The New Zealand government announced on Wednesday that it is inviting feedback on draft legislation to amend the tax law on "stapled stock" instruments that have debt components.
"The government announced in February that the law would be updated to prevent a potential loss to the New Zealand revenue base arising from the use of stapled stock instruments that consist of debt attached to a share," Finance Minister Michael Cullen and Revenue Minister Peter Dunne explained.
They continued:
"At present, by using stapled stock instruments that have debt components, companies can pay tax-deductible interest to shareholders as a substitute for dividends. That becomes a particular concern if the instruments are issued to foreign investors in New Zealand companies, who can then claim tax deductions from New Zealand."
"Therefore the Income Tax Act is being amended to ensure that when a debt instrument that would normally give rise to tax deductions is attached to a share it will be treated as equity for tax purposes. That means no deductions for interest payments will be available when that happens."
"The government also announced that before the enabling legislation was introduced, tax policy officials would consult with interested parties on the details of the proposed changes."
"That is now happening - interested parties are invited to comment on the two pages of draft legislation that have been published today for consultation purposes. Of particular interest to the government are comments on the workability and scope of the draft legislation and whether it might have unintended circumstances."
The Ministers concluded:
"Following consultation, the draft legislation will be included in the next available tax bill and, once enacted, will apply to debt stapled on or after the date of announcement - 25 February 2008. Stapled securities that were already issued at the time of announcement will not be affected by the legislative change."
The closing date for submissions is 30th May.
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