Cullen closes tax loophole on intangibles

By PAULA OLIVER

Legislation to close a tax loophole involving the sale and leaseback of intangibles such as newspaper mastheads will not affect an existing arrangement used by the owners of the Herald.

The change was introduced to Parliament yesterday by Revenue Minister Michael Cullen as part of a wider taxation bill.

He had indicated last year his intention to close the loophole, which he said could potentially result in a significant loss of revenue.

At issue were arrangements like the one that formed part of the merging of Herald owner Wilson & Horton with its Australian corporate half-brother APN in 2001.

In exchange for an upfront payment of a net $515 million, investment bank JP Morgan acquired the right to lease the mastheads back to the enlarged APN for seven years for an annual payment of $94.5 million.

The company claims a tax deduction for all of that payment, whereas with an ordinary loan only the interest component would be deductible.

John Fairfax Holdings declared its intention to use a similar structure in its purchase of the newspaper assets of INL but did not do so after Cullen stated that change was in the wind.

Until recently, Cullen had said that the law change would not catch deductions already claimed, but would apply to future payments made under existing arrangements.

The bill introduced yesterday, however, did not follow through on that - meaning the one arrangement in existence is let off the hook.

Cullen's office said Officials had looked more closely at that arrangement and had concluded that the tax base would not be any worse off if it remained.

The tax bill also contains measures to make New Zealand more attractive to foreign venture capitalists.

The measures will exempt some foreign investors from paying tax on the sale of shares in New Zealand unlisted companies.

The exemption applies to foreign investors who are tax exempt in their own countries and cannot claim any credit for tax paid in New Zealand.