An article ran in the New Zealand Herald recently that claimed New Zealand was becoming a tax haven country. Tax havens are used by wealthy foreigners in order to dodge domestic taxes. The article addressed foreign trusts as the source of the tax haven problem. Trusts are a financial arrangement that allows a wealthy individual to avoid even more tax by transferring wealth to a third-party bank before passing it on to beneficiaries. While the wealth is with the bank, the money is managed in order to increase or maintain its value.
The claim is that foreigners are setting up trusts in New Zealand in order to dodge taxes at home. There was quite a reaction to the article as citizens of the island nation were not happy to learn about New Zealand’s new status. But a rebuttal article was quickly written by trust lawyer Geoffrey Cone of Cone Marshall in Auckland.
Cone claims that New Zealand is not a tax haven. In the article, he illustrates three reasons why:
New Zealand’s Own Tax Structure
Tax haven countries do not enforce many taxes, if any at all. This entices foreigners who are looking to dodge taxes because they get to keep more of their assets. Cone points to the fact that New Zealand has a fairly robust tax system and levees taxes on foreign trusts.
In fact, New Zealand is a democratic socialist government with a fairly high worldwide tax rate. The government is based on helping the average person and does no favors for the wealthy in order to provide a high standard of living for all its citizens.
New Zealand’s Banking Regulations
The government of New Zealand enforces strict regulation in the banking industry. They do this in order to prevent banking meltdowns as seen in the United States in 2008. The government also enforces regulation to protect the common person from dangerous banking practices.
It is this regulation that scares away wealthy individuals looking to hide money. The shadow banking industry does not exist in New Zealand and that is essential for someone looking to avoid tax.
New Zealand’s International Communication
A person looking to set up a foreign trust in New Zealand must fill out paperwork in English to be submitted to the New Zealand government. This lets the government of New Zealand know exactly where a foreigner’s money is kept at all times.
With a record of the foreigners trust in hand, New Zealand is eager to communicate with any government investigating one of its own citizens. Wealthy individuals will avoid New Zealand if they are looking to hide money because their own government can find it rather easily.
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