Foreign trust disclosure rules

A report was released late June following the Government’s inquiry into New Zealand’s foreign trust disclosure rules. The inquiry was a direct response to a perception that, as a result of the Panama Papers leakage, New Zealand is a tax haven and has “weak” laws around due diligence and reporting of foreign trusts.

The inquiry examined New Zealand foreign trust disclosure rules and reported on whether the rules and the enforcement of the rules are sufficient to ensure that New Zealand’s reputation is maintained internationally.

The inquiry concluded that the current disclosure rules are “inadequate” and “not fit for purpose”. It considered that strengthened disclosure requirements should act as a deterrent to offshore parties looking to use New Zealand foreign trusts for illicit purposes.   

The recommendations included in the report are designed to achieve a balance between allowing foreign trusts to continue in New Zealand, while materially reducing the scope of foreign trust structures being used for hiding illegal funds or evading tax.

The recommendations include:

• Expanding required disclosure to Inland Revenue. The current rules require only the name of the New Zealand-based trustee and whether the settlor was resident in Australia. The proposed revised disclosures will require the name, email address, foreign residential address, country of tax residence, tax identification number of the settlors, trustees, protector, beneficiaries and any person effectively exercising control;
• Annual returns and financial statements to be provided to New Zealand Inland Revenue;
• A requirement to file the trust deed when registering a foreign trust;
• Imposition of a fee (proposed to be $270 per annum) to cover administration costs of the new regime;
• Maintaining a register of foreign trusts, searchable by regulatory agencies;
• Early application of New Zealand’s Anti-Money Laundering (“AML”) laws to lawyers and accountants. AML due diligence and reporting requirements to apply when they establish/administer New Zealand foreign trusts;
• Revising the legislation/regulations around reporting of suspicious financial transactions that do not go through a New Zealand bank.   

The Government has announced that it will action all of the recommendations.  There are modifications to some of the recommendations, such as the early application of AML to lawyers and accountants to be “as soon as practicably possible” (citing issues regarding legal privilege and regimes supervision that can only be dealt with by an Act, not regulation).  

We expect a tax bill in August 2016 including incorporating the proposed changes to legislation.