Foreign trusts to face new disclosure regime in New Zealand

The New Zealand government is to tighten up its lax foreign trust rules after an official inquiry found last month that they could be exploited to hide ill-gotten gains or evade tax.

Finance Minister Bill English and Revenue Minister Michael Woodhouse said Wednesday that acting on all the inquiry's recommendations would strengthen New Zealand's international reputation.

The government intended to introduce legislation to require a register of foreign trusts that was searchable by the Department of Internal Affairs and the police, and annual disclosure requirements in the coming months, English said in a statement.

Woodhouse said in the statement that the government was committed to strengthening New Zealand's anti-money laundering rules, which would bring in more comprehensive requirements for lawyers, accountants, real estate agents and others.

The inquiry by an independent tax expert said there was "a reasonable likelihood" that the country's foreign trust regime "is facilitating the hiding of funds or evasion of tax in some instances."

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

The government launched the inquiry into foreign trusts in April amid claims that wealthy foreigners were using foreign trusts to evade taxes in their home countries or to obscure ill-gotten gains.

Critics claimed that New Zealand foreign trusts enable tax avoidance because they have no requirement to disclose either the trust beneficiaries or the source of assets.

The report recommended a significant increase in the information disclosed when a foreign trust sets up, including naming foreign trustees, along with annual reports with details of settlors, beneficiaries, and full financial statements, and increased enforcement to deter foreigners looking to use New Zealand foreign trusts "for illicit purposes."

Opposition lawmakers said the government could go further by making the foreign trust register searchable by the public and foreign tax partners.

"The secrecy and tax-free status of New Zealand foreign trusts have made them an attractive vehicle for tax avoidance and crime, damaging our reputation abroad," opposition Green Party finance spokesperson Julie Anne Genter said in a statement. Endit