KEY POINTS:
Taxpayer-friendly changes to the Inland Revenue's penalties regime are set to be included in the next tax bill, to be introduced in May, Revenue Minister Peter Dunne said yesterday.
The changes, outlined in a discussion document last October, include a provision that penalties for not taking reasonable care, or for taking an unreasonable tax position, would not be imposed if the taxpayer concerned made a voluntary disclosure of the shortfall before being notified of a pending tax audit or investigation.
In a speech to tax practitioners, Dunne said the penalties regime would be modified in a couple of ways: removing the requirement that the disclosure be made within two years of someone taking a tax position, and bringing the date from which it would apply forward to when the bill was introduced to Parliament.
Dunne was more non-committal on the main issue exercising tax specialists at the moment - the review of the international tax rules governing outbound foreign direct investment.
A discussion document on proposed changes to the current regime, is open for submissions for another week.
It proposes to introduce a distinction between active and passive investments and to tax only the latter on an accrual basis.
That would allow a company with a manufacturing operation in China, for example, to benefit from tax concessions there without the effective tax rates on its Chinese profits being topped up to 33 per cent back in New Zealand.
"We do not believe an active income exemption can simply be tacked on to the current system with no other changes to target the exemption to its intended policy," Dunne said.
The new system would have to strike a balance between ensuring the tax system did not discourage firms from expanding overseas and maintaining a level of protection for the New Zealand tax base.
But discussion with companies had indicated that targeting provisions used by other jurisdictions were complex, unduly restrictive and often ineffective, Dunne said.
