Triangular Tax Proposals Small But Useful Step

"The proposals in the discussion paper aimed at resolving the so-called 'triangular' tax issue between New Zealand and Australia would be a small but useful improvement in the international tax regime", Roger Kerr, executive director of the New Zealand Business Roundtable, said today.

From a New Zealand perspective, the proposals address the case of a company resident in Australia which pays tax in New Zealand on New Zealand-sourced income and returns that income in the form of dividends to its New Zealand shareholders. They should not have to pay an extra layer of tax, and the proposals would relieve them of the impost they face at present.

The proposal makes sense because it aims to relieve New Zealand tax paid, not Australian tax. New Zealand should not generally treat foreign tax as equivalent to New Zealand tax. It does not make sense for New Zealand and Australia to mutually recognise imputation credits, as is sometimes proposed.

"Similar issues arise with other countries and it is pleasing that the government is addressing the international tax regime as a budget issue.

"There is a strong case for reducing tax on inward equity investment to lower the cost of capital and encourage business investment, and for rationalising the untidy tax arrangements governing outward investment", Mr Kerr concluded.

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