Category Archives: International Tax

The New Zealand Foreign Trust: The Idea Is Not About Avoidance–It’s About Trust–Well, So To Speak

Geoffrey Cone Responds to the Feature About Foreign Trusts:


First off—Setting Up a Foreign Trust, in New Zealand, is not done on the presumption that the island nation is some sort of tax haven. Certain conditions are relative in order for a nation to be considered a tax haven—which New Zealand is not. The persons of the media would have an individual believe that such a venue is filled, decisively, with prosperous individuals, living lavish lifestyles, and working out complicated financial arrangements. However, at the end of the day, the true representation of the foreign trust is about as interesting as last year’s newspaper, sitting under a heap of unread magazines. In other words, such matters, are very standard—and only vivid imaginations, outside of the reality of setting up a foreign trust, add a theatrical aspect to the matter. There is another matter too: The nation of New Zealand does not have some sort of inconspicuous banking house, tied to it.


The OECD maintains a listing of Tax Havens. The island nation has never been part of the list. In fact, it is highly unlikely that New Zealand will ever make the list. The main features of a tax haven include the following:


1—The tax haven imposes either zero taxes or very limited taxation;


2—The tax haven provides nothing in the way of transparency; and


3—The procedural aspect and regulations, with regard to a tax haven, restrict the exchange of information, with other governmental entities.


Reviewing the characteristics, provided, by the above-listing—New Zealand possesses none of the preceding characteristics and, thus, New Zealand does not properly qualify as a true tax haven.


The best way to measure transparency is by referring to the 2002 OECD Model Agreement on Exchange of Information on Tax Matters. This standard is supportive of the global exchange of information, in way of administering or providing enforcement of the domestic tax law. In fact, New Zealand, to its favor, was one of the first nations, placed on the white list of the OECD. The list is relative to all entities that have, adequately, established the global agreed-upon standard of tax.


The Proof is in the Pudding: A way that New Zealand, exhibits its integrity, as it pertains to transparency, is its handling of foreign trusts and the requirements that it places on the trustees of the trust. The requirements and administration of foreign trusts, within New Zealand, are set up, in such a way, that exchange of information, with other countries, is very clear-cut.


In 2006, new rules, in the area, were established by Michael Cullen, after Mr. Cullen conducted extensive research and was able to consult with the experts. Now, a resident trustee, of New Zealand, holding a foreign trust, is required by the IRD to provide form IR607, which is a Foreign Trust Disclosure form. The trustee, further, is required, to maintain financial records and other legal and official documents and records, associated with tax—as it applies to New Zealand.


The documents, which the responsible person is required to maintain, along with the above document, include the trust deed, details of the trust settlement and distribution, inclusive of the recipient’s name and his or her residential address; details relative to the assets and liabilities of the trust, the money that the trustee receives and expenses.


When the trust is presented, as a business, the trustee is required to maintain information, relative to the accounting system and the chart of accounts.


The records, mentioned, must stay inside of New Zealand. Further, the records mentioned must be provided in English. If the two preceding conditions are not met, penalties are applicable. The enforcement was further heightened, by enactment of the World Standard Money Laundering enactment, that came about in the year 2011.


Too: in the majority of nations, a person in the process of settling a trust, is required to report the settlement of funds to its own officials and banks. The combination, of the reports, is enough to provide the authorities with a great deal of information, should that particular authority require further information, relative to a particular transaction or trust.


The island nation of New Zealand is in possession of thirty-nine double tax agreements. The agreements are designed, specifically, to reduce tax, relative to investment. The tax agreements, further, are set up in order to prevent an individual from evading taxes or avoiding taxes.


New Zealand, too, has over twenty Tax Information Exchange Agreements, with that of other nations. The agreements, are set up, in such a way, wherein, the agreement’s main area of concern is that of assisting in the prevention of tax evasion.


