NZ - The Un(der)-Regulated Offshore Centre

"Smile and Wave" Key seems to have opened the front door for back office fund administration. Not gold plated sexy fund management as such, but accounting and number crunching most of which would be perfectly suited for Philippines and Indian outsourcing.

Tell me where right now would NZ even have 3-4,000 people with funds experience but not enough experience to be too expensive? I smell an excellent opportunity really for foreign labour, under 30 working holidays for young, keen trainable professionals incoming. There are not 3-4,000 people sitting on the dole with appropriate skills. Like Ireland, NZ would have to import labour and at the head of the queue would be financially and computer literate and very cheap Philippines and Indians. New Zealanders heading to Ireland were considered such a cheap source of labour. NZ's would have to be even cheaper.

The natural extension of changing a few laws to make this attractive to the offshore clientele is to tinker with a bit more and make NZ a fully fledged offshore centre.

Bernard Hickey's already ignored the journalistic euphoria for "Smile and Wave" and astutely pointed out the boom for tax lawyers and accountants in the Funds administration plan which no doubt will allow for tax loopholes for wider planning. He's disgusted with the thought. I like it when Bernard is disgusted as it is a truly awesome sight as whether you agree with him or not, he usually makes an actual good point.

But how far are we already there? And how does NZ regulation compare with a true offshore centre/"tax haven"?

Let me illustrate with the Cook Islands and the current NZ company, Limited Partnership and trust regime. I like the compare and contrast as New Zealanders have traditionally viewed the Cooks in "Winebox" terms and as a "sunny place for shady activity". But how does NZ stack up on the legal and regulatory front?

COOK ISLANDS

Corporate directors allowed
Corporate shareholders allowed
Advantage of company registered as an international company and having no tax in Cooks if no business there
Companies are registered and all pay an annual government fee

Trustees are all licensed
Trust law has advanced asset protection features for creditor protection, estate and matrimonial issues
Favoured jurisdiction of Americans acting through specialised US tax attorneys declaring their grantor trust to the IRS legitimately so not for tax avoidance reasons, but asset protection
Trustees based and licensed in Cooks
Settlor and beneficiaries cannot be Cook Islanders
Trusts not taxed in Cooks
Trusts are all registered and pay an annual fee
Legislation tested and reputation enhanced by courts upholding asset protection attacks from US courts

All trust companies and registered agents are licensed
"Fit and proper" tests applied to principals of the trustee companies
History of revocation of licenses for non-compliance
Annual FIU inspection
Annual FSC physical inspection of files and due diligence
Banking fully licensed
Rigorous FATF inspections since removal of blacklisting
Educated population of professionals many traditionally coming from NZ tertiary training
NZ politicians seem to be over there all the time for "holidays" or business

NEW ZEALAND

Easy online incorporation
Corporate directors not allowed
Any individual worldwide can be director of as many companies as they like including nominees
Corporate shareholders allowed
Promoted as no tax in NZ if no business there*
Favoured jurisdiction of Russians and Eastern Europeans on guise of double tax treaty use and NZ OECD status.
In blunt reality many don't declare the income in NZ or their home country.
Increasing amount of Russian professionals setting up professional business in NZ for this purpose.
Followed closely by Chinese.
Both groups of people renowned for not providing due diligence when asked and using nominees

Limited Partnership regime
Allows "look through" where tax paid on receipt of income in the hands of the recipient therefore NZ tax may not be payable if recipient partner is non-resident and income foreign sourced.

Approved issuer levy where non-residents pay 2% levy on interest earned compared with NZ residents who pay a rate of around 10 to 18 times than that in RWT. Contributes to "Japanese Housewife" inflows that allegedly distort the exchange rate

Trustees are not licensed but accountants and lawyers qualify as agents
Trust law does not yet have advanced asset protection features
NZ Foreign Trust regime used (as opposed to the less advantageous NZ Qualifying Trust for NZ tax residents)
Trustees based in NZ
Must submit to IRD just the basics of the name of trust, NZ agent and whether it has an Australian settlor
No annual fee collected by IRD
Settlor and beneficiaries cannot be New Zealand tax resident
I have seen more dubious practitioners selling these trusts however to NZ tax resident people either using a declaration of trust or simply a nominee from outside NZ
Trusts not taxed in NZ, only on NZ based assets.
Double tax treaties and agreements used in order to advantage clients. Plenty of clients however do not declare the trust in their home jurisdiction.

No licensing regime for trustees or registered agent/office/company secretarial function
No annual FIU or similar inspection
No annual FSC or similar inspection of all files and due diligence (passport, address proof, KYC docs) and enhanced due diligence
Companies Office oversees company registration
Outed recently when NZ companies used in Arms deals in North Korea
Banking fully licensed yet limited effective anti-money laundering legislation and mandatory reporting in the industry

Offshore Finance Company regime is currently un(der)regulated and allows quasi-banks to be set up using NZ legislation. Used again by Russians white labelling bank accounts through the NZ licensed banks such as ANZ and National Bank. Truly the dodgiest New Zealand legislated "finance company" of the lot, these beasts.
Outed recently on Fair Go of all places.

FATF inspections but NZ granted OECD status so always gets off easy

*promoters confuse/lie about NZ companies being tax free. NZ companies are taxed on their worldwide income. There is a special purpose company regime where NZ companies are set up solely to act as trustee then they are tax free but that doesn't generally apply.

So of the two countries, NZ and the Cook Islands I ask you which currently has a better regulated regime? Which should have more credibility as a financial centre?

NZ's lax regulation and stodgy, sporadic approach to legislative reform in my view makes it the perfect offshore centre. Perfect for the crims. Against any jurisdiction I've been involved with and dealt with regulators directly, NZ measures up badly at present.

I consider the Cook Islands in the year 2010 to be one of if not the MOST heavily regulated jurisdiction in the offshore world. It has the most active regulators and highest practice standards in terms of review of due diligence KYC information of any jurisdiction I have come across.

So much so it's at the Jersey/Guernsey point of strangling itself in red tape but it has had to since blacklisting and then removal from the blacklist.

FIGJAM Power and "Smile and Wave" have a hell of a long way to go before administration of funds can even be looked at. FIGJAM has to either sort out regulation in NZ's own current industry to a standard even close to the Cooks, or give up completely, suggest tinkering with the legislation and let's make NZ a true offshore centre and clip the ticket properly in terms of annual fees and employment opportunities that are more imaginative than being a backoffice 'hub" for Funds.

Of course residents paying 38 cents in the dollar may not appreciate this so I'm thinking as a natural progression of tax competition, these proposed changes must bring down the tax rates to make NZ closer to a true "tax haven".

So tell me, how fair is it on NZ tax residents to be paying even 30 cents top tax rate when the rest of the world is currently going hammer and tongs in using NZ as a legitimate place in which to avoid paying taxes altogether? And Parliament's intent has been clearly to introduce and allow this to happen?

Because at present NZ is shaping up as a great financial centre just one NOT to be tax resident of.

"Tax Reality" for Mangrove Nash

New Zealanders are not getting a fair deal when it comes to paying tax when NZ legislation is currently being used to legitimately avoid or minimalise paying taxes all round the world.

Legislation I must add, ironically and rather sweetly Helen Clark's successive Labour governments have had a major hand in introducing.