New International Tax Legislation

Under FATCA (Foreign Account Tax Compliance Act), adopted by New Zealand in 2014, the United States aims to detect and prevent tax evasion by US citizens and tax residents on their worldwide income from financial assets owned by an offshore entity, which they control e.g. a family trust or company settled/incorporated in New Zealand.

Additionally, from 1 July 2017, New Zealand endorsed the OECD’s standard Automatic Exchange of Financial Information in Tax matters (AEOI), which incorporates the Common Reporting Standard (CRS),a global version of FATCA. New Zealand is 1 of 101 OECD nations to have signed a multi-lateral agreement to combat offshore tax evasion on a global scale. All citizens of these countries are subject to the same level of tax scrutiny in New Zealand and the other member or participating countries, as are Americans under FATCA.

All entities (family trusts, companies and partnerships, but not individuals) have to comply with this legislation. Al professionals, such as ourselves, accountants, investment fund managers/advisors etc. needs to advise their “entity” clients of their obligations under this complex and far-reaching legislation.

Is your trust/company/partnership (“entity”) a Financial Institution under FATCA or CRS?

It is important to know whether or not your entity (trust, company, partnership) is either a Foreign Financial Institution (FFI) under FATCA or a Financial Institution (FI) under CRS, both or neither. If your entity is a FFI then it needs to register on the United States’ Internal Revenue Services (IRS) site. If your entity is a FI under CRS then when the IRD site is up and running next year, your entity will have to disclose to IRD all financial information and personal details for those trustees and beneficiaries who are residing overseas in one of the 100 other participating jurisdictions combating offshore tax evasion.

We are in the process of corresponding with all of our trust clients and providing them with a form to assist the trustees decide whether or not their trust has to register on the US site and ultimately, report to our IRD under CRS. If you are a trust client of ours, and you have not yet received this form, please contact us urgently.

Can this legislation be ignored?

Unfortunately, registration on the IRS site under FATCA is compulsory even if your trust is not “controlled” by any US tax resident or citizen, provided:

(a) It has some financial assets (shares, bonds, term deposits) managed by an investment advisor/fund manager OR an FFI, such as one of our corporate trustees is one of the trustees of your trust AND

(b) More than 50% of the trust’s gross income for the proceeding calendar year comes from financial assets (excluding rental from property).

Unfortunately, (b) above will be satisfied even if the only income-producing asset of the trust is a bank account which earns minimal interest. However, if the trust or other entity earns the majority of its income from residential rentals, it will not satisfy (b) above.
Once registered, no further personal information disclosure is needed, if there is no such “control” by a US tax resident or citizen. By contrast, registration on the IRD site under CRS is required only if your entity is “controlled” by anyone who resides overseas (but not the US).

What if my entity is not a FFI or FI?

If your entity is neither a FFI or FI then it will, by default, be a NFFE (Not a Foreign Financial Entity) or a NFE (Not a Financial Entity). As such, your entity will not have registration requirements, but may have reporting obligations to other FFI’s/FI’s such as a bank with which your entity has funds or an investment house/advisor with whom your entity has a share portfolio. Such institutions are in the process of sending, and will continue to send, to their customers/clients Self-Certification forms similar to those we are sending to our client trusts. If the completion of these forms conclude that your entity is a passive NFFE/NFE then it must, on request, disclose details of US and other overseas controlling persons to the entity’s bank or investment advisor etc., which report to IRD. If however, less than 50% of your entity’s gross income for the past calendar year is from passive income (including rental from property) then it will be deemed an active NFFE and will have no reporting obligations, even if it is “controlled” by a US or other overseas resident person.

These are complex matters, but compliance is mandatory with not unsubstantial fines able to be imposed on those who breach their obligations under this legislation.
Should you have any query regarding these matters and how they may affect your trust, company or partnership, then please consult with us because to ignore this legislation is clearly, not an option.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance, please contact Pat Rotherham at Parry Field Lawyers (348-8480) patrotherham@parryfield.com

This article is part of an Innovation Series by Andrew King for Lawfest NZ. This series interviews legal professionals with experience in innovation and technology in the legal sector. You can read more here.

An interview with Steven Moe, Senior Associate, Parry Field Lawyers

What has been your experience or interaction with legal innovation and technology?

