Summary of key submissions on the Tax Bill affecting foreign investment rules
This is part 1 of a series. Further summaries will be prepared as the hearings progress.
The contentious amendments to the foreign investment rules and other provisions of the Income Tax Act have been the subject of, we understand, more than 3,000 submissions.
As the Taxation (Annual Rates, Savings Investment and Miscellaneous Provisions) Bill is now at Select Committee stage, a number of the parties who made submissions have now had a hearing. A summary of some of the key submissions to the Finance and Expenditure Select Committee, and in particular the alternatives being suggested to the foreign investment rules, follows:
PwC
The submission that the Finance and Expenditure Committee has expressed the most interest in is John Shewan’s of PwC. He submitted that his firm is concerned that the proposals fall short of achieving the objective of applicable tax treatment not driving or distorting investment decision making.
Shewan proposed taxing all offshore share investments on the higher of declared dividends or 3% of their average value during the tax year (a broad-base proxy for dividend payouts). Investors would be liable for tax every year, rather than accruing tax liability and settling up with the IRD when they sell their shares.
PwC had proposed the alternative in an earlier submission and provided further details upon request from the Committee.
Shewan said that the changes that have already occurred to soften the impact of the proposed offshore proposals, aimed mainly at individual direct investors, are too small and narrowly focused.
GPG
Tony Gibbs of GPG submitted that the proposed Bill, in relation to offshore equity investment, is far more distortionary than the existing tax regime and will discourage diversification.
Gibbs proposed the following two changes to the Bill in order to effect better tax policy for international investment.
- The grey list should be retained with the possibility to restrict certain listed shares and companies from that list. All equity investments would be held on capital account and only taxed with respect to dividends in New Zealand and grey list countries.
- If the first submission is not accepted, Gibbs proposed retention of the grey list in its current form with any specific concerns addressed via legislation.
Ernst & Young
Graham Mapp opposed the changes to the foreign investment tax regime. He submitted that a tax on capital gains is inconsistent with New Zealand’s existing tax regime and will result in over taxation of investments outside Australia (in listed vehicles) and New Zealand. He also submitted that the draft legislation is unnecessarily complex and that the $50,000 exemption threshold is too low.
KPMG
Paul Dunne submitted that in a number of respects the Bill as drafted is inadequate. Dunne submitted that a lot of ex-pats will be caught up in the removal of grey list countries from the Income Tax Act and that the new rules cripple diversification since international equities represent part of a balanced portfolio.
New Zealand Law Society
Casey Plunket commented on the poor drafting and design of the Bill and that there has been no opportunity to provide feedback on the wording of the legislation. This results in, once the Bill is introduced, the underlying approach taken by the drafter to implementing the policy being very difficult to change. The Law Society would like to see the release of a further draft, and opportunity for public submission on that draft.
Deloitte
Thomas Pippos for Deloitte submitted that the proposed legislative amendments be deleted from the Tax Bill in order to allow officials to undertake consultation in line with generic tax policy process.
