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New Zealand's Inland Revenue has explained proposed changes to the functioning of the Non-Resident Withholding Tax (NRWT) and Approved Issuer Levy (AIL).
The authority said that the NRWT reform will correct anomalies in the rules to level the playing field for taxpayers to whom the NRWT rules apply. The changes focus on ensuring that an NRWT liability arises on interest on related party debt at approximately the same time that an income tax deduction is available to the borrower for that interest. Under the previous rules a number of structures could delay or remove the liability for NRWT or replace it with AIL.
In broad terms, the amendments address "holes" in the NRWT base to ensure that the tax applies evenly to economically similar and easily substitutable transactions. They do not attempt to expand the NRWT base beyond its target of associated party interest, or interest which is logically indistinguishable from associated party interest, the agency explained.
Changes have also been introduced for related party lending by New Zealand banks. The branch changes level the playing field between certain borrowers who can step around AIL and NRWT by operating an onshore or offshore branch, and other borrowers who cannot and are therefore subject to NRWT or AIL on interest paid to non-resident lenders, the authority said.
It said further changes to the tax treatment of closely held companies "aim to simplify the rules and reduce compliance costs, while ensuring that the rules remain robust and in line with intended policy."
The changes were contained in the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017.
Complete coverage of the new Act will be published in the June edition of the Tax Information Bulletin, the Inland Revenue said.
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