A bill was introduced into the New Zealand parliament yesterday which aims to ensure that foreign-owned banks are paying an appropriate amount of tax on their New Zealand income.
The move follows concerns expressed by the government and the Reserve Bank of New Zealand that tax payments made by foreign banks have not appeared to reflect their reported profits.
In a statement released yesterday, the government expressed the view that these banks were using interest deductions arising from an excessive level of debt to reduce the amount of income subject to tax in New Zealand.
Revenue Minister Michael Cullen reportedly expects the new legislation to increase the amount foreign banks pay in tax by around NZ$360 million annually (US$252 million), and has already budgeted for the extra revenue in the government’s financial plans.
Under the proposed 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.
“They must also have enough capital in New Zealand, on which no interest is deductible to fully fund their offshore investment," Dr Cullen explained.
It is anticipated that the new legislation will apply from 1st July 2005.
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