KEY POINTS:
A tax lawyer says the Government should have consulted more interested parties before announcing changes to tax treatment of stapled stock arrangements, instead of announcing it in a press release.
On Monday night the Government moved to plug the tax loophole involving stapled stock instruments - combining two or more securities - which Auckland International Airport bidder, the Canada Pension Plan Investment Board has proposed in an amalgamation.
The CPPIB says that subject to board and shareholder approval they would be issued under the proposed amalgamation if its partial takeover is successful.
Buddle Findlay tax partner Tony Wilkinson said New Zealand had long adhered to the GTPP (generic tax policy process) approach for new tax legislation.
"Under this approach, proposed reforms are outlined in a detailed discussion document, for which public feedback is sought and considered. Only then is a decision made as to whether the legislative reform should proceed and the manner in which it should be drafted."
Changes to tax law had significant financial and commercial implications, and it was important that they be examined and critiqued by a broad range of interested parties.
"It is certainly not ideal for changes of this type to be announced via a press release," Wilkinson said.
IRD policy manager Emma Grigg said because the measures were aimed at protecting the tax base there was a danger those wanting to exploit a loophole could claim existing or grandparenting rights if they were able to move quickly enough during consultation.
Besides the CPPIB, other firms were considering such schemes, which could have eroded the tax base by hundreds of millions of dollars a year, she said.
While acknowledging that tax base risks justified swift action, Wilkinson questioned whether the concerns raised in relation to stapled stock arrangements necessitated the announcement that debt instruments "stapled" to shares be treated as equity for tax purposes.
Finance Minister Michael Cullen said stapled stock instruments had the potential to significantly increase the amount of interest deductions against New Zealand's tax base, particularly if issued to overseas investors in New Zealand companies.
