Like the political equivalent of lithium, Prime Minister John Key is routinely administered to dull any politically dangerous mood swings amidst the general public. Tax havens? Here? Goodness no, our handling of foreign trusts, is, quote, world class, unquote. And when subsequent evidence shows the opposite and that there really are serious problems… Key can always be relied on to be soothingly OK with that, too. Of course the government will enact “most” of the recommendations made in John Shewan’s investigation of our foreign trust regime. There. Now back to sleep, its been a big day.
Inadvertently, Shewan’s report can be blackly humorous at times. Tax havens? Here? Shewan’s discussion (circa page 45-46) suggests that the modern, sophisticated folk at the OECD just don’t find that term very useful anymore. Blame the media – and its excitable ‘tone’ – though, for alarming the public unduly on that score:
Some reputational damage to the integrity of the tax system seems likely to have occurred domestically as a consequence of the tone of the intensive media coverage in April/May 2016.
More lithium needed, obviously. Because the very next sentence identifies the cause of that alarm, while couching it in the soporific tone preferred:
This [concern about reputational damage to New Zealand] results from perceptions that the tax system is inherently unfair if wealthy individuals can escape tax through the use of foreign trusts, and from the picture painted of New Zealand acting as a tax haven and as a place where overseas persons hide illicit funds and evade tax.
There is an important additional question: Is there a risk that the likelihood of detection by either New Zealand or offshore authorities is sufficiently low that some offshore parties are prepared to take that risk, resulting in a breach of New Zealand or foreign tax or AML rules? If the answer to this question is yes, then as part of its commitment to the global initiatives described in this report, including not facilitating the hiding of funds or the evasion or avoidance of tax, action is required. The Inquiry concludes that this question needs to be answered yes….
So yes Houston, we do have a problem. What sort of problem? An all round systems failure, it would seem. In his plodding fashion, Shewan ticks off the current list of problems within our “world class” system of handling foreign trusts:
a) The information required to be provided to IRD (or any other government agency) when a foreign trust is established is minimal, with no meaningful data on the name or contact details of settlors, foreign trustees, others who may control the trust, or beneficiaries.
b) There is no obligation to report distributions to beneficiaries. c) No annual returns of any kind are required.
d) There is a low likelihood of IRD requesting records and exchanging any information with offshore authorities.
e) No information obtained under the AML rules as part of customer due diligence is likely to be disclosed to any government agency.
f) Information on the source of funds in foreign trusts is required to be obtained but in many cases verification is not mandatory.
g) The definition of beneficial ownership, and in particular the concept of effective control, is complex and may not be well understood or consistently applied.
Hmmm. That bad, huh? Apparently so:
The above framework is consistent with the messages in some websites that advertise foreign trusts, which stress minimal disclosure and reporting requirements. The Inquiry concludes that offshore parties might justifiably conclude that New Zealand has light-handed disclosure requirements and is a very easy place to set up in without any material likelihood of information being requested by a New Zealand government agency and provided to a tax or other authority offshore.
Or as they used to say on The Wire… shee-it. For an inkling of how bad things are, check out Gareth Vaughn’s terrific series on the subject.
What to do? Well, as Bernard Hickey points out on the same site, Shewan had given himself four possible options :
1. Some increase in information disclosure to include details of settlors and beneficiaries in trust deeds,
2. A significant increase in disclosure with a register of foreign trusts searchable by authorities, including details of settlors, persons with effective control, non-resident trustees, beneficiaries, coupled with an annual return, expanded application of Anti-Money Laundering rules and a register searchable by authorities,
3. The same significant increase in disclosure coupled with a fully publically searchable register,
4. The full repeal of the foreign trust regime.
Shewan chose option two. Note that the rejected third option would have enabled the public – and the media – to play a useful monitoring role. That potential has been snuffed out. In essence, this new, proposed way of handling foreign trusts remains a regulator-to-regulator system that will still be entirely reliant on overseas authorities sensing that New Zealand could be harbouring a miscreant, and lodging a search request. (There’s no real enhancement of the domestically initiated oversight – such as might have been gained from a full public inquiry.)
Essentially Shewan has, at considerable expense, suggested pretty much what IRD was advocating back in 2014, before the department got blocked by the lobbying of the lawyers most heavily involved in this dodgy line of business. Let Shewan have the last word though:
The Inquiry concludes that offshore parties might justifiably conclude that New Zealand has light-handed disclosure requirements and is a very easy place to set up in without any material likelihood of information being requested by a New Zealand government agency and provided to a tax or other authority offshore.
Zzzzzz world class zzzzzz, no tax haven zzzz.
Women with guitars
While putting together a mix CD for a friend last week – a CD based around the recent resurgence in guitar-based indie music – it became obvious just how many of these new guitar-centric bands are led and fronted by women. For every male Car Seat Headrest, there are multiples of Margaret Glaspy, Mitski, White Lung, Hop Along, Wolf Alice, Japanese Breakfast etc etc. Then I ran across this June 20 article in the New Yorker by Carrie Battan making exactly the same point:
Once perceived as curios—and presumed to have descended from the riot-grrrl movement—female-fronted rock acts now dominate regional (and online) rock scenes. Impassioned and often armed with a confessional, lyrical specificity, these women book huge tours and festivals and generate critical acclaim. In the world of guitar music, which can seem constitutionally stale or overly nostalgic, this shift in perspective toward the female counts as innovation. Today, young women are indie rock’s greatest—if not its only—source of vitality, a development that gives women newfound incentive to pick up a guitar. Mitski might not have fit in with the indie rock of her adolescence, but she fits in nicely with that of her adulthood.
That’s a good point. Not every women-fronted guitar bands has to be dutifully traced in a direct line back to Sleater-Kinney and Bikini Kill. Mitski Miyawaki is a good case in point. While you could see riot grrl in her musical genes in the challenging NPR Tiny Desk Concert she did last year, this single from her new album Puberty 2 shows her range:
This old school live SXSW version of “Drunk Walk Home” is still pretty great, though: