Foreign tax evasion explained

(File)
(File)

A leak of 11.5 million documents from a Panama law firm has revealed tax secrets of the rich and powerful, and New Zealand has been found to be right in the middle of the offshore trust network.

World leaders including Russian president Vladimir Putin and Syrian president Bashar al-Assad have been linked to the loop-hole evasion schemes.

But what does this enigmatic no-tax-game entail and what does it mean for New Zealand to have been named a player in it?

Auckland University of Technology senior lecturer in taxation Dr Ranjana Gupta says a developed country shouldn't be sheltering residents of other countries from tax or support them in evasion.

But if there is a clamp-down on foreign trusts in New Zealand, she says Inland Revenue will certainly lose tax revenue on the income of law firms here which manage and act as trustees for big foreign trusts. 

"Compared to most other OECD [Organisation for Economic Cooperation and Development] countries, New Zealand resident trustees of foreign trusts are not subject to detailed information disclosure and record-keeping requirements.

"They are not required to provide certain information to Inland Revenue, or to keep financial records for the trusts in New Zealand," says Dr Gupta.

She says this must change. International co-operation and information sharing with relevant countries may help.

To avoid prosecution, New Zealand needs to make its tax laws fair and transparent.

"New Zealand has signed for OECD automatic exchange of financial account information, effective from September 2018, and this will ensure consistent application and co-operation."

Newshub.