I returned to New Zealand after 10 years working for an international law firm (Norton Rose Fulbright) where I was one of 3,800 lawyers in 55 offices. That role took me as a corporate lawyer to work for several years in each of Tokyo, London and Sydney. So I’ve seen first-hand how the biggest law firms operate and push the boundaries by adopting new technology and trying new things. On returning to New Zealand last year I was really keen to explore what that might look like here too. The context for that exploration has been keeping this great quote from Joshua Gan at the front of mind:

“Successful firms that are disrupted are not complacent or poorly managed. Instead, they continue on the path that brought them to success.”

What changes have you seen in your firm, team or organisation recently?

At the end of last year I got really tired of reading about disruption in every article but often with only speculation left as the takeaway about ‘what next’. So we investigated for ourselves what it might actually mean for a medium sized firm like ours (8 Partners, 40 staff). The direct result was this year taking concrete action and forming a joint venture company with software developers who had developed AI chat bots before. This software start-up has been a wild yet fun ride of learning and growth. It’s called Active Associate and it is developing an AI-enabled customer engagement solution for law firms. This solution is addressing some serious pain points for medium size firms such as a high amount of time spent on non-billable work and difficulties in maintaining a client base that can support their billable targets. Consumers are able to access the solution 24×7 via Facebook Messenger and ‘widgets’ on a firm’s website from their phones, tablets or laptops, and interact with it using natural language to get quick helpful answers to their legal questions. While helping future and current customers, the solution captures user information which can then be delivered to the law firm increasing workflow efficiencies and reducing the wasted time dealing with tire kickers. We’ve had a warm reception from forward-looking law firms in NZ and Australia who have already become our Innovation Partners and those that are about to join the Programme (we are open to a few more at this stage).

What challenges or barriers do you face when innovating or looking to use new tech?

Understanding what is hype and what is reality – it’s a grey mist you have to really squint to see through. For example the term “AI” conjures up images for some people of robots taking our jobs when for the foreseeable future it is better to think of it as a description for natural interaction with consumers.

What opportunities do you see with legal innovation?

The next generations are first going to turn to their phones before they walk through the physical doors of an imposing looking law firm. It will be critical for those law firms who want to survive that they prepare and are ready to interact with that next gen thinking.

With greater adoption of tech and more innovation, how do you see your role evolving in the future?

My hope is that we focus more on the true value add that we can offer as professionals and get less tied down with the routine tasks that none of us really enjoy.

LawFest is focused on innovation and tech in the legal profession, why do you think it’s important for legal professionals to attend an event like LawFest?

It’s vital to stay in touch with the latest trends and developments and LawFest offers a great opportunity to hear from the best innovators in the field. By having a representative attend they can then go back and challenge the assumptions and old ways of thinking that will doom a law firm to irrelevance by just continuing to do what has worked in the past.

The Financial Markets Authority has just released the first statistics relating to crowdfunding in New Zealand. It shows that beyond any doubt this is an option for people to consider in order to raise funds for their new venture. A compelling story and provable business case is all that may be necessary to raise the amounts needed to take a business to the next level.

Some of the key highlights that stood out to us are:

A total of $74.2 million in total was raised all by investor crowdfunding;
In relation to peer to peer lending there are 7 such entities registered and in the year ending 30 June 2017:

a) $259.9 million is currently loaned to individuals; and

b) $29.5 million loaned to businesses.

Interestingly the average value for new loans was just $8,771.

In relation to crowdfunding it is worth quoting the relevant part with the key statistics: “Of the eight licensed crowdfunding providers, 5 facilitated offers during the reporting period. There were a total of 50 offers, with 34 successfully meeting their funding target. 263 potential issuers were declined. 1,597 investors invested in crowdfunding for the first time, with 2,331 investing through the crowdfunding system in the year.”

That picture is consistent with something we have seen recently which is some social enterprises choosing to raise money in this way – for example Cultivate Christchurch with their “Broccoli Bonds” and Kilmarnock Enterprises with their crowdfunding campaign.

If you are looking to raise money for your venture then it is worth considering these options. Keep in mind as well the restrictions on seeking funding from others – for an overview on this see our other articles here.

For more information on the FMA’s announcement and the statistics they have published you can visit here.

Some fascinating research has just been released about not for profit boards which is well worth a look.

The work has been done by Dr Jo Cribb who has made the research available at no cost here. A good summary of the research is available in an article here.

The report is a timely reminder that we need to resource and better understand the needs of those serving on NFP boards. As the article notes, “For the thousands of New Zealand directors serving on the more than 100,000 not-for-profit (NFP) boards in New Zealand – that is an estimated one in 40 of us – being on the board is a labour of love.”

Some highlights identified in the article are the following:

“NFP board members generally had little training for their board role relying instead on the experience they bought to the table from other roles. Those interviewed would welcome opportunities for practical hand-on opportunities to learn, including mentoring from experienced directors.”
“A consistent strength of NFP governance was the board’s focus on achieving the NFP’s mission and vision. All boards interviewed were focused on achieving the best for those they served. We all should celebrate this dedication and determination.”
“The research also questions the role of New Zealand’s governance community in valuing and supporting governance in this sector. A vast percentage of governance that happens in New Zealand, happens around a NFP board table. Investing in improving NFP governance will make an important contribution to strengthening our communities. NFP governance could be more widely discussed as part of governance conversations and a wider range of training, development and mentoring opportunities offered.”

The above are just a few highlights but the entire report is worth looking through for those operating in this area.

Dr Jo Cribb offers other information on her website here www.jocribb.co.nz and it is well worth checking that out as well.

上任伊始，新西兰新政府已经宣布了其针对海外投资系统的政策调整。通过重新定义原有法律中的“敏感土地”一词，将特定类型的住宅涵盖进这一范畴中，从而限制非居民身份海外投资者在新西兰购买房产。现阶段其他被海外投资法（”Overseas Investment Act”, OIA）定义为“敏感”的土地类型包括例如与保护区和公园接壤的土地，河流湖泊滩岸，或农用土地（及其他）。获得更详细的海外投资流程请点击这里，获得更多移民新西兰的关键信息请点击这里。

新西兰过去几年的房价持续走高，因此该政策调整意在抑制海外投机资本继续抬高房价。政府的最终目标是改善因房价的持续增长而导致的新西兰本地居民无力购房的现状，特别是在房屋均价非常高的奥克兰地区。

新任贸易部长David Parker日前在新闻采访中指出：“我们必须搞定土地问题。我们完全不能接受新西兰政府失去对海外资本购买本国土地的掌控。同时我们正在建立和完善相关机制。”

虽然目的已经明确，但是工党政府的实施细节和时间还没有敲定。另外也有一些关注诸如此类的禁令是否会因既存的自由贸易相关协定或即将加入的环太平洋合作伙伴关系（”Trans Pacific Partnership”, TPP）而在实施过程中受阻。但是，政策调整的意图是明确的而且很有可能会很快实施。

我们会及时更新今后陆续出台的相关政策细节，在此之前，我们将这篇简文投入公众视野，希望引起关注。我们事务所为有资产投资意向的海外投资者提供法律服务并希望能为您所关心的问题提供答案。

我们已经准备了一个更为详尽介绍新西兰投资环境操作指引，名为《投资新西兰》。如果您有相关的需求，请与我们联系，我们会以电子邮件的形式发送给您。

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance or would like to request a copy of the “Doing Business in New Zealand” guide, please contact Kris Morrison at Parry Field Lawyers (348-8480) krismorrison@parryfield.com

The new Government in New Zealand has announced changes to the foreign investment system. This will restrict non-resident foreigners from purchasing houses in New Zealand by changing the definition of “sensitive” to include such housing. At present other land is defined as sensitive under the Overseas Investment Act (OIA). That includes for example land that is bordering reserves and parks or on the foreshore of lakes or rivers or which is farming land (among others). For an overview on the overseas investment process click here and for information about key issues when immigrating to New Zealand click here.

New Zealand house prices have been increasing in the last few years and the intention behind the rule changes is to prevent foreign speculation on house prices. Ultimately, the Government is hoping to stop their growth which has been resulting in New Zealanders not being able to afford to purchase a home, particularly in Auckland where the average house price is very high.

David Parker the new Trade Minister said the following in a recent interview: “We’ve got to fix land. We think it’s absolutely abhorrent that New Zealand government would lose the right to control who buys homes in New Zealand from overseas. And we’re working up mechanisms on that.”

While the purpose is clear the exact mechanics and timing is not. Some have raised concerns that such a ban could be difficult in the context of different free trade agreements in place or due to be signed like the Trans Pacific Partnership (TPP). However, the intention is certainly clear and it is highly likely that there will be change soon.

We will provide updates when the precise changes are known but wanted to get this briefing note out in the meantime. We have acted for foreign buyers who are looking to purchase assets in New Zealand and can help you if you have any questions about the process.

We have also prepared a detailed guide called “Doing Business in New Zealand” which has an overview about the New Zealand business environment. We are happy to email that out to those who would find it of help.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance or would like to request a copy of the “Doing Business in New Zealand” guide, please contact Kris Morrison at Parry Field Lawyers (348-8480) krismorrison@parryfield.com

Social enterprises are everywhere right now. But what are they? And how do we make sure they are not just businesses exploiting a trendy term? Lawyer Steven Moe outlines how social enterprise can become a legitimate force for good.

When the poet Robert Frost published his most famous poem ‘The Road Not Taken’ in 1916, he certainly did not have the New Zealand social enterprise sector in mind. Yet the words that end the poem seem particularly apt in the post Social Enterprise World Forum environment that we find ourselves in:

“Two roads diverged in a wood, and I —
I took the one less travelled by,
And that has made all the difference.”

Social enterprises seek to make a change in the world by combining both profit and purpose. Anecdotally there is definitely a move towards this new way of thinking being applicable for both existing businesses and new startups.

But what does the social enterprise road actually look like and how do we know if we are even on it? What shape will the social enterprise sector now take here in New Zealand, after having its profile raised by the 1600 participants who journeyed to Christchurch from all around the world?

I think there are five critical questions we need to be asking to find the answers we need – whether we are participants, advisors, regulators or just curious (or cynical) about social enterprise.

What does it actually mean to be a social enterprise?

It’s one thing to raise your hand and say you want to be a social enterprise but quite another to take active steps towards becoming one. Because there is currently no special purpose legal structure for social enterprises (see below) there is no clearly marked out road, and no criteria that have to be met before you can start using that label. Yet surely we can agree it is more than just saying you are one that is needed – something more than mere spoken words.

I think we need to empower people who do want to make a proactive decision to set up (or transform into) a social enterprise by educating them about what that might involve. In my view there are three key elements that should be present:

First, an identifiable and explainable purpose beyond profit (it can be diverse – social, environmental or economic);
Second, a mission lock of some kind (the organisation has demonstrably committed to that purpose and communicates it clearly to others); and
Third, reporting on the actual tangible benefit to that mission/purpose (through distribution of profits, engagement with a particular disadvantaged group, fulfilment of purpose).

If you have those three elements in place then it is more likely that you are on the social enterprise road. Empowering people to take active steps to understand what being a social enterprise is will involve education. Australia is further down the road and has an excellent resource here.

What we really need is to develop our own resources in New Zealand, personalised to our situation. My own small attempts to kick-start the process have been a podcast (more details at the end) where I interview social entrepreneurs about what they do and why they do it, and a legal handbook and more tools for social enterprises here .

How do we ensure people don’t misuse the label ‘social enterprise’ to simply sell more stuff?

This fits with the answer to the last question like a puzzle piece. It’s all about education so that people can understand what the road less travelled looks like to ensure they are on it. There is a real danger that social enterprise becomes the latest trendy phrase used to sell more things which will damage the credibility of the sector. The world forum was excellent for shining a light on the individuals and organisations who are trying to do things a bit differently. We don’t want the ship to be hijacked by opportunists who add the phrase social enterprise to their existing business without having any of the three key elements described above. We also need to ensure that consumers learn to both ask questions and ask for accountability from those who are telling their Social Enterprise story.

How do we attract and educate investors about social enterprise?

The most critical factor for most new businesses is capital investment and social enterprises are no exception to that rule. As we move towards a world where companies combine purpose and profit, investors will increasingly take notice of the impact their investment can have. They even have a special term; “impact investors”. Yet there are differences to a traditional investment which is focussed on more than just returns on capital. What should they expect to see in terms of reporting and information about non-financial returns?

Helping investors to understand the right questions to be asking is yet another example of the education that is needed in this sector. One recent initiative announced at the Social Enterprise World Forum was the Impact Investment Network. It is intended as a way for people to learn more, connect with others, share news and events and provide tools and resources on the website here (free to join).

How do we advocate for new legal structures?

I think we need a tailored legal structure that takes the best of a company structure and the best of a charity structure and looks at other jurisdictions and we mix it all up to create something new. Rather than expand on that in detail here have a read of this earlier article to find out why, what and how this might be done.

I hope the new Government will exercise some real thought leadership in this area by seriously looking into this option, as it is a way to promote real change and would transform the scene for Social Enterprises.

Why is any of this important?

The world forum was akin to a mountain top view and now we get back to life back in the valleys where the wind doesn’t blow as strong to clear our thoughts and give us focus. Every kite felt like it would fly up there on the mountain. Why ask these sort of hard questions and not just stay living on the memory of the mountain top instead? Because this is the time where the hard work needs to kick in and we see if those kites will fly when we come down from the high places.

It is vitally important to answer each of the question above well, so that we can ensure that the Social Enterprise sector is constructed in a way that has strong foundations. If we fail to consider and work out what the answers are, then there will be lack of clarity from the beginning over what we are even talking about. Those of us involved in the Social Enterprise sector want to take that road less travelled, but we need to be clear about what being on that road actually involves in order to ensure we are traveling on it. Robert Frost ended his poem with the reflection, “that has made all the difference” – asking these questions and discovering the answers will ensure that in coming years we can offer the same conclusion.

Steven Moe is a lawyer at Parry Field Lawyers who has a podcast interviewing social entrepreneurs called “Seeds: Talking Purpose” and a legal handbook that is available for free if you email him at stevenmoe@parryfield.com.

This article by Steven Moe originally appeared on The Spinoff

What happens if…?

What happens if I have a car accident?

What happens if I get a letter from someone holding me responsible for damage to their property?

What happens if I turn on my computer, and I’m greeted by a hacker’s message, instructing me to pay bitcoin ransom in order to access my files?

The resilience of a business is often defined by the risk management systems that are in place. The risks that a business will need to manage fall, broadly speaking into three categories – Physical Assets, Liabilities, and increasingly, Cyber. Every business has some form of risk that will fall into these three categories.

Physical Assets – every business has them – a phone or a laptop, machinery or stock, premises or a vehicle. What does it mean for your business if these assets are taken out of the picture? Most businesses depend on some form of physical assets, and any loss or damage to these assets can interrupt the operation of the business, costing money. It’s worth thinking about if you can afford to replace your assets quickly, and how much is any down time going to cost your business?

Liability – you don’t actually have to do something wrong for liability risks to affect your business – an allegation is enough. All it can take is for a letter or an email, holding you responsible for damage to another persons’ property, and this will cost your business money – simply by defending your business from the allegation.

Cyber – We are becoming increasingly dependent on technology to conduct business, and with this comes risk from when the technology is disrupted – from ransom-ware attacks, to duplicate invoices with a new account number, to breaches of the Privacy Act – the implications of a cyber attack can be far reaching for a business. How long can you continue to trade if you can’t get into your system or backup files?

All businesses benefit from having a risk management plan which utilizes four potential strategies to manage risk:

Avoid risk – Change plans to eliminate the problem
Control/Mitigate risk; – Reduce the probability and/or impact through a proactive approach
Accept risk – Take the chance of negative impact or budget for contingency
Transfer risk – Outsource risk by way insurance

The role of an insurance broker is to provide advice on identifying business risk and recommending cost effective solutions to manage them. He or she can then advise you what risks should be insured, and then if you agree, canvass the insurance market to obtain the best insurance solution that is tailored to fit the needs of your business, at a competitive price.

It’s finding out your business’ individual risk appetite that makes a good insurance broker a valuable asset to your professional services team.

If you don’t know the answer to the question: “What happens if…” then you should consider seeking advice before something goes wrong.

Chelsea is passionate about the growth and development of the emerging Social Enterprise sector. Born and raised in Christchurch, she wants to support the businesses that are doing good for our communities. Our mission at Crombie Lockwood is to position your business to financially survive any insurable event. Chelsea would welcome any opportunity to assist you to position your business to become more resilient to the risks associated with doing business, and consequently support you to achieve your purpose.

Chelsea Smith

Insurance Broker

Crombie Lockwood

(03) 339 5268

Chelsea.smith@crombielockwood.co.nz