I found there were two major items of interest this week on the news. The first was the fact global warming was much worse than expected, but I shall leave that for a later post. Also interesting was the disclosure of some files that somehow or other leaked from a Panamanian law firm, and were about prominent people who had foreign trusts, most presumably for the purposes of tax evasion. Some of the media made a great fuss about some people associated with Putin having these trusts, as if this was somehow Putin’s fault. It might be, but we have more spectacular examples. There was the Premier of Iceland who was directly involved, and had to resign, despite his asserting he had done nothing wrong. If he had really done nothing wrong, why resign? Why not simply explain his position? Then there was David Cameron, Prime Minister of Britain. His father apparently uses such a haven. Now, you cannot be blamed by association, he would say, but it is not exactly a good look.
My favourite, though, is Poroshenko, Premier of Ukraine, the man who asserts he is there to stamp out corruption. When he took office, he promised to sell his confectionary company, worth billions. So he sold it. Well done? Well, no, he sold it to a trust that one way or another ends up with there being only one owner of this company: Poroshenko. He sold it to himself, but moved it to a tax haven. Sneaky!
Of particular interest here was the revelation that New Zealand was listed as a tax haven. And in case you are thinking of moving here for the low taxes, think again. It is not a tax haven in the usual sense, but thanks to some inept politicians, it is a contributor, although in much the same way as many other countries. As an aside, what New Zealand does in this respect is very similar to what other OECD countries do, except New Zealand has a different approach to taxing them.
What New Zealand does is permit foreign trusts, and they can be owned by foreigners. The requirement is they are registered, which means they are recognized by the Inland Revenue Department, and they must have a nominated trustee. However, under New Zealand law, and this is different from the other countries, if a person or an entity does no business in New Zealand during a financial year and does not enter the country, they are permitted to file a nil return, i.e. if they are not physically in the country, and their business is done elsewhere, they pay no tax in New Zealand. That seems reasonable, but there is a catch. If the trust merely owns another trust somewhere else, and that one owns a company that is doing business in several other countries still, then as you can see, there is an impenetrable barrier to tracking the money. Our IRD states it will inform other tax authorities if they ask, but what can they ask? They have to know the answer to the ownership issue before they ask, and there is no record of any transaction to ask about.
Of further interest is the fact that lawyers and accountants here apparently make somewhere between 25 – 50 million dollars annually “monitoring” the trusts, acting as trustees, and filing nil tax returns. All of which to benefit the unworthy rich in other countries who refuse to pay their legally required share.
Of course there can be legitimate uses for such trusts. Apparently, such trusts started with the Crusades, where Crusaders left their property in trust while they were away. That was an obviously sound reason for creating the trust. Now the property is away and the rich are being trusted, and these men are anything but trustworthy.