The Panama Papers and New Zealand - 04/07/2016

Opinion: NZ needs to get out of the cycle of corrupt money

In 2012, the Sunday Star Times wrote about John Key’s plans to make New Zealand a financial services hub – a plan that would have seen taxpayer money used to lure big banks here.

Dita de Boni

TVNZ,

7 April, 2016

As reported by Matt Nippert, the plan first of all was that foreign investors who put their money into international-based funds here in New Zealand would pay zero tax. The plan then grew into “an ambitious plan to compete directly with tax havens Luxembourg, the Cayman Islands and Ireland to host international funds investing in the Asia-Pacific region”.

The plans were scrapped when the Government realised the public probably wouldn’t stomach offering taxpayer-funded incentives to large banks to come and do business here – creating the princely sum of just one or two dozen jobs in the process.

On the face of it, this scheme, which was canned soon after realistic costings were prepared by Treasury, has no direct link to this week’s blockbuster ‘Panama Papers’ revelations.

The current revelations concern the Panamanian law firm Mossack Fonseca, and the way the firm facilitated the funnelling of wealth into secretive offshore funds around the world, across the Pacific, and into some of New Zealand’s more than 12,000 offshore trusts.

But it does illustrate clearly why our Government has fought to ensure it is able to house these trusts – trusts that pay no tax, don’t register their beneficiaries, and don’t file their accounts. It believes that this trade is somehow beneficial to the New Zealand economy..

Beneficial to the New Zealand economy, it seems, and by that logic, completely fine. The current Government does not understand, or simply rejects, the idea that housing the wealth of the global elite is an immoral activity.

It prefers to bash beneficiaries than trust fund babies – or their enablers.

Knowing that it’s a complex subject that many might not care about, we’re being fobbed off with some truly absurd statements. It is true, for example, that the system was established by a Labour Government and maintained through many years of Labour rule. True, and baffling, but not really relevant in 2016.

The charge that the practice of creating offshore trusts isn’t illegal is true, but no one is under any illusion about these trusts, especially someone who had a career in finance like John Key.

They are, at the least, vehicles that allow people to avoid paying tax. At worst, they provide cover for of all sorts of criminal activity – industrial-scale drugs and arms dealing, money laundering, extortion and so forth.

That is why other countries have moved to tighten the rules around them.

We’ve fought efforts to change. In effect our system acts as a tax haven, despite the barking-mad assertion that New Zealand is “not a tax haven”.

That might not be so bad as it relates to the Energy Minister and Prime Minister’s chief of staff of Malta, who both opened Panamanian companies and sheltered them in New Zealand trusts (although both men are being pressured to resign in Malta).

'There's something big going on here and it's not good for NZ' - tax haven leaks spark dismay

But as it relates to the leaders of struggling African states, members of the Assad family, members of the Iraqi ruling elite, members of the some of the poorest and most corrupt countries on earth, or members of some of the most financially unequal countries on earth – including some which are our ‘friends’ - there is most certainly a problem.

It’s all part of the same picture, of a corrupt grab for resources that is completely out of control. It’s a picture that begins with obscene wealth and at its end, sees war, hunger, violence and death.

On a mild scale perhaps, but New Zealand is participating in perpetuating this cycle. We need to top.

Panama tax rort stirs world leaders but not Key

By: SIMON LOUISSON

the Standard

7 April, 2016

Contrast John Key’s response to revelations in the “Panama Papers” tax evasion scandal to that of most leaders and you understand where the prime minister and National stand on tax and a fair society.

Key’s response was to state that New Zealand has a “robust, legitimate tax regime that requires foreigners to fully disclose”. Nothing needs to change.

As was soon revealed, full disclosure was not only a very economical version of the truth (disclosure did not extend to financial disclosure for example), but exposed Key and National as content to do nothing to prevent multinationals and foreign entities ripping off the New Zealand tax base, to say nothing of swindlers, crooks, money launderers and the mafia using our deregulated, lax laws for nefarious purposes.

US President Barack Obama ordered Treasury and Congress to investigate ways and means to prevent companies setting up offshore shelf companies to avoid tax.

He noted that “a lot of it is legal, but that’s exactly the problem.”

It’s not that they are breaking the laws, it’s that the laws are so poorly designed that they allow people, if they have enough lawyers and caveats, to wriggle out of responsibilities that ordinary citizens are having to abide by.”

People had to know that the wealthy weren’t playing by a different set of rules and not gaming the system, he said.

Tax avoidance is a big global problem. Lost revenue has to be made up somewhere.”

Whether or not Treasury or Congress actions are effective, at least Obama recognises the issues.

