According to a recent media coverage about foreign trusts based in New Zealand makes it look too good to be true. For the wealthy individuals who take on complex financial deals, this information may be misleading. The news coverage depicted New Zealand as a tax haven. The truth is, like other things concerning taxes, a bit mundane.
Let’s first deal with the unclear air in the room. While many of the news coverage’s portray the country, New Zealand is not a tax Haven. According to the OECD, there is a developed list that outlines all the tax havens in the world. New Zealand does not appear anywhere in the list of tax havens. Moreover, there are essential characteristics you can use to determine whether a country is a tax haven or not. They include a lack of transparency; the countries impose little or no taxes, and there is a lack of procedures or laws that inhibit information exchange with states and other government. New Zealand does not qualify based on the above-mention characteristics. The country does not have secretive banking systems as in tax havens.
The ultimate standard for transparency, according to the OECD in 2002, is the Information Exchange on a Model Agreement on fiscal matters. This act supports international information exchange among states and governments. For this reason, the states will administer and enforce domestic tax laws on foreign trusts and companies. One of the first countries to be placed on the OECD’s white list is New Zealand. Because of this, New Zealand had implemented this international agreement standard entirely.
One of the main ways through which the country demonstrates tax transparency and leadership is how they handle trustee-placed requirements and tax transparency. The country has placed tax reforms that allow other governments to access information upon request. In 2001 Michael Cullen introduced the new rules concerning foreign trustee tax. Under his regime, foreign trust and resident trusts were required to fill the IRD form and keep their financial records according to the state-issued format for tax purposes. This included settlement details, trust deed, recipients address and name, details about trusts liabilities and assets, and the income generated and spent by the trustee. Any information about business carried out by the trustee should be documented. All records should be presented to the government in English. Failure to do so will attract high penalties. In 2011, these powers were enhanced during the enactment of the Laundering Legislation World Money Standard.