New Zealand has signed up to a Multilateral Convention on Mutual Administrative Assistance in Tax Matters. This Convention is a very comprehensive instrument: in fact, the most comprehensive instrument available, in way of tax cooperation. The instrument makes it a point to handle all types of tax avoidance and tax evasion—making such actions a top priority, in all nations. It is clear to see, based on the factual information, supplied above, that New Zealand is, by no means, a tax haven.


In reality, the lion’s share of foreign type of trusts are used for the purposes of asset protection and succession planning. The foreign trust, in New Zealand, is used, mainly, for such purposes, too. This is to say: most foreign trusts are not set up, pertinent to tax planning.


New Zealand has experienced much in the way of foreign trust growth, within recent years. The reason for the growth is due to the fact that the island nation is recognised, on a global level, as a venue which is established, reliable and which provides the highest in standards, inside its judicial system. The judicial infrastructure of New Zealand is second to none—in way of quality and stability. In other words, the country possesses an enduring reputation of a safe place, wherein, an individual may safely maintain his or her assets.


It is correct to state, then, that New Zealand does quite enough to meet its global responsibilities by means of its disclosure arrangements, i.e. the double-tax agreements, mentioned above, which it holds with thirty-eight countries, as well as its tax information exchange agreements. Not only that, as already mentioned, New Zealand has signed the Convention on Mutual Administration Assistance in Tax Matters. All of the above arrangements, point clearly to the fact, that New Zealand is very transparent as it pertains to taxation.


And as a side note: the Multilateral Treaty, which was devised by the OECD and the Council of Europe, gives Inland Revenue the capability to request assistance, from tax authorities, in order to properly detect and prevent evasion of tax. The preceding, needless to say, was a very significant measure—and quite in agreement, with how New Zealand addresses matters, relative to tax. The preceding, too, takes away any notion that New Zealand is a tax haven. Further, the Tax Administration Act, requires New Zealand trustees, to maintain very detailed records, which, at any time, can be requested for purposes of review, by Inland Revenue—as explained above. All of the preceding mentioned events and actions, make it highly evident that New Zealand is, certainly, not a tax haven, and that it is highly transparent, with regard to matters of tax.


Certainly, the high-standards, set forth in this article, are the result of the nation’s regulatory framework. That said, a good deal of the country’s transparency can be attributed to those individuals, acting in the capacity of foreign trustees.


The large percentage of New Zealand’s providers of service are accountants and lawyers. Many of the country’s service providers are members of the global Society of Trust and Estate Practitioners. The acronym for the preceding organization is STEP. The lawyers and accountants, work in cooperation with other service providers who share the same responsibilities, inside of other nations. In other words, New Zealand trust lawyers and accountants, with well-established reputations, pertinent to trustworthiness and reliability, operate foreign trusts, on behalf of their global clients. The professionalism, provided by the New Zealand attorneys and accountants, add to the country’s fine reputation, relative to the OECD, as well as other global tax specialists.


The preceding statements, suggest that New Zealand’s competition is not that of the tax haven. New Zealand’s competitors include places such as the United States of America, Britain, and Singapore. Each of the preceding nations and the city-state of Singapore are considered venues with very transparent tax systems. The areas, noted, too, apply principles of taxation, similar to New Zealand, relative to their foreign trusts.


Issues, with regard to the usage of foreign trusts, are best directed in way of regulation. It is necessary that all high-standards are met. This is a much better approach than paying attention to a shifty informant.


Notes with Respect to Cone Marshall and Geoffrey Cone:


Geoffrey Cone practises trust management law inside of Auckland, New Zealand. He defines himself as a tax lawyer. Geoffrey is knowledgeable in all matters, relative to tax, as it pertains to trust management. In fact, the firm: Cone Marshall specialises in trust management and other relative services.


Geoffrey’s knowledge and expertise in the preceding matters, provides his clients with the highest and most reliable standard of service, as it pertains to trust management and foreign trusts.