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NZ’s foreign trust regime: John Shewan’s report in a nutshell

The Government Inquiry into Foreign Trust Disclosure Rules was released yesterday (Monday 27 June). In a nutshell, John Shewan’s report concluded that the current disclosure requirements were “light handed” and reasonably likely to be facilitating the hiding of funds or evasion of tax in some instances. Against this backdrop, governments around the world have a legitimate expectation that the New Zealand government will step in and take action to change the rules.

The inquiry’s primary recommendation is for New Zealand to adopt a more robust disclosure regime for foreign trusts. The report’s recommendations include:
• Requiring information on foreign trusts to be maintained in a register (searchable by regulatory agencies).
• Requiring disclosure to Inland Revenue of the name, email address, foreign residential address, country of tax residence and tax identification number of each of the trust’s:
o settlor or settlors
o protector (if there is any)
o non-resident trustees
o any other natural person who has effective control of the trust (including through a chain of control or ownership)
o beneficiaries of fixed trusts, including the underlying beneficiary where a named beneficiary is a nominee; for discretionary trusts, each class of beneficiary should be described in sufficient detail to enable identity to be established at the time of a distribution or when vested rights are exercised.
• A requirement to file the trust deed when registering.
• A requirement to file an annual return (with accompanying financial statements) and the amount of any distributions paid/credited noted with names, foreign address, Tax Identification Number and tax residence country of the recipient beneficiaries.
• A revision of the Anti-Money Laundering legislation to require verification of the underlying source of funds or wealth settled on a foreign trust in all cases.
• Revising the legislation around reporting of suspicious financial transactions that do not go through a New Zealand bank.

Mr Shewan’s report briefly canvassed other options for reform of the foreign trust regime that he rejected as unsuitable:
Establishing a public register of foreign trusts – Rejected on privacy grounds.
Setting up a licensing regime for resident foreign trustees – Rejected on rationale that the framework which currently exists for all trustees, together with tightened disclosure rules for foreign trusts, is sufficient and cost/benefit analysis does not warrant any further regulation.
Extension of AEOI proposals to deem foreign trusts to be financial institutions – Rejected on the basis of inconsistency with the underlying design of the Automatic Exchange of Information (AEOI) regime and the implicit prohibition on country-by-country variations of the AEOI regime.
Repeal of the tax exemption on foreign source income – Rejected on policy grounds.
Finance Minister Bill English said that “The Government will look to implement the recommendations after officials have examined the inquiry in detail and reported back to Ministers. A formal response to the Inquiry will therefore be issued in the coming weeks.”

Read the report in full here.

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