NZ Investigates Taxation of Foreign-Owned PIEs
April 16, 2010 New Zealand Taxation
A new issues paper has been released, seeking views on two possible legislative changes concerning the tax treatment of non-residents investing in portfolio investment entities (PIE).
On April 14th Peter Dunne, New Zealand Revenue Minister, announced the release of Allowing a zero percent tax rate for non-residents investing in a PIE, an official New Zealand Government Issues Paper. The release of the paper is spurned by the International Fund Services Development Group (IFSDG), which was formed in April 2010 to advise the New Zealand Government on the changes required to create an international fund-service sector in New Zealand. According to Craig Stobo, Chair of the IFSDG, verified the need for the issues paper, explaining that an anomaly currently exists in the New Zealand tax system whereby a non-resident investing in foreign assets through a PIE would be taxed as a resident. The situation is seen as a strong disincentive for non-residents to utilize New Zealand as a financial services hub.
Two solutions for the situation have been outlined within the issues paper. The first proposes the adaptation of a PIE system for both resident and non-resident investors, with non-residents subjected to a zero percent portfolio investment rate (PIR). The second option proposes the creation of a look-through global investment option where a PIE will have resident and non-resident investors with New Zealand and offshore sourced income and apply different PIRs for each situation.
Both methods are expected to decrease national tax revenues by NZD 10 million annually. Although, according to Peter Dunne and Craig Stobo, the changes are a necessary step for the creation of a financial services hub in New Zealand, which is expected to create up to 5000 new jobs and tax revenues of NZD 250 million per year.
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