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New Zealand Forges Ahead With International Tax Reform

by Mary Swire,, Hong Kong

23 October 2007

The second round of consultation on the revamp of New Zealand’s international tax rules has begun today with the release of an issues paper detailing the proposed tax exemption for active income from the offshore operations of New Zealand businesses.

“We are looking at a fundamental reform that will remove tax impediments to New Zealand businesses expanding overseas and help them to compete internationally,” Finance Minister Michael Cullen and Revenue Minister Peter Dunne jointly announced last week.

The ministers explained that the central change in the reform, announced in Budget 2007, is to exempt the active income of New Zealand's controlled foreign companies from domestic income tax, which will bring New Zealand into line with the practice of other countries.

Cullen and Dunne continued:

“That change will put New Zealand businesses on a better footing internationally by freeing them from a tax cost that the controlled foreign companies of other countries do not face."

They continued: “The issues paper released today gives detailed suggestions for the design of the active income exemption and seeks the views of businesses with offshore operations on how the changes will affect them."

“The goal is to design a system that is both simple for New Zealand businesses to work with and preserves the integrity of the taxation of New Zealand income."

The ministers concluded:

“This issues paper builds on the results of earlier consultation and brings the reform a step closer. We encourage all businesses that have offshore operations, or that are considering expanding overseas, to examine the details of the proposed changes and let their views be known."

“Other aspects of the reform will be covered in a second paper to be released later this year, and the tax treatment of non-portfolio foreign investment funds that have branches will be the subject of further discussions and consultation next year.”

The deadline for the submission of comments on the issues paper 'New Zealand’s International Tax Review – developing an active income exemption for controlled foreign companies' is November 30, 2007.

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