Combating tax avoidance

News this week some of the richest people in the world are using tax havens to hide their income from authorities comes as no surprise.

The surprise is how New Zealand, a country in which the Government claims to be playing its part in efforts to combat multinational companies shifting their profits to tax havens, has been implicated.

Inland Revenue is trying to obtain information on New Zealanders who have dealt with Mossack Fonseca, the Panamanian law firm at the centre of a global scandal over how the wealthy hide their assets.

According to The International Consortium of Investigative Journalists, an 11.5 million-document leak from the law firm shows its services appear to have been used to ‘‘facilitate massive money laundering, tax avoidance and criminal activity, including drugs and arms dealing''.

New Zealand has been named by the ICIJ as a ‘‘tax haven'' used by Mossack Fonseca and details have emerged of local trusts with links to the Panamanian firm.

Inland Revenue has been active recently in the collection of student loans. One former student was arrested at the border as he tried to return home to the Cook Islands. That action has prompted those with student loans to increase their repayments to avoid being caught in the same situation.

Revenue Minister Michael Woodhouse says New Zealand has a very sound tax system with world-class tax rules. People who live, work and do business in New Zealand pay tax. New Zealand does not tax foreign income earned by foreigners.

The same principles apply to trusts and have done since 1988. It is ridiculous, he says, to suggest New Zealand is a tax haven as tax havens thrive on secrecy. Apparently, not true.

This is embarrassing for the Government, and Mr Woodhouse. According to documents leaked so far, the 12,000 or more offshore trusts in New Zealand pay no tax here, their beneficiaries are not registered and their accounts not filed with any public body.

If this information has been gathered by New Zealand regulators, it appears not to be passed on to foreign governments.

Labour, predictably, has been up in arms about the revelations but the governments led by former prime minister Helen Clark and former finance minister Sir Michael Cullen are not exempt from the criticism.

Sir Michael had a chance to change the law regarding trusts and did not do so. The current Government has also had plenty of opportunities to close down foreign trusts being used as a tax haven, and it also failed to take action.

Already one political leader, Icelandic Prime Minister Sigmundur David Gunnlaugson, has resigned in the wake of the scandal and British Prime Minister David Cameron is facing awkward questions about the role of his father Ian Cameron in the use of the overseas trusts. No doubt, more casualties will follow.

The leaking of the huge amount of documents would not have been possible without the use of technology. Without the internet, journalists would have taken years to uncover the documents - if at all - through painstaking copying of ledgers and photocopying documents.

Now, the information can be analysed online and spread to the world almost instantly. The Government must take a stand. It should require all trusts to name their beneficiaries and file accounts showing where and how much tax has been paid on wealth generated by the trustees' assets.

That data should be shared with other jurisdictions.

New Zealand is not some out-of-the-way backblocks country where dirty deeds can be done dirt cheap.

It has been a leading advocate on the Trans-Pacific Partnership trade deal, a member of the Security Council and Miss Clark has announced her candidacy for the top United Nations job.

There is no room for tax cheats in New Zealand and all politicians must ensure work is now accelerated in the campaign to combat avoidance.

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