Description
A New Zealand Foreign Trust (the trust) is established by a New Zealand based promoter with a settlor which is an entity that is not a resident of New Zealand. To date we have identified trusts being settled in countries such as the Republic of Panama, Samoa, Vanuatu and Hong Kong. However, this may be replicated in other jurisdictions. 2. The trust may be: • administered by a trustee which is either the promoter, an associate of the promoter or a New Zealand company in which the promoter or an associate holds a controlling interest. "Controlling interest" includes, but is not limited to, a direct or indirect shareholding in the company; • represented in Australia by an Australian resident who is associated with the promoter. The trustee may grant a General Power of Attorney to the Australian resident; and/or • registered for GST in Australia and lodge Business Activity Statements (BAS). 3. A business located and operating in Australia (the Australian business), which is ultimately controlled by an Australian individual, enters into an agreement with the trust under which the trust provides resources or services to the Australian business. This may include staff, business equipment or motor vehicles, and/or services such as administration. Refer (a) in Diagram 1 . 4. The fees paid by the Australian business for the provision of resources or services may include a "mark up" (typically of 20-30% above cost) and are deposited into a bank account of the trust. The income is not reported or assessed in Australia or New Zealand for tax purposes. Refer (b) in Diagram 1 . 5. The funds deposited into the bank account may be used to pay for expenses relating to the resources provided under the agreement (e.g. wages) or to pay expenses of the Australian business on its behalf. Refer (d) in Diagram 1 . 6. As an alternative to depositing the mark up into the bank account, the mark up may instead be transferred offshore to the promoter, after which the Australian business, or its owner or associates, appear to have the benefit of the funds. For example, the funds may be "loaned" back to the owner on non-commercial terms with no interest or principal repayments made, or the owner may, by some other means, have direct or indirect access to the funds. The mark up is not reported or assessed in Australia or New Zealand for tax purposes. Refer (c) and (e) in Diagram 1 . 7. The Australian business claims a deduction for the fees and mark up (if any).
Under a service agreement, the trust engages an Australian individual to provide services (service provider), such as consultancy services, to the Australian business. These services may be provided in Australia or offshore. Refer (a) and (b) in Diagram 2 . 9. The fees paid for the services are deposited into a bank account of the trust. Refer (c) in Diagram 2 . 10. The service provider appears to have the benefit of the funds, e.g. they may have access to the funds in the bank account or the funds may be used to pay the service provider's expenses on their behalf. Refer (d) in Diagram 2 . 11. The income is not reported or assessed in Australia or New Zealand for tax purposes.