The latest round of consultation on the reform of New Zealand’s international
tax rules got underway this week with the release of an issues paper seeking
feedback on suggested changes to the treatment of foreign dividends under the
proposed reform.
“With the release of this third consultative document, all is on track
for the introduction in May of a bill that gives effect to the comprehensive
reform of the way we tax New Zealand companies that have offshore subsidiaries,”
Finance Minister Michael Cullen and Revenue Minister Peter Dunne announced on
Tuesday.
The issue paper’s main focus is the taxation of dividends received by
New Zealand companies from their offshore subsidiaries. It also looks at transitional
and consequential matters arising from the move to an active income exemption,
including the repeal of the conduit rules and the treatment of existing foreign
losses and foreign tax credits. Interested parties have until 15 February, 2008
to contribute to the consultation.
The Ministers explained:
“Our current tax rules for the offshore operations of New Zealand businesses
are out of line with the tax systems of comparable countries, particularly those
of Australia. New Zealand taxes the offshore active income – such as manufacturing
income – of its businesses, whereas other countries do not."
“That makes it difficult for New Zealand businesses with offshore operations
to compete effectively with similar businesses in other countries."
“For this reason, the central proposal of the reform is to introduce
a tax exemption for active income from the offshore operations of New Zealand
businesses, as announced in Budget 2007."
Cullen and Dunne concluded:
“It is essential to remove tax disincentives for businesses to locate
in New Zealand and expand into other countries from a New Zealand base."
“Within an increasingly global economy, New Zealand must be able to attract
and retain capital, and our businesses must be able to compete effectively in
foreign markets."
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