Keep the "grey list" say tax bill submissions

By Pattrick Smellie

Wednesday 11th March 2009

Major corporates and tax experts are urging the new government not to axe the long-established "grey list" approach to tax on foreign investment income.

It should also cut New Zealand-based global firms some slack in the proposed new regime for international tax.

The pleas came at finance and expenditure select committee hearings at Parliament this morning, where submissions on the Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill were heard.

The bill is a hang-over from the last Parliament and contains numerous substantial tax changes that are supposed to kick in from April 1, 2009, a date already placed in serious doubt by Revenue Minister Peter Dunne, last month.

The international tax submissions bore on two key issues:

The abolition of the grey list approach, whereby if tax is deemed to have been paid in another jurisdiction, no tax is due in New Zealand. Countries on the grey list have strong, stable tax systems and are most of New Zealand's major trading partners;

New interest allocation rules required by intended improvements to other parts of the Act, to lower tax compliance rules for "active" income from wealth-creating New Zealand corporate activity in other countries.

On the grey list, the Corporate Taxpayers group argued that the system was successful, had been implemented 20 years ago to reduce unnecessary compliance burdens, and should be retained. Officials had also shown no instances where the grey list approach had failed New Zealand.

The group represents around 30 publicly listed and government-owned large companies.

That view was widely echoed among other substantive submissions on the international tax components of the bill, heard yesterday from accounting firms KPMG, PWC, and the Institute of Chartered Accountants.

On the new interest allocation rules, the Corporate Taxpayers strongly supported the new "active income" definition, and accepted that by adopting this approach, potential loopholes were created which a multi-national company could potentially exploit.

The group submitted that New Zealand-headquartered global companies should be treated differently from foreign multi-nationals, because the complexity and compliance costs would make New Zealand's international tax environment more hostile than it was already.

"It is extremely disappointing that the original objectives of the review to make New Zealand a more competitive jurisdiction in which to be based and invest has been usurped by unwarranted concerns about (tax) base maintenance.

"We've had the wrong international tax rules for the last 20 years. We can't afford as a country to get the rules wrong again."

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