Law reins in banks trying to duck tax

Foreign-owned banks operating in New Zealand will find it more difficult to avoid paying tax on their New Zealand income under a new tax law, says Revenue Minister Michael Cullen.

The Taxation (Base Maintenance and Miscellaneous Provisions) Bill was introduced last year to force large Australian-owned banks in New Zealand to pay as much as $360 million a year more in tax.

The legislation was the result of concerns that banks were using tax law to pay less tax.

Cullen said yesterday that under the bill passed into law on Wednesday night, new thin capitalisation rules would ensure that banks' incomes could not be sheltered by interest deductions arising from excessive debt.

"Banks will not have access to interest deductions if they do not hold a level of equity equivalent to 4 per cent of their New Zealand banking assets, weighted for risk."

The bill also made it easier for businesses to claim tax deductions for environmental expenditure, allowing environmental costs, like other business costs, to be taken into account for tax purposes, he said.

"It introduces statutory privilege - or a right not to disclose certain documents - to confidential tax advice that is given by advisers such as chartered accountants."

"Business-friendly" changes in the bill included clarification of the income tax rules on transfers of assets and liabilities to beneficiaries when a taxpayer died, a reform that Cullen said was long overdue.

There were also technical amendments to the tax depreciation rules to improve their operation and reduce compliance costs.

The changes included the introduction of six-year tax exemption on income from non-resident drilling rigs and seismic ships involved in exploration for petroleum in New Zealand as part of a package of measures to boost gas exploration.

- NZPA