John Key’s solution to the exposure of his ludicrous claims that New Zealand has full disclosure on foreign trusts nor is tax haven, is to appoint an expert in tax avoidance as the so-called “independent expert” to review the laws.
As fallout from the “Panama Papers” has escalated and the prime minister’s claims are seen to be palpably untenable, Key has resorted to the age-old political fallback with such backdowns – appoint a tame mate who is guaranteed to find in favour.
John Shewan, former head of PricewaterhouseCoopers and past member of the Tax Working Group, has in recent years been on the wrong side of two of New Zealand’s most notorious and significant tax avoidance cases.
And his views and that of the ACT party on tax dovetail in almost every important respect.
Shewan has over the years taken full advantage of New Zealand’s lazy journalists, making himself accessible to a media that typically pursues the easiest option, so his views have been prominent on almost every debate on tax, and he invariably opines that low, or no tax, is best.
In the biggest tax avoidance case in New Zealand history, where the four main Australian banks agreed on Christmas Eve of 2009 to settle $2.2 billion with the IRD, Shewan was adviser for Westpac.
The case was, according to Patrick Smellie, “notable for advice from a PwC senior partner at the time, John Shewan, that his client, Westpac, should be seen to be paying enough tax to satisfy public expectations”.
He suggested that tax should be about 15 percent of annual profits, compared with the then corporate tax rate of 30 percent. Westpac actually chose to pay a rate of just 6.5 percent.
Despite, losing the case, Shewan was still extremely good value for Westpac, as the settlement was the equivalent to only about 80 percent of the unpaid tax and interest in dispute, and the banks avoided potential large penalties, which most taxpayers have to pay when they are found to have been avoiding tax.
A string of other Australian-owned companies, including former KiwiRail owner Toll Holdings, Telstra and former TV3 owner Ironbridge Capital, used similar tax-minimising tricks to bilk IRD in the first half of the 2000s.
Shewan and PwC may or may not have worked for any of these other companies but it is certain that tax avoidance schemes such as these were dreamed up and designed by the large accounting firms such as PwC and rivals like KPMG.
One party who has had dealings with Shewan over the years, told The Standard: “If you look at Shewan’s skills, unquestionably he would be one of the country’s foremost tax experts. There would be few people who would challenge him.”
“Whether or not he designed such schemes, I don’t know. He comes from a chartered accounting tax background, and the raison d’etre of most such tax practitioners is usually to find ways to allow their clients to pay less tax, albeit in a compliant manner.
“This in turn appears to have been part of the National Party’s agenda whereby they have looked for ways to lower personal tax rates.”
In the second landmark tax case where he was also on the wrong side, Shewan came in for stinging criticism from the Supreme Court, also won by IRD.
The Supreme Court unanimously ruled Christchurch orthopaedic surgeons Ian Penny and Gary Hooper avoided tax by using company structures and family trusts to artificially lower their salaries and avoid paying the top personal income tax rate.
The case was a precedent one for personal taxation as the structure was copied by many others.
The Supreme Court “put to one side” Shewan’s evidence presented on behalf of Penny and Hooper, as it said he expressed views on legal issues that shouldn’t have been given by an expert tax witness.
“It is undesirable and wasteful of the time and effort of both parties when such material appears in expert briefs of evidence,” the court said.
New Zealand First leader Winston Peters, who cut his political teeth on the “Wine Box” tax avoidance scandal, said Shewan’s involvement in these high-profile tax cases meant he is an unsuitable “soft option” as an expert.
On retiring from PwC, Shewan made clear his views on progressive tax rates when he said high taxes on personal incomes were the most damaging to the economy for growth and jobs. This statement is erroneous as was shown in a famous OECD study which showed that countries with robust progressive taxes perform better in both growth and jobs over the long term.
When National announced its irresponsible 2010 tax cuts, Shewan’s comment was that he was optimistic New Zealand would have a top tax rate of 25 percent within three years.
Shewan was a key member of the 2001 McLeod tax review that came up with the radical recommendation of a “carefully targeted” reduction in the company tax rate to between 15 and 20 percent for foreign companies investing here.
“We want New Zealand to stand out from the crowd,” the review said.
Shewan is a director on a number of boards. In 2013, then Education Minister John Banks, appointed him deputy chair of the Charter Schools Authorising Board – the ACT Party initiative on Charter Schools. The Chair was then ACT Party president Catherine Isaac.
He is on the board of the New Zealand arm of the China Construction Bank and Munich Reinsurance Company of Australasia as well as the Fonterra Shareholders Fund.
All in all, if you add up Shewan’s credentials, Key has done a fine job in setting up this independent review for a whitewash.
(Simon Louisson formerly worked for The Wall Street Journal, NZPA, Reuters and was most recently a political and media adviser to the Green Party)