Well this is embarrassing. The European Union thinks that New Zealand is operating as a tax haven and is considering sanctions.
From Newshub:
Possible EU sanctions against New Zealand could make travel harder and have a massive effect on the economy.
New Zealand is under investigation by the EU as it prepares a blacklist of global tax havens, Newshub revealed on Monday night.
The grouping of 28 European nations has compiled a list of countries with lax tax laws. Following the release of the so-called Panama Papers, it has confirmed that New Zealand is under investigation.
The EU is our third largest trading partner and worth about $7000 for every person in New Zealand.
The EU loses around NZ$1 trillion to tax havens each year, and it intends to put a stop to the practice by threatening a raft of sanctions against countries that don’t comply to its standards.
The changes to our tax system proposed by the Sherwan report will not make New Zealand compliant. Although the proposal for disclosure of trust settlers and beneficiaries and collection of information concerning financial assets will improve compliance from the report it appears the EU may also require there to be no tax exemption of foreign income, automatic exchange of information with foreign tax authorities in the jurisdictions where the settlers and beneficiaries are resident and a public register of trust ownership and details. New Zealand will not meet these standards even when Mr Shewan’s changes are introduced.
Key and National have made a song and dance about how the OECD has given New Zealand a clean bill of health as far as its tax system is concerned. He was quoted earlier as saying this:
Tax havens are where there is non-disclosure of information – New Zealand has full disclosure of information, and so all you’ve got is New Zealand’s taken a different view from a lot of different jurisdictions and that’s because the way we tax is we tax a settlor.
“In other words, it’s all about making sure New Zealanders pay their fair share of tax, what we’ve got is quite a legitimate regime.”
But is Key correct? It looks like the EU interprets “full disclosure” differently to John Key. He thinks the possibility some information may be disclosed is enough whereas it appears the EU want there to be automatic exchange of information and a public register of trust ownership and details.
As I posted earlier:
Has the OECD given New Zealand’s tax system a clean bill of health? Well sort of in that it is better than some of the really notorious tax havens that had stronger secrecy provisions. But the IRD warned in 2013 that our foreign trust tax regime posed a reputational risk. This is hardly a clean bill of health when your own tax entity says that there is a problem.
And the full disclosure requirement? As pointed out by Deborah Russell all that has to be disclosed is the name of the trust, the name of the trustees and if the settlor lives in Australia. Details of the beneficiaries and the assets owned by the trust need not be disclosed.
And the tax exemption is another feature that the EU is looking at. Labour had the tax rate at 28%. It was National in 2011 who changed the rate to 0%.
And some response from Twitter (thanks r0b):
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