The government of New Zealand is planning to introduce new legislation to ensure that foreign owned banks are paying an appropriate amount of tax on their New Zealand income, Revenue Minister Dr Michael Cullen announced yesterday.
“The New Zealand tax payments of foreign-owned banks have not appeared to reflect their reported profits in recent times,” observed Dr Cullen.
“I am advised that they are using certain features of our tax rules to pay less tax in New Zealand,” he added.
Under the changes, banks will be denied interest deductions if they fail to hold a level of capital equivalent to 4% of their New Zealand banking assets, weighted for risk.
The change will bring a about an increase in revenues in the region of NZ$360 million (US$238.1 million) per year for the government.
“If banks want full interest deductions for tax purposes, they will also be required to have enough capital in New Zealand to fully fund their offshore investments,” Dr Cullen explained.
The government intends to monitor the situation after the legislation has been enacted to ensure that banks pay tax which reflects New Zealand-sourced income and worldwide operations.
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