New Zealand Government Questions Foreign-Owned Banks Over Tax Payments

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

17 August 2004

The New Zealand government may tighten the tax laws relating to foreign banks after the Reserve Bank of New Zealand accused several Australian-owned institutions of short-changing the government by paying much less in tax than expected.

According to documents released by the Reserve Bank, the country’s top five banking institutions, all Australian owned, reported paying tax at rates between 27.1% and 33.4% in the 2003 fiscal year. However, the Reserve Bank claims that the actual rate paid by the firms was from 15.9% down to a negative 9.8%.

"The major problem was that rules that were designed to facilitate the operation of regional headquarters in New Zealand by foreign companies were being used to shelter New Zealand-sourced bank income," it was observed in a central bank briefing note.

It is thought that the banks have reported NZ$678 million more in tax than they paid to the government.

The government is due to make an announcement on the issue in the coming weeks.

"The Internal Revenue Department is working closely with the banks to find an agreed position," a spokesperson for Finance Minister Michael Cullen explained.

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