Leaders of France, Spain, Austria and the Netherlands also pledged their governments would investigate the shady offshore trust business revealed in the leaks of Panama-based law firm Mossack Fonseca.

Meanwhile, Key denied the “Panama Papers” had embarrassed his Government or created a reputational risk for New Zealand.

New Zealand was a signatory to international tax treaties which allowed information exchanged between jurisdictions and a review of New Zealand’s foreign trust rules by the OECD in 2013 gave New Zealand a “clear bill of health”, he said.

The $24 million of fees generated annually made our lax tax regime worthwhile.

He also denied New Zealand was a tax haven.

Despite this, Inland Revenue warned in 2013 that New Zealand’s foreign trusts posed a reputational risk, adding that “our foreign trust rules continue to attract criticism including claims that New Zealand is now a tax haven in respect of trusts.”

It specifically warmed that New Zealand tax rules were a mismatch with other countries, even where there were doubled tax agreements, which, “may result in income not being taxed either in New Zealand or offshore.”

Use of NZ Trusts

The Panama Papers, the leak of over 11 million Mossack Fonseca documents, reveal New Zealand-based trusts have been used by clients of that firm, many of whom have used the murky route for money laundering, tax dodging and other illegal purposes.

Owning an offshore company or trust, is not illegal, but the Panama Papers reveal that concealing the identities of the true company owners was the primary aim in the vast majority of cases of the 214,000 entities leaked. Criminals, mafia groups, drug barons, human traffickers, oligarchs, highly ranked officials of some governments, have all been shown to be involved.

One New Zealand trust used by Maltese government minister Konrad Mizzi was one of nearly 12,000 foreign trusts in New Zealand, most of which do not pay tax on foreign income.

The “full disclosure” John Key claims for New Zealand trusts, amounts to registering the name of the trust and providing the name of the New Zealand trustee, usually a professional nominee who is adept at being economical with the truth if you can ever contact them.

IRD powers very limited

Further information, such as settlements and distributions, can legally be requested by IRD and passed on to one of 40 nations where New Zealand has double tax agreements (plus 11 others which have information sharing agreements), but IRD has to have reason to suspect before requesting such information. In practice, that just doesn’t happen. And if the trustees come from some murky jurisdiction outside the 51 above, then IRD is whistling in the wind.

University of Auckland Law Professor, Michael Littlewood, said IRD’s ability to collect information is very limited. With the exception of Australian residents, the trustee of New Zealand foreign trusts did not have to disclose the identities of the people putting assets into the trusts, where they come from, what the assets were, or their value, or who benefitted from them.

“As currently provided for, they (the disclosure requirements) are woefully inadequate.”

The do nothing option

Initially, Revenue Minister Michael Woodhouse ruled out any changes, saying New Zealand had “world-class” tax rules but as the revelations of the Panama Papers gained traction, amended his position to stating, “the Government wouldn’t rule out changes”.

However, instead of taking the initiative, he said the government would await OECD-led reform.

Woodhouse’s predecessor, Todd McClay, sought advice following the IRD’s 2013 warning of reputational damage, but was put off because “it would require a lot of hard work” and “the argument was, ‘was it worth it in terms of all the other issues on the IRD work programme?’.”

Multinationals’ tax avoidance even more damaging

A similar, and more financially damaging, fiddling-while-Rome-burns attitude has been taken in respect to multinationals like Facebook, Apple, McDonalds, and Coke rorting different tax rates around the world so they play virtually no tax here or anywhere else.

Law Professor Craig Elliffe, author of the book International and Cross Border Taxation in New Zealand, said 20 top multinationals paid just $1.8 million of tax on over $10 billion in turnover. Even John Key didn’t think that was totally fair, he said.

Former Google chief executive Eric Schmidt infamously defended such accounting tricks that had allowed it to funnel billions of dollars of profits to Bermuda each year, saying it was “called capitalism”.

When the OECD surprised the world by rapidly coming up with a set recommendations on its Beps (Base Erosion Profit Sharing) project to prevent avoidance of an estimated US$100 billion to $240b of corporation tax by the likes of Google, McClay promised that New Zealand would implement these before the end of this year.

Answering questions about how the legislation was progressing, current Revenue Minister Woodhouse pointed to the legislation introduced in November covering GST on online purchases.

This was an important first step in the government’s efforts to deal with increasing volumes of online services and other intangibles purchased from overseas suppliers, he told The Standard.

“Consultation had also been undertaken to seek feedback on proposals to strengthen our non-resident withholding tax rules which currently could provide the ability for non-residents to shift profits out of New Zealand with no or minimal New Zealand tax paid.

“Feedback from the public has been analysed and considered and I expect to introduce legislation on this matter in the near future,” he said.

