Foreign trusts face tougher disclosure rules

Mr Key stood by his original comments yesterday, saying that full disclosure was required when tax officials asked for it. Photo / Dean Purcell

Most of the recommendations in a hard-hitting inquiry into New Zealand's tax-exempt foreign trusts will be adopted by the Government, Prime Minister John Key has confirmed.

The inquiry by former PwC chairman John Shewan - which was prompted by the Panama Papers - concluded that the disclosure rules for New Zealand's foreign trusts were "not fit for purpose" and "light-handed".

It recommended that foreign investors should disclose much more information when setting up a trust and should file annual returns in New Zealand.

Mr Key said yesterday that there was "no real push back" from Cabinet about the recommendations. The changes were "sensible" and "well-reasoned", he said. The Government would respond formally next month, and the majority of the changes were likely to be taken up.

The proposals were also supported by Opposition parties - including the Labour Party, which initially criticised the choice of Mr Shewan because of his alleged links to the foreign trusts industry but later went back on its comments and apologised.

If Mr Shewan's proposals are adopted, any foreigner who sets up, controls, or benefits from a trust based in New Zealand will have to disclose their identity, foreign address and tax details at the time of registration - a significant increase in disclosure to the current system.

When the Panama Papers were first released in April, Mr Key said New Zealand foreign trusts already had "full disclosure" rules. The Shewan Inquiry appeared to contradict that reassurance.

"The inquiry concludes that the existing foreign trust disclosure rules are inadequate," it said.

"The rules are not fit for purpose in the context of preserving New Zealand's reputation as a country that co-operates with other jurisdictions to counter money laundering and aggressive tax practices."

Mr Key stood by his original comments yesterday, saying that full disclosure was required when tax officials asked for it. But Labour's finance spokesman Grant Robertson described the inquiry as a "rebuke" to the Government, which he said had protected an industry which was harming New Zealand's reputation.

Green Party co-leader James Shaw backed Mr Shewan's proposals, while noting they had been made before by tax officials and dismissed by the Government.

"It took the Panama Papers leak and significant public pressure to finally get National to move," he said. Mr Shaw also wanted some information in a proposed register of foreign trusts to be made public - a change which Mr Key ruled out.

The inquiry was prompted by the leak of 11 million documents from Panama law firm Mossack Fonseca, which specialised in tax haven activity.

Mr Shewan found no evidence of illicit funds being hidden in New Zealand-based foreign trusts. However, he said it was "reasonable to conclude" that some trusts in New Zealand were being used in this way.