If New Zealand tax residents are using tax havens to avoid New Zealand tax - and such is disclosed in the Panama Papers - they can expect to be audited and there will be little sympathy for them, tax expert Scott Mason says.
Mr Mason, the managing principal for national accounting firm Crowe Horwath, told the Otago Daily Times New Zealand's tax base was not in jeopardy by the release yesterday of New Zealand's involvement in the Panama Papers.
If income was earned in New Zealand, tax was paid on it in New Zealand.
"On the other side of the equation, if foreign residents set up the trusts, it was a different beast. They are rorting the system and their governments and taxpayers are suffering.
"This is not a New Zealand issue.''
But Kiwis trying to avoid tax by hiding money offshore would be found.
About 61,000 documents were released yesterday by New Zealand media, outlining New Zealand's links to the Panama Papers and foreign trusts.
In the case of New Zealand, assets in the trusts could be anywhere in the world and Mr Mason gave an example of a trust in New Zealand being the registered owner of land and buildings in the United States.
The assets could be bonds, stocks or cash but it came down to the perversion of tax laws in other countries, not New Zealand, he said.
Labour leader Andrew Little and Green Party co-leader James Shaw both called for the widening of the inquiry into the use of foreign trusts but Mr Mason said they needed to be sure what they were asking for.
Foreign trusts were set up in New Zealand to encourage migration and they dealt with people coming to New Zealand with a trust. He was adamant the New Zealand tax system was doing its job.
The trust law was established on rules of residents being taxed. Most other jurisdictions had laws based on where the trustees lived. Trusts were set up in New Zealand with New Zealand trustees and were ``entirely neutral''.
"I assume all the trusts are complying with New Zealand law so what are the MPs wanting in an inquiry? There is a disclosure rule and I expect Inland Revenue shares information with other tax departments.
"New Zealand is not losing out on anything.''
Mr Mason was concerned about the damage to New Zealand's reputation as a place to do business but said a greater level of disclosure and the sharing of information by Inland Revenue could lessen the impact.
Crowe Horwath had never set up or administered foreign trusts. It came down to an issue of trust and Mr Mason was not confident of the overseas people establishing the trusts.
Mr Little said the Government must act to preserve New Zealand's reputation by shutting down the system, which had resulted in this country being implicated in a massive global network of tax avoidance.
The extent of New Zealand's involvement in Mossack Fonseca's tax avoidance network had become clear as more information showed the law firm promoted New Zealand as a place for the wealthy to avoid paying tax by parking money in secret trusts in New Zealand.
"On the face of it, there is little upside to these secret trusts but there is a lot of downside. New Zealand relies on its excellent global reputation as a good place to do business. It encourages the right investment and opens doors for our exporters.''
New Zealand could not afford to be seen as a tax haven, he said.
Mr Mason said it was his view New Zealand was not a tax haven.
Tax havens were generally considered to be tax jurisdictions where assets were transferred and holding companies established to enjoy a lower tax rate in that jurisdiction. New Zealand's tax rates were not low in an international context.
"The current foreign trust issue is simply a case of foreign individuals arbitraging different rules between states in terms of the tax residency of trusts, to reduce the overall tax on, and visibility of, assets/income outside of New Zealand. This is an issue for other countries, not New Zealand,'' he said.
