi:

I don't agree with taxing foreign trusts because it doesn't fit with how the NZ tax regime works in general and would result in double tax, but I do agree that further information requirements should be placed on them (on top of the 2017 changes) and that information should be shared with the overseas revenue authorities where either the assets of the foreign trust or the beneficiaries of the foreign trust are situated because the main issue is that this information is not easily available and therefore those other countries don't know the correct amount that should be taxed

Agreed. At the NZ end this is a disclosure issue, not a tax issue.

The tax issues are at the other end, where using the foreign trust structure is beneficial. That's on them to change those laws.

Apparently the finishing touches on the bits that build on the 2017 reforms haven't been completed because of other pressing tax matters. Given their recent residential property investment tax changes came into effect before they could explain how they would work, I wouldn't hold much hope for them getting around to it any time soon.

gzt

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#2792384 9-Oct-2021 19:47

kingdragonfly: conflict of interest?

Geekzone is not a court, so I think there is no conflict of interest here.

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kingdragonfly

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#2792394 9-Oct-2021 20:31

Personally if I have a interest, I consider it good form to make it clear.

For example, if I'm a landlord, and a post discussing changes that may affect me, I'd say "I'm a landlord."

Note I may have a foreign trust in the future, due to dual citizenship.

I still oppose New Zealand being on the "doesn't tax foreign trusts" lists along rogues like the Cayman Islands, and the Isle of Man.

Especially since Australia doe tax foreign trusts, as does most countries.

Handle9

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#2792399 9-Oct-2021 20:56

kingdragonfly: Personally if I have a interest, I consider it good form to make it clear.

For example, if I'm a landlord, and a post discussing changes that may affect me, I'd say "I'm a landlord."

Note I may have a foreign trust in the future, due to dual citizenship.

I still oppose New Zealand being on the "doesn't tax foreign trusts" lists along rogues like the Cayman Islands, and the Isle of Man.

Especially since Australia doe tax foreign trusts, as does most countries.

You keep insinuating that someone else has a conflict of interest with no evidence. Seems pretty rude to me.

gzt

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#2792470 9-Oct-2021 22:16

There were nearly 12,000 foreign trusts in NZ before the law change. Less than 3000 after the law change. Small number. I wonder if there is any benefit at all to NZ having these in NZ.

nztim

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#2792620 10-Oct-2021 09:00

Tzoi:

I don't agree with taxing foreign trusts because it doesn't fit with how the NZ tax regime works in general and would result in double tax, but I do agree that further information requirements should be placed on them (on top of the 2017 changes) and that information should be shared with the overseas revenue authorities where either the assets of the foreign trust or the beneficiaries of the foreign trust are situated because the main issue is that this information is not easily available and therefore those other countries don't know the correct amount that should be taxed

Disagree - if you are a New Zealand tax resident which is defined by been in the country for more than 184 consecutive days in a rolling 365 day average you should be tax assessed on your worldwide income.

In saying this though there are areas where double taxation can occur which need to be resolved, these are timing difference's between tax years, treaty gaps, and different accounting practices between source country and New Zealand which leads to different assessments on tax. These issues do need to be fixed, but the alternative of overseas income not been assessed for tax is not the solution.

Additionally I don't agree with the FIF rules as they stand now, they can lead to excessive tax been assessed on foreign investments as well as currency fluctuation tax on unrealised gains with no liquid funds to pay the resulting tax bill.

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#2792624 10-Oct-2021 09:13

kingdragonfly:

You wouldn't have a conflict of interest?

Why did you ask this?

Sometimes I just sit and think. Other times I just sit.

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Tzoi

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#2792663 10-Oct-2021 11:44

nztim:

Tzoi:

I don't agree with taxing foreign trusts because it doesn't fit with how the NZ tax regime works in general and would result in double tax, but I do agree that further information requirements should be placed on them (on top of the 2017 changes) and that information should be shared with the overseas revenue authorities where either the assets of the foreign trust or the beneficiaries of the foreign trust are situated because the main issue is that this information is not easily available and therefore those other countries don't know the correct amount that should be taxed

Disagree - if you are a New Zealand tax resident which is defined by been in the country for more than 184 consecutive days in a rolling 365 day average you should be tax assessed on your worldwide income.

In saying this though there are areas where double taxation can occur which need to be resolved, these are timing difference's between tax years, treaty gaps, and different accounting practices between source country and New Zealand which leads to different assessments on tax. These issues do need to be fixed, but the alternative of overseas income not been assessed for tax is not the solution.

Additionally I don't agree with the FIF rules as they stand now, they can lead to excessive tax been assessed on foreign investments as well as currency fluctuation tax on unrealised gains with no liquid funds to pay the resulting tax bill.

That's the thing - from my understanding, with foreign trusts, it's only the trustees that are situated in NZ and they are distributing any income to the beneficiaries so there is no one who is earning income that is a NZ tax resident.