Cooks tax loophole closes

John Key says the agreement with the Cook Islands will ensure no repeats of cases such as the Winebox Affair. Photo / Getty Images

The door is closing on a Pacific tax haven - yesterday the Cook Islands agreed to let New Zealand's Inland Revenue Department sniff out tax evaders, and Australia is expected to sign a similar deal soon.

Prime Minister John Key signed the agreement with his Cook Islands counterpart, Jim Marurai, yesterday as part of his four-day trip around the Pacific.

It is the first such agreement by the Cook Islands, which is listed as a tax haven by the OECD and was at the centre of allegations of tax evasion in the Winebox Affair of the 1990s.

Investigations into that were hampered by the difficulties of getting information from the islands.

Yesterday Mr Key said the agreement would ensure there was no repeat of that and people who set up trusts and companies in the Cook Islands as a front to evade taxes would find it harder to get away with it.

In return for agreeing to the measure, the Cook Islands will receive benefits including some rights to the taxes on pensions, the government service and students.

Mr Key said the agreement was part of wider international efforts to clamp down on tax evaders.

The OECD began encouraging such agreements in 2004 but the process was accelerated as a result of the international recession.

"That showed it's important to have an honest and open information exchange in the area of tax evasion."

Mr Key said the deal would enable New Zealand to obtain the information it needed if it believed somebody was using the Cook Islands to evade tax.

"It's important for the health of the tax base and the integrity of the tax system in both countries."

Mr Marurai said it was a first for his country, and he was committed to standing by it.

"The idea of the initiative was to exchange information, so whenever we are asked to provide information, we will do that."

New Zealand has similar agreements with Bermuda and the Netherlands Antilles.

Under the Tax Information Exchange Agreement, tax officials can request tax records, business books and accounts, bank information, ownership information and other tax-related information from the other country to investigate tax evasion.

Mr Key also said New Zealand's aid to the Cook Islands will increase from $11 million to $14 million this year and rise again in 2011 to $17 million - in line with similar increases for Samoa and Tonga.

The money will be used to support the tourism industry, and will include $1 million to underwrite any losses incurred by Air New Zealand on Los Angeles-Rarotonga-Auckland flights.

Mr Key said tourists from Europe and the United States were "high value" and contributed significantly to the economy in the Cook Islands. Any major drop in long-haul travel during the recession could jeopardise the future of the flights, and underwriting any losses would help to prevent this.

While business from New Zealand to the Cook Islands was constant, with up to 14 flights a week, he said there was a need to underwrite the leg to and from America to ensure the flights would continue and tourism and exports would not be affected.

The Government has underwritten the US legs of flights that go through Samoa and Tonga.

Mr Key said the money would also go towards infrastructure and protecting lagoons from cyclones and environmental mishaps.

Mr Marurai said tourism was holding up, despite the world economic slowdown. New Zealanders make up the bulk of tourists to the islands.

He said the two countries were instigating an annual ministerial forum to ensure there was regular high-level contact.