Key faces sustained questioning on NZ presence in 'Panama Papers'

Story breaks just days after PM describes vision for New Zealand as "Switzerland of the South Pacific".

Prime Minister John Key faced sustained media questioning on the use of New Zealand-registered foreign-controlled trusts in international tax avoidance uncovered by a massive leak of documents that are being called 'the Panama Papers'.

Insisting that New Zealand was not a tax haven, Key said New Zealand had "extensive disclosure requirements" in place for foreign trusts and was party to "a network of different treaties" with other countries to ensure tax owed by New Zealanders was not avoided by exploiting foreign trust structures.

"I don't think it's embarrassing," said Key. "New Zealanders have had the same tax rules since 1988 and the OECD also had a review of its tax regime in 2013 and they gave New Zealand a clean bill of health" and had strengthened its regime since 2006.

"We are undertaking ongoing work with the OECD on what they call the BEPS, the Base Erosion (and Profit Shifting) programme. If there are further recommendations that come from the OECD, then I'm sure New Zealand would potentially look at making those changes and adopting that, but at this point, we've been quite satisfied with the work that's been undertaken."

To a flurry of questions on specifics relating to potential tax avoidance involving foreign-controlled New Zealand trusts, Key repeatedly suggested journalists should "talk to the IRD about that."

New Zealand emerges as little more than a bit player in the 11.5 million tax haven documents leaked to the International Consortium of Investigative Journalists and which have taken more than 100 media organisations more than a year to interpret.

The documents all relate to the records over more than 40 years of a Panamanian law firm, Mossack Fonseca. They show two New Zealand-registered trusts, known as Rotorua and Haast, were used last year by a Maltese Cabinet Minister and a senior official in the tiny Arabian Gulf state of Muscat, in arrangements linked to a secret Dubai bank account and two Panamanian companies that the pair set up in 2013.

The revelations are having a political impact in both Malta and Muscat and are placing the New Zealand government under pressure for an apparently less stringent approach to foreign-controlled trusts than many other OECD countries. International media reports suggest the Prime Minister of Iceland may be forced to call a snap election, while a rogue's gallery of global figures, including Russian president Vladimir Putin, are implicated in the detailed revelations.

However, the papers suggest that in this part of the world, there has been a much larger involvement in the controversial activities by Pacific Island states, including Niue and Samoa.

The papers show that in the mid to late 2000s, Samoa ranked fourth behind the British Virgin Islands, Panama and the Seychelles as the primary vehicle for foreign trust-related activity.

Revenue Minister Michael Woodhouse dismissed the allegation that New Zealand was a tax haven, saying "it is ridiculous to suggest that New Zealand is a tax haven, as tax havens thrive on secrecy."

"Our tax rules require foreign trusts to be registered," he said. "We also have a strong tax treaty network with the express purpose of discovering and preventing tax avoidance by exchanging information between tax jurisdictions. However, New Zealand's rules are intended only to tax people who live, work and do business in New Zealand. We don't tax foreign income earned by foreigners."

The story also caused Key some embarrassment by being linked to reports before the Panama Papers were released that he has a vision for New Zealand as a safe haven "Switzerland of the South Pacific".

Switzerland has long operated a financial system based on secrecy and tax haven activity, forcing Key to note that Switzerland was "going through a significant change in terms of its disclosure regime."

Showing some frustration with the intense questioning, Key said there were "lots of legitimate interests" using trust structures.

"The whole purpose of trust law is to ensure that the settlor pays tax," he said. If a New Zealander set up a trust in the Cayman Islands, they would still be required to pay tax on their worldwide income in New Zealand.

In his own personal affairs, Key said he had only ever had two trusts, both of which were New Zealand-registered.

(BusinessDesk)

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