NZ Thin Capitalization Rules Up For Debate

January 15, 2013 New Zealand Taxation

Peter DunneThe government is mulling potential changes to the tax rules applicable to foreign investors, in an effort to prevent the erosion of the national tax base.

On January 14th the Revenue Minister of New Zealand Peter Dunne announced the release of a new issues paper on several proposed changes to New Zealand’s thin-capitalization rules.

The proposed amendments are intended to stop the occurrence of tax evasion carried out by foreign investors with New Zealand subsidiaries which pay excessive levels of interests in order to reduce their local tax liabilities.

The issues paper brings forward several rule changes to address the situation, but the focus was given to two primary proposals.

The first of the two main proposals was the extension of current thin capitalization rules to include non-resident who operate a single as a collective, as the current rules only apply when a single non-resident entity or person has control of a New Zealand business.

The second suggestion was to re-evaluate the types of shareholder which can be used when calculating the global indebtedness of a foreign investor.

According to Peter Dunne, implementing the two changes will modernize New Zealand’s thin-capitalization rules to reflect the modern business environment and investment practices, and will help bolster the country’s revenue base.

Photo by Tertiary Education Union (NZTEU)