Double Tax Talks Skirt Main Trans Tasman Problem
Trans Tasman investors shouldn't expect much from the discussions aimed at resolving the so-called triangular taxation issue.
The issue now being addressed is just small part of the main problem which is causing many New Zealand companies migrate to Australia, the Employers and Manufacturers Association says.
The Australia and New Zealand governments have produced a joint discussion paper on reforming the triangular tax. Finance ministers Michael Cullen and Peter Costello meet in Sydney on Wednesday to release the discussion paper and invite public submissions.
"We applaud the work aimed at resolving this issue, said Alasdair Thompson, EMA's chief executive, "if only to highlight the inequity and importance of the underlying principles involved.
"The major problem is that New Zealand resident shareholders of Australian companies have their dividends taxed in both countries. The same applies to Australian resident shareholders investing in New Zealand companies.
"This means that when a New Zealand company's shareholders become more numerous in Australia, they vote for the company's head office to be relocated across the Tasman to avoid the double taxation of their dividends.
"In effect this is what happened with Lion Nathan and Baycorp.
"It will undoubtedly happen with other companies whether publicly listed or privately held.
"The reverse, where Australian companies migrate to New Zealand when their shareholder numbers exceed those in Australia, is far less likely.
"The present discussions only affect New Zealand resident shareholders in New Zealand companies with tax paying operations in Australia supplying the New Zealand market.
"Likewise, it affects resident Australian shareholders in Australian companies which own New Zealand based companies supplying into Australia.
"It's only the shareholders of these companies that may see their tax liability reduce.
"Its no surprise Australia does not support the full 'streaming' of imputation credits for tax paid to one or the other country, which would address the major part of the problem, as it is winning handsomely at New Zealand's expense.
"From New Zealand's perspective the 'triangular' issue is a small step but fully worth resolving."