Cullen Defends New Zealand's Offshore Tax Plans

by Mary Swire, Tax-News.com, Hong Kong

13 February 2006

The New Zealand Revenue Minister, Michael Cullen has reacted angrily to opposition claims that the government has got it wrong with its plans to modify the tax regime in order to discourage New Zealanders from investing offshore.

In a statement released last week, National Party finance spokesman John Key suggested that the government had been made to undertake an embarrassing u-turn in its "misguided attempt" to introduce a capital gains tax on offshore investments, after an overwhelmingly negative response from the investment industry.

The government is now reviewing the tax regime that applies to portfolio investment offshore, and expects to announce new proposals in March, with changes incorporated in a tax bill to be introduced in May with a view to application from April 2007.

However, Mr Key fears that the modified proposals could be "just as bad" as the former proposals, and he expressed the view that there "is no rationale" for taxing offshore portfolio investments at all as this merely discourages saving.

"Worryingly, I understand they are now proposing a cumbersome plan to tax earnings per share, to replace the proposed capital gains tax," stated Mr Key.

"The problem with this new plan from officials is that there are many ways of calculating earnings per share. It's something few people understand properly and it's very technical," he observed, adding that the idea would be "fraught with difficulty".

However, Revenue minister Dr Cullen has hit back at Mr Key's assertions, accusing the National spokesman of showing his "true colours as a friend of wealthy investors."

"John Key is suggesting we don’t tax the earnings of New Zealanders investing offshore at all because it's too hard," stated Dr Cullen.

"This is illogical and would only serve to encourage investment offshore to the detriment of investment in New Zealand," he argued.

Dr Cullen said that the government is aiming to bring about a simplified tax regime which at the same time incorporates a system that "doesn't encourage" offshore investment by New Zealanders.

"It is staggering that John Key doesn't believe that is desirable," he concluded.

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