Tax Haven New Zealand Part 1, by S A Boyce
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In 2016 New Zealanders discovered that we were a tax haven. Or that we have been a tax haven since the 1980s. This was due to an obscure change in the law, through a 1988 amendment, regarding the setting up of trusts. Apparently no one noticed, outside of taxation experts and legal commentators, and any legal issues with trusts had not emerged, or had been publicised in the media. But in 2016 the Panama Papers were released, and, somewhat belatedly, the news media realised that New Zealanders were implicated in the murky world of offshore finance, tax evasion, and even money laundering, because of the New Zealand trusts set up by non-residents (foreigners).
This book is intended to be a concise look at tax haven activity as part of the offshore world, and the policy and legislative context in New Zealand.
A large part of this book will be an attempt to unpack the flurry of policy activity and corporate activity revolving around the BNZ, using the tax haven role as an organising and simplifying concept. Just explaining the tax law changes in the late 1980s, even with a focus on international taxation, could be a very complex exercise. And one also has to doubt whether international taxation issues have ever been resolved into a coherent policy package, without conflicting objectives and outright contradictions. It would also be tempting to see the trust law as an anomaly, rather at odds with the objective of minimising tax avoidance through international structures. It emerged as part of an exercise in introducing measures to curb tax avoidance by New Zealand companies through the use of offshore tax havens. The introduction of some of the related measures – especially the Controlled Foreign Company (CFC) definitions – had actually prompted BIL and Fay Richwhite to alter company structures that they were involved in. This was particularly the case for BIL and its Australian corporate entity known as Industrial Equity Ltd (IEL), which was in fact a labyrinth of companies and shareholdings of related parties. The other tax measure introduced in 1988 – creating Foreign Investment Funds (FIF) – actually caught out another Brierley-related company, Industrial Equity (Pacific) Ltd. But where both the CFC and FIF measures would lead to many subsequent refinements, another aspect of international taxation remained in place despite a clamour for change. This was the Non-Resident Withholding Tax (NRWT) on interest payments. In the 1980s it was Fay Richwhite that would push for overseas banks to be exempt from the NRWT, which was not a new proposal in itself, but it then became part of the idea of making New Zealand into an offshore banking centre.
The rest of the book looks at the nexus of the BNZ, Brierley Investments, and Fay Richwhite, mostly through the documentation in the Winebox and gathered by the commission of inquiry. Some of this has not been examined before, and even that which has needs some reinterpretation as examples of offshore structures. With an emphasis on tax haven companies, we can consider the early deals that European Pacific constructed with Fay Richwhite and the BNZ, and questions of financial impropriety.