Further consultation on international tax rules

Hon Peter Dunne
Minister of Revenue

Friday 19 March 2010 Media Statement

Dunne: Further consultation on international tax rules
Revenue Minister Peter Dunne today announced a new round of consultation on the reform of New Zealand’s international tax rules.

Addressing the International Fiscal Association conference in Christchurch this morning, he released an issues paper seeking feedback on suggested changes to the treatment of non-portfolio foreign investment funds.

“This consultation paper builds on the comprehensive reforms made last year to the taxation of New Zealand companies that have offshore subsidiaries so they can compete in world markets on the same basis as foreign competitors,” Mr Dunne said.

“The main feature of those reforms was the introduction of an exemption from New Zealand tax on income earned through controlled foreign companies undertaking “active” business activities such as manufacturing, distribution or sales functions.

“This issues paper continues the reform process by looking at ways to remove further taxation obstacles to New Zealand companies’ international competitiveness.

“In particular, it looks at how the tax exemption might be extended to some investment interests made by New Zealand companies in foreign companies – known as foreign investment funds or FIFs – in which they are not the controlling partner.

“New Zealand firms will often choose to enter new markets by establishing links with a partner in the host country by setting up a jointly owned entity. New Zealand firms considering expanding overseas may also use subsidiaries, joint ventures and other substantial investment in foreign markets in which they are not the controlling partner.

“While the New Zealand firm may not own the entity it usually makes a substantial contribution in areas such as management, or by providing technical or marketing expertise.

“These types of arrangement can bring considerable economic benefits to New Zealand businesses by allowing firms to improve their market knowledge or access to customers and suppliers in a way that facilitates export growth or an increase in high-value research, design and management activities in New Zealand.

“It is important that the tax system does not act as a barrier to New Zealand companies looking for opportunities to expand into new and emerging markets The changes suggested in this issues paper focus on making the FIF rules easier and more coherent for taxpayers and advisors to understand and operate so that New Zealand firms can reap the commercial advantages of global investment more easily,” Mr Dunne said.

The issues paper, New Zealand’s International Tax Review: extending the active income exemption to non-portfolio FIFs, is available at www.taxpolicy.ird.govt.nz.

The closing date for submissions is 30 April 2010.

ENDS