Foreign trust rule changes may trigger some closures - Mossack Fonseca agent

A New Zealand foreign trust provider named in the Panama Papers admits proposals to beef up disclosure rules may prompt some clients to close their trusts.

Roger Thompson Source: 1 NEWS

But Roger Thompson of the accountancy firm Bentley's New Zealand, which is the agent for Mossack Fonseca, said the changes are unlikely to have much effect on his business "as firstly foreign trusts are only a very minor part of my business".

The Government will adopt new rules including setting up a register of foreign trusts that regulators will be able to search.

Mr Thompson said most of his clients will be comfortable disclosing more information to Inland Revenue, provided it was not publicly available.

"A small number who require absolute confidentiality may consider closing their trusts," Mr Thompson said.

Tax analysts will be closely monitoring the number of foreign trusts being set up when the tighter rules are eventually introduced.

The industry has experienced double-digit growth, with more than 10,500 active foreign trusts at the end of April, a fivefold increase since 2006.

Mr Thompson doesn't expect any major effect on the industry.

"In my experience there is very little tax avoidance or money laundering occurring. There may be a little around the margins that a few shady operators are involved in that will cease but we have never been involved in any of those cases," Mr Thompson said.

"Additional disclosure would be necessary in any case in order for New Zealand to meet its requirements under automatic exchange of information agreements that come into effect in the near future so no great surprise there."

Meanwhile, Mr Thompson disputes that he advised his clients to avoid countries that have information-sharing agreements with New Zealand.

The Panama Papers show Mr Thompson, who is Mossack Fonseca's main New Zealand agent, told an Ecudorian client to avoid any countries that might subsequently enter into a double-tax agreement (DTA) with New Zealand.

The documents include a power of attorney that authorised the client to use the bank account of a foreign company or trust that has been set up without any mention of the client's name and address.

Mr Thompson said the purpose was solely to preserve the status of its clients wanting to use a Look Through Company (LTC), where foreign income passes through New Zealand to the company's owners tax-free, rather than a trust.

He said "some clients, particularly from civil law countries, are unfamiliar and uncomfortable with trusts".

"They are however familiar with companies and a LTC enables them to use a New Zealand company to hold assets with similar effect to a trust," Mr Thompson said.

He said many of his clients "live in countries where the rule of law is not as good as in New Zealand".

"There may be corruption, kidnapping, blackmailing,  arbitrary state seizure of assets, lack of freedom of testamentary disposition in addition to normal business risk and possible claims against assets owned personally under matrimonial laws etc."

"The potential 100% loss of assets is a much bigger motivator to have the assets held in a foreign trust or company than avoiding tax at say 33% on the income generated from those assets," Mr Thompson said.

The investigation into the Panama Papers New Zealand is a journalistic collaboration by reporters from ONE News, RNZ News and investigative journalist Nicky Hager. It has been carried out with the assistance of the International Consortium of Investigative Journalists (ICIJ) and the German newspaper Süddeutshe Zeitung.