By Bernard Hickey
Official documents show John Key’s personal lawyer, who runs a Foreign Trust law firm, successfully lobbied Key and Revenue Minister Todd McClay in late 2014 and early 2015 to stop an Inland Revenue Department review of New Zealand’s Foreign Trust rules that the industry thought could shut it down.
The rear-guard action was fought out through a series of emails, letters and meetings between December 2014 and March 2015 between key players in the foreign trust industry, Key, McClay and Commerce Minister Paul Goldsmith. The partially redacted details from those documents were obtained from a series of Official Information Act requests from the Green Party, as published here.
The first documents disclosed begin with an email to McClay from Antipodes Trust, which is run by executive director Ken Whitney, who is John Key’s personal lawyer.
The name of the Antipodes Trust correspondent is redacted in the document. Interest.co.nz has asked Whitney if he wrote the letter, but he has yet to respond. TVNZ has reported Whitney wrote the letter, along with Stuff and NZ Herald.
“I am writing to you on behalf of a group of industry professionals operating in the New Zealand Foreign Trust industry. We are concerned that there appears to be a sudden change of view by the IRD in respect of their previous support for the industry,” Whitney wrote in the email dated December 3, 2014.
This followed the publication of a November 2014 document by the IRD signaling a full review of the Foreign Trust regime, given IRD’s concerns about the impact on New Zealand’s reputation caused by non-disclosure of trusts by ‘rogue’ operators. The issue blew up again earlier this month with the release of the Panama Papers, which showed Panama’s Mossack Fonseca used New Zealand trusts in structuring the affairs of a Mexican property developer and a Maltese politician. The Government initially denied the foreign trust sector needed reviewing, but relented after a week and appointed former PwC tax partner John Shewan to review disclosure.
An industry-penned briefing on the issue that was sent to McClay in December said it was concerned about the review, saying: “It is perplexing that the IRD is now talking about ‘shutting down’ this industry, when it has carried out no investigation of the industry and its benefits to New Zealand, and has not consulted with the service providers, despite many offers from the industry to do so.”
‘John told me this is review will not happen’
Whitney broke through to the Minister’s office by saying he had met personally with Key, who had told him the Government had no plans for a review.
“I have spoken to the Prime Minister about this and he advised that the Government had no current plans to change the status of the foreign trust regime applying in NZ,” Whitney’s letter to McClay said.
“The PM asked me to contact you to arrange a meeting at your convenience with a small group of industry leaders who are keen to engage to explain how the regime works and the benefits of an industry which has been painstakingly built up over the last 25 years or so,” the letter said.
The documents show that McClay then asked IRD officials to be at a meeting on December 18, 2014 he was having with Foreign Trust industry representatives from Antipodes, Cone Marshall, OliverShaw, an unnamed barrister and Anchor Trustees Ltd. The names of those involved have been redacted, although Interest has asked Whitney if he was present. The meeting was held at Antipodes’ offices at Forsyth Tower on Shortland St.
The industry group tabled an agenda paper that noted a potential review of the sector that could see income from foreign trusts taxed.
“This would close the industry down — these investors can have their funds managed in many other countries that do not levy additional taxes on them,” the industry paper said.
“The Group would like a commitment from Government as soon as possible that it will not conduct a public review of the foreign trust tax laws, but will instead direct officials to work with the Group to improve the existing rules and regulatory regime and ensure that in areas such as information sharing New Zealand meets its international commitments,” it said.
In the earlier paper sent by Antipodes to McClay, it noted some families and companies who had set up trusts here were concerned: “The recent announcement by the IRD has already resulted in concern by those persons, especially some US family offices that were planning to relocate to New Zealand.”
IRD explains why review necessary
For its part, IRD prepared a report for McClay ahead of the December 18 meeting that said the foreign trust sector in New Zealand had attracted criticism internationally, “along the lines that we are a tax haven.”
It noted that New Zealand was not a tax haven because tax havens were all about secrecy and New Zealand had information exchange agreements, although it noted its disclosure arrangements for Australian settlors of New Zealand trusts were more robust than with other countries.
“Having said this, the perception that we might be a tax haven is damaging to New Zealand’s ‘clean’ international reputation,” an IRD official wrote.
“This can only get worse in view of future developments by the OECD on BEPS, harmful tax practices, beneficial ownership and AEOI (Automatic Exchange of Information),” the official wrote.
“In particular, although the OECD’s Forum on Harmful Tax Practices (FHTP) and Global Forum on Transparency and Exchange of Information for Tax Practices and Glogal Forum on Transparancey and Exchange of Information for Tax Purposes (FHTP) have previously scrutinised our foreign trust rules, and identified no issues with the rules, the FHTP is currently redefining what the OECD sees as an unacceptable tax regime, and New Zealand will be subject to future review on the basis of the redefined criteria.”
IRD then detailed its concerns, including around the adequacy of disclosure and record-keeping requirements, IRD’s ability to ensure compliance and enforce the rules, and the increasing cost of enforcing the rules when there is no tax to be collected.
IRD worried about secret undisclosed trusts
IRD said there were 8,000 foreign trusts with New Zealand resident trustees that were currently active and disclosed to the IRD, although it said this was a significant under-estimate “because of the existence of structures whose purpose is to defeat the statutory disclosure requirements.”
IRD estimated the fees collected by the industry at NZ$24 million per annum on average, with the contribution to the New Zealand tax take from income and GST receipts from trust providers estimated at NZ$3 million per year.
“The next step is for us to discuss with you the merits of adding a review of foreign trusts to our work programme,” IRD concluded.
The email trail then goes quiet until a meeting is arranged between tax industry consultants OliverShaw and McClay on February 19, 2015, the details of which are largely redacted. Then a meeting between McClay and IRD officials is scheduled for February 24.