Trust Residence, Grantor Taxation and the Settlor Regime in New Zealand

Abstract

International trust taxation in New Zealand is dominated by the settlor regime under which the claim to tax accumulated trust income on a worldwide basis depends on the fiscal residence of the settlor. A trust entity is constituted by the trustees collectively, together with their right of access to trust assets, augmented by the agency obligations of a resident settlor. Although the statute avoids mention of trust residence, a trust is resident from an international and comparative viewpoint if the settlor nexus for worldwide taxation is satisfied. Analysis of historical material and the fiscal role of the settlor reveals a degree of tension between recognising the trust as economic agent for the settlor and statutory treatment of the settlor as agent for the trust. Comment is also made on the use of New Zealand as a tax haven.

Keywords: International trust taxation, trust residence, fiscal residence, New Zealand, settlor regime, grantor taxation, tax havens, tax avoidance, Panama Papers

JEL Classification: K10, K30, K33, K34