Foreign Trusts, the Panama Papers and the Shewan Report

Abstract

The New Zealand tax system was until very recently so structured as to allow the country to be used as a tax haven. Specifically, it allowed foreigners to use trusts established in New Zealand (referred to as "foreign trusts") to avoid and evade the tax they would otherwise have had to pay in their home country. It would seem to have been possible, too, for foreigners to use such trusts for other illicit purposes, in particular money-laundering and financing terrorism. In April 2016 the publicity given to the so-called Panama Papers attracted attention to this aspect of the New Zealand tax system. The government responded by appointing a distinguished Wellington accountant, John Shewan, to advise. He recommended that the law be changed and the government accepted his recommendations. This article explains how the foreign trust rules work, and how the amending legislation was designed to preclude this form of abuse.