Tax deal makes staying home easier for firms

By SIMON COLLINS

A long-awaited transtasman tax deal should make it slightly easier for companies to stay based in New Zealand, even if Australia accounts for most of their business.

Finance Minister Michael Cullen and Australian Treasurer Peter Costello will meet in Melbourne on Wednesday and are expected to release a discussion paper setting out a "pro rata" system for recognising imputation credits in the two countries.

The system will allow a New Zealand company to pass on imputation credits for Australian tax paid on its Australian operations to all its shareholders.

But only its Australian shareholders will be able to make use of the Australian credits, and only in proportion to their ownership of the company.

Conversely, New Zealand shareholders in an Australian company paying tax in New Zealand will be able to claim credits for their share of that New Zealand tax.

The change would have made it easier for companies such as Baycorp to have kept their head offices in New Zealand, even though in Baycorp's case 60 per cent of its shareholders and most of its business are now in Australia.

The company moved its head office to Sydney last year.

Tax lawyer John Shewan said many New Zealand companies would now be able to pass on the full benefits of Australian tax paid to their Australian shareholders by restructuring their balance sheets.

"It will go some way towards eliminating that as a reason for migrating," he said.

"It won't go the whole way. Companies migrate for a range of reasons. And transtasman imputation credits will make it easier for companies to move as well."

For example, a New Zealand company with most of its business and shareholders still in New Zealand could now move its head office to Australia without denying imputation credits to its New Zealand shareholders.

Shewan, who has been acting for the Australia New Zealand Business Council on the matter, said the new rules represented "enormous progress".

But he said businesses would still prefer full "streaming", where all imputation credits for tax paid in Australia could be "streamed" to Australian shareholders, and vice versa.

He said Australian officials opposed streaming because it would set a precedent for other countries.

The discussion paper, which Cullen originally promised for last year, is expected to be open for submissions for several months.

"I don't think we'll see legislation before next year at the earliest, and it could be 2004," Shewan said.

"Every year that goes by we are losing profits and losing companies."

An LEK Consulting report on attracting "talent" to New Zealand, published by the Government last month, said resolving the imputation issue was "a matter of urgency".

Cullen said the Australian election held up the issue last year, but he was confident he now had "a reasonable solution as far as we can expect to get with the Australians".

He was also studying an Australian Stock Exchange proposal which would make it difficult for New Zealand companies to keep dual listings on the Australian and New Zealand exchanges.

"At first we thought it was going to be very serious indeed, but it doesn't look as if it's going to be too bad," he said.

"I certainly think once we have the Stock Exchange Bill through, which we should have this week, we have to sit down further with the Stock Exchange to talk about the long-term future.

"We have to work through the current relationships between the New Zealand Stock Exchange and other stock exchanges around the world."

But the chief executive of the New Zealand Stock Exchange, Bill Foster, said that Australia's clarifications about points that had at first been unclear had not reduced the seriousness of the issue.