2016 July: The New Zealand Government Inquiry into Foreign Trust Disclosure Rules was released on the 27 June 2016. Following the leak of information (known as the Panama Papers) from the Mossack Fonseca firm in April this year, the New Zealand Government appointed John Shewan to carry out a complete review of New Zealand’s rules concerning the disclosure of information required in relation to foreign trusts. That is, those trusts established under New Zealand laws by non-New Zealand resident settlors.
Mr. Shewan’s report concluded that New Zealand’s current disclosure requirements were “inadequate” and “not fit for purpose”. The Inquiry has recommended for New Zealand to adopt a more strict disclosure regime for foreign trusts which, Mr Shewan notes, may cause a reduction in the number of foreign trusts registered in New Zealand.
In summary the Inquiry recommends:
- A register be maintained containing detailed information on foreign trusts and searchable only by regulatory authorities;
- When establishing a trust, settlors declare they will comply with all New Zealand disclosure laws;
- Information be disclosed to the tax authority at the time a trust is established including; the name, email address, foreign residential address, country of tax residence and tax identification number of each of the trust’s settlor or settlors, protector, non- resident trustees and any other natural person who has effective control of the trust, as well as beneficiaries of fixed trusts. For discretionary trusts, each class of beneficiary will need to be described in sufficient detail to enable identity to be established at the time of a distribution or when vested rights are exercised;
- The trust deed be filed with the tax authority upon registration of the trust;
- An annual return be filed (with accompanying financial statements) detailing the amount of any distributions paid/credited noted with names, foreign address, Tax Identification Number and tax residence country of the recipient beneficiaries;
- Anti-Money Laundering legislation be revised to require verification of the underlying source of funds or wealth settled on a foreign trust in all cases and to facilitate the reporting of suspicious financial transactions that do not go through a New Zealand bank;
The New Zealand Government has indicated that it supports all the recommendations in the report. It is therefore anticipated relevant legislation will be amended later in the year to accommodate necessary changes with existing trusts being required to provide additional information as earlier as the end of this year. An annual fee of NZ$50.00 and an initial filing fee of NZ$270.00 will be charged to each foreign trust.
Some practitioners and commentators in New Zealand view the proposed changes as necessary for the long term viability of the foreign trust regime and maintaining New Zealand’s international reputation. Others believe they will mark the end of New Zealand’s popularity as a foreign trust jurisdiction leading to a reduction in new trusts being set up and forcing existing trusts to redomicile away from New Zealand. Time will tell and we shall await the outcome with interest.