Panama leak highlights New Zealand's "shameful" tax haven status

New Zealand is shamefully complicit in international tax avoidance schemes through its lax trust law, experts and lawmakers said Monday following a massive document leak from a Panamanian law firm.

The papers leaked from law firm Mossack Fonseca, which specialized in providing financial anonymity to the world's rich, showed a connection to foreign trusts in New Zealand.

It was reported that Maltese Energy Minister Konrad Mizzi and the Maltese Prime Minister's Chief of Staff, Keith Schembri, were among those who set up trusts in New Zealand.

Massey University taxation specialist Dr Deborah Russell said the leak shed light on New Zealand's role as an international tax haven.

"It's shameful for New Zealand to be caught up in international tax avoidance," Russell said in a statement.

"The loophole in our laws that allows New Zealand foreign trusts to escape taxation has been known about for years, but nothing has been done to shut it down. This makes us complicit in schemes to avoid tax."

She believed it would be comparatively easy to shut the loophole down by authorizing the government's Inland Revenue Department (IRD) to share information about foreign trusts -- including the identities of people putting property into trusts -- with the tax authorities of other countries.

"This would enable other countries to pursue people who are sheltering property and income in New Zealand foreign trusts," said Russell.

Opposition lawmakers said the revelations of rich foreigners hiding their wealth in New Zealand had undermined the country's reputation for honesty and transparency.

The Green Party said the IRD had warned the government in 2013 about the high risks of New Zealand foreign trusts, but the government had ruled out any reform to date.

Green Party finance spokesperson Julie Anne Genter cited an IRD e-mail dated March 24, 2016, that said "In relation to the foreign trust tax rules, given wider government priorities the government will not be considering regulatory reform of the rules at this stage."

"How can we as a country work collaboratively with other countries to try and clamp down on tax avoidance by multinational companies while knowingly facilitating tax avoidance through our lax foreign trust laws?" Genter asked in a statement.

Revenue Minister Michael Woodhouse defended New Zealand's "very sound tax system with world-class tax rules."

"We tax people who live, work and do business here. We don't tax foreign income earned by foreigners. The same principles apply to trusts, and have done since 1988," Woodhouse said in a statement.

"It is ridiculous to suggest that New Zealand is a tax haven, as tax havens thrive on secrecy."

New Zealand had a strong tax treaty network with the express purpose of discovering and preventing tax avoidance by exchanging information between tax jurisdictions.

The Organisation for Economic Co-operation and Development (OECD) group of developed countries had looked at New Zealand's foreign trust rules in the past and had no concerns with them, said Woodhouse.

"The tax treatment of foreign trusts may come up in the OECD's Base Erosion and Profit Shifting work program in which case we would look at our own rules in the context of everyone else's," he said. Endit