“I would note that the most effective way to ensure that multinationals cannot exploit differences in tax rules lies in ensuring that there is consistency between jurisdictions. If there is little difference between tax rules, then profit shifting becomes pointless. And that is why we have committed to an OECD led, global response to this global problem.” Woodhouse said.

He told The Standard that a strong network of double tax agreements, tax information exchange agreements and such agreements were crucial in getting multinationals to pay their fair whack of tax.

Double tax agreements actually a threat

Prof Elliffe said such treaties were actually “the most significant threat because they are being used in a way that significantly reduces the ability of New Zealand to tax New Zealand-sourced business profits.”

New Zealand only had the right to tax these profits when a foreign multinational operates through what is known as a “permanent establishment” in New Zealand.

“At the heart of the problem is that some multinationals can operate without triggering a tax liability due to the way in which they can step around the taxation of business profits using (legitimately) these permanent establishment provisions of double tax agreements,” Elliffe says.

This is because they can sell or deliver their goods online and have them delivered without breaching the permanent establishment threshold.

Elliffe says that many multinational have structured their affairs so that double tax treaties are “creating a situation of double non-taxation”.

He suggested New Zealand should follow the example of Australia and the UK which had enacted measures of “unilateral legislation treaty override” which means that where a multinational abuses the intent of tax laws or treaties, they will have to pay up anyway.

However Woodhouse dresses the measures the government is considering, they appear to fall far short of dealing with the issues of full disclosure of foreign trusts, or of multinationals having billions of dollars of sales with commensurate profits in New Zealand and paying next to next to no tax.

The lack of intent to act comes down to ideology – that tax is anathema to the Right. The less tax the better and therefore the idea of closing tax loopholes at the bottom of National’s agenda.

John Key’s background was with the now defunct bank Merrill Lynch, which like other US investment banks, was instrumental in designing aggressive tax avoidance plans. Many in National’s constituency will be using offshore trusts and aggressive tax planning to minimize their tax. Why would he act to stop such behaviour?

(Simon Louisson formerly worked for The Wall Street Journal, NZPA, Reuters and was most recently a political and media adviser to the Green Party)

Shrugging-Off The Panama Papers

Chris Trotter

"... What? ...": John Key, when asked which secret trusts were being used for tax dodging, hiding stolen assets and/or laundering money, responded with a nonchalant shrug of his shoulders.

Bowalley Road

7 April, 2016

THE PANAMA PAPERS have elicited a remarkably low key response from the Prime Minister. The Labour Leader, Andrew Little, has described how John Key, when asked which secret trusts were being used for tax dodging, hiding stolen assets and/or laundering money, responded with a nonchalant shrug of his shoulders. The day before, when challenged about the potential damage to New Zealand’s reputation – now that we’ve been fingered as a simply dandy spot for masking the millions of Mossack Fonseca’s clients – John Key told journalists that there were many, perfectly legitimate, reasons why a foreign investor might park his money in New Zealand, adding that it was quite wrong to call his country a “tax haven”.

Key’s “ … what? …” reaction to the colossal data leak which has already claimed the scalp of one prime minister and put the careers of many other world leaders at risk is rather perplexing. Is he not able to predict the impact the Panama Papers are bound to have on the privileged privacy of the global elites? How the 11 million-plus documents are going to be used to prise open the lid of one of the biggest cans of plutocratic worms the world has ever seen. Why doesn’t he get it?

There are 55 million answers to that question. For a long time now John Key’s fortune has dulled his otherwise acute political judgement. Six years ago, in May 2010, Key’s government came under heavy criticism for tax cuts conferring huge windfalls of cash upon the wealthiest New Zealanders. Not yet two years into the job, he struggled to grasp the motivation for his critics’ outrage.

“We can be envious about these things”, purred the Prime Minister, “but without those people in our economy all the rest of us will either have less people paying tax or fundamentally less services that they provide.”

Seldom has so much of the mythology of the very rich been packed into a single sentence.

First comes the notion that his fellow citizens’ reaction to his government’s massive transfer of wealth from the poorest to the wealthiest members of their society is motivated not by their keen sense of its manifest injustice, but by simple, old-fashioned envy.

Then comes the argument that without such regular transfusions of cold hard cash, the very rich will simply up-stakes and leave for a more congenial jurisdiction. Somewhere that makes them feel welcome – not like lepers.

Finally, Key goes for the clincher. The notion that it is the energy and drive, the wisdom and skill, and the hard-earned cash of wealthy entrepreneurs that provides the rest of us “parasites” with the goods and services that we are simply too stupid and/or lazy to provide for ourselves.

