A Turning Point for tax evaders in New Zealand?

The 3rd of March 2017 may well be remembered for the beginning of the end for corporate tax evasion in New Zealand, as the revenue minister announced proposals to mitigate the profit shifting practices of multinational corporations in New Zealand. In truth this is a grudging measure, and only involves a consultation proposal, timed to coincide with the OECD measures known as BEPS. Since there is an election here in September it is very unlikely that the current government will pass any legislation before then, and a new government might have more pressing matters. In any case, based on media reports of the proposal it seems that there will not an actual measure against profit-shifting itself.

These corporate tax avoidance proposals come soon after legislation was finally passed to change the trust law. It is getting on for a year since people in this country were finally informed that a tax haven operation was functioning here, designed for the ‘foreign settlors’ of New Zealand trusts. The category of a ‘foreign trust’ could have been removed overnight, after the Shewan review last year, if the National Government had been at all worried about the tax haven operation. But the then leader, John Key, had actually wanted to create a fully-fledged tax haven, only he called it an ‘international financial hub’. Key also had his own legal advisor, Ken Whitney, offering trust company services, and made the absurd claim that there was already full disclosure of trust information to the revenue department. The new legislation apparently does ensure that the New Zealand IRD, and foreign tax authorities, will now get all the information they need. But there is to be no public register of these foreign trusts when the other measures are to be introduced in June.

The news media like to take credit for exposing the trust law issues, that actually date back to the 1980s, and revealing that there was a tax haven here all along. In fact, the media utterly failed to inform the public of this, even though some of the business journalists knew well enough, as did many tax lawyers and legal academics. The media were also not interested when I showed them documents from the New Zealand Treasury, from their archived tax policy files, that indicated they knew that a tax haven operation could result from the trust law change but they went ahead anyway. If the Panama Papers had not been leaked nothing would have changed, and only a few journalists actually got to see the original Mossack Fonseca documents. Of those that did only the public broadcaster, RNZ, have kept tabs on the Panama Papers and the links with certain New Zealand players such as Bentleys. Indeed, RNZ led news bulletins this morning with a story about how Mossack Fonseca had severed its links with Bentleys, meaning the Orion Trust would no longer function. The story then went on to quote another trust industry player, Roger Taylor, with the usual line that most of the other foreign trusts were legitimate anyway. Yeah right, as we like to say here, but it was extraordinary to have two tax stories run at the same time.

Yet neither of these stories actually used the term tax haven, even though it was central to both, including the profit-shifting by multinational corporations to their subsidiaries in the Caribbean tax havens. As Richard Murphy has pointed out in his new book Dirty Secrets, first world countries don’t like to think that they have tax haven operations within their orbit, whether that includes the Channel Islands or states like Delaware. The fact that he refers to New Zealand as having a “thriving trust industry” is good, at least since writers in the northern hemisphere have not really noticed developments down here, despite the Pacific being fully integrated in the offshore world. Murphy is of course the founder of the Tax Justice Network, and an academic in London, with a quirky blog in which he now spends a lot of time attacking Jeremy Corbyn. Dirty Secrets is also a bit of a rush job, as it desperately needed more time with the editor given some obvious copy-editing errors.

Nonetheless, Murphy’s book ties together the aspects of the tax haven world, and those parts that are usually portrayed as legitimate, as well as the money launder structures that flourish in just the same way. As with other experts in the field, Murphy reminds us that the key part of the offshore world is secrecy and the use of shell companies, with nominee directors and shareholders, who have no idea what the real owners and beneficiaries are doing with the companies. These companies don’t usually prepare accounts, and, as I’ve noted before, in New Zealand they often file ‘non-activity’ declarations year after year. The key point is that the tax authorities and company office bureaucrats don’t ask questions, until some legal dispute occurs as in the Jho Low situation. I’ve found another interesting example of legal difficulties providing an insight into a shell company, this time created by the Taylor family, whose GT Group and ST Trading companies came to light in 2009 after some dodgy arms trading was linked to their shell companies.

Loan Consulting Ltd was a shell company set up by Michael Taylor (NZCI Ltd), who seems to have been the only Taylor actually resident in New Zealand. The only director of Loan Consulting Ltd was Nesita Manceau, a Philippino woman who worked for the Taylors in Vanuatu, and was perfect as a nominee director. She appears many times in the Panama Papers, and was then the unfortunate victim of media attention last year. Loan Consulting’s shareholder was Enviro (NZ) Ltd, which had been set by with a Vanuatu-based director, but became the Ukrainian Trust Ltd in 2014 (The Enviro name is now used by another group of ex-pats based in Hong Kong). But Loan Consulting Ltd did not last long, it was removed from the register in June 2011, as was Enviro (NZ) Ltd. Both were then restored to the Company Register in January 2014 due to the appointment of a liquidator (and while the liquidation process was underway Enviro became Ukrainian Trust Ltd). The first of the Insolvency Documents is interesting for Loan Consulting Ltd: “the Company is incorporated in New Zealand, managed from Vanuatu and operated in Europe as an offshore trust.” Now, in between 2011 and 2014 most of the Taylor Group companies had been struck off, but it seems these particular companies had held deposits with the Akcine Bendrove Bank Snoras, in Lithuania. This bank had been bankrupted, and was nationalised by the Lithuanian government. The bank’s chairman, a Russian, Vladimir Antonov, had once owned Portsmouth F.C., but then had to fight extradition from England to Lithuania.

Anyway, the point in highlighting Loan Consulting Ltd, and the Ukrainian Trust Ltd, was that the liquidator did actually get some funds back from Lithuania’s Deposit and Investment Insurance facility, via an ‘overseas based subsidiary’. There seems to have been an initial distribution to shareholders and creditors. But the liquidator’s report for the Ukrainian Trust states that the distribution to the shareholder (apparently named Charlie Kalopungi) was returned by the beneficiary bank, perhaps due to money laundering concerns. Further reports indicated that the shareholder was reluctant to provide company records to make the required tax returns, for both companies, and this comment has been repeated in 6-monthly reports to the Companies Office to this year, the latest one for Loan Consulting Ltd being listed as of yesterday. So it seems that the Taylors want to avoid the tax authorities even when the payment was in their favour, given the secrecy required by their clients. From the Panama Papers database we can see that these clients appear to be Russian, or East European, which seems to be fashionable at the moment in the West, especially with their links to Cyprus banks and trust companies.

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