Ayn Rand couldn’t have put it better.

In the light of this earlier demonstration of Key’s deep belief in the superiority of the very rich; and in the very different measures that must be taken of their needs and deeds; should we really be surprised when he struggles to understand exactly what the persons exposed by the Panama Papers have done wrong?

If you believed as strongly as John Key does that the very rich are better than you and me; and subject to a very different set of rules; then you would probably shrug-off the Panama Papers too.

Key wants to turn New Zealand into a haven for the 1%

the Standard

29 March, 2016

There was an interesting article by Fran O’Sullivan in last weekend’s Herald about John Key’s ambitions for New Zealand. O’Sullivan may not be liked by some lefties but she writes perceptively and provides insight into National Party thinking that no other journalist does.

The headline suggests that Key wants to make New Zealand the Switzerland of the South but a closer reading shows that he does not want to make it a place where everyone is prosperous, educated and healthy. Rather he wants to make New Zealand a bolt hole for the overseas rich.

From the article:

John Key is positioning New Zealand as an Asia-Pacific “Switzerland” – a beautiful and wealthy bolthole for high net-worthers seeking to escape from an unstable world.

Key believes that free-flowing terrorism is here to stay. To the Prime Minister, this simply makes New Zealand more attractive and will result in more high net-worth consumers wanting to come here – a theme he is developing in business briefings.

There is another strand to this developing Key mantra.

He is frankly unapologetic about the massive increase in Auckland residential property values, which has resulted in many established Aucklanders becoming relatively rich, but younger people being locked out of the market. It is a trend which is not going to stop anytime soon, given the immigration figures.

So Key wants to attract more wealthy people to New Zealand as the rest of the world implodes. This explains his utter indifference to climate change and why he wants everyone to get some guts and make the Middle East even more unstable. They present business opportunities, not threats. As the centre of the world cooks and the north implodes from the pressure of millions seeking a new home, rich people flooding south to New Zealand’s green and pleasant land will make us richer, or at least those of us who already own land. As for the rest clearly they are poor and undeserving. Tough luck if you are young or working class or both.

O’Sullivan also discusses Key’s reticence to make overseas multinational corporations pay their fair share of tax and thinks that this is intentional.

One of Switzerland’s attractions is its taxation environment and its strict secrecy laws, which until recently have enabled rich people’s investments to be squirrelled away in its banks, safe from the reprisals of revenue officials.

New Zealand does not compete on that score. But it is notable that one of the reasons why New Zealand has yet to follow Australia and bring in rigorous laws to clamp down on multinationals which are not paying significant tax here is because this country is competing for investment.

The Key Government is proceeding at a very slow pace indeed, which is rattling New Zealand businessmen like Spark CEO Simon Moutter, who is adamant that it is unfair to local companies that they have to compete against offshore players who have a tax advantage.

This is undoubtedly a pressure point. There is a growing perception that New Zealand domiciled companies are getting an unfair shake while international investors are offered incentives or have the rules cut in their favour to invest here.

Obviously we need the money from those overseas corporations and not requiring them to pay tax is a small price to pay, at least as far as Key is concerned. He wants to attract this sort of investment, not scare it away. Forgoing $500 million a year is clearly a small price to pay.

More than any other article this one explains what John Key wants to achieve in politics. He is a bit of a laugh, he is fine about socially liberal things as long as they do not go too far, he is a monarchist but will propose a flag change to show that he is relaxed about the constitution. He is fun to have a beer with, he will welcome selfies with drag queens and support the occasional greenwash policy to make sure that his environmental credentials are not too badly tarnished.

But his role in politics is to look after the 1%.

From Hon. Winston Peters

The PM remained true to form in Parliament today.

As the rest of his Ministers buried their heads in shame over the exposure of NZ as a haven for anyone dodging taxes and washing their dirty money, the PM resorted to smart quips to deflect questions.

Here’s typical John Key answers given to reporters and Parliament, which he repeated over and over.

“I have no idea, ask them.”

“I’m right, they’re wrong.”

“They’re incorrect.”

“Because I’m right.”

The PM just can’t defend what commentators and the Panama Papers say.

They show all manner of personalities and businesses using NZ as a tax haven.

Foreign trusts in NZ have increased over 300 per cent in 7 years under Mr Key.

Treasury, Ministry of Business, tax experts and international commentators all say that our tax haven reputation is sadly true. Mr Key denies all this in the face of overwhelming evidence.

The question is, who do you believe?

Andrew Little just smashed it in Parliament!National's only looking out for their mega-wealthy mates — we're looking out for everyone else.
Posted by New Zealand Labour Party on Tuesday, 5 April 2016