Proposed tax changes to help New Zealand companies expand overseas are an essential ingredient to helping New Zealand maintain its OECD ranking, says Casey Plunket, Chapman Tripp Tax Partner and co-convenor of the New Zealand Law Society Tax Committee.
Mr Plunket says that New Zealand needs a vibrant and growing corporate sector.
“Because of our size and isolation, New Zealand companies simply cannot grow and be internationally competitive by retaining all of their workforce and production in New Zealand. Tax barriers to international expansion need to be removed, and the Taxation Bill currently being debated goes a good way towards that,” says Mr Plunket.
The current tax system (introduced in 1988) taxes the income from expansion as it is earned, unless it is into one of eight "grey list" countries.
“The grey list is an anachronism, which discriminates, for example, against Fisher and Paykel building new and efficient manufacturing capacity in Mexico. As well as the direct tax cost, the current tax system imposes considerable compliance costs. It also puts New Zealand companies at a competitive disadvantage. Other countries in the OECD generally do not impose tax in these circumstances.
In fact, the tax reforms in this area should go further. Because of the imputation system, a significant tax obstacle to offshore expansion by New Zealand businesses will remain. The Taxation Bill means that New Zealand corporates earning active offshore income won’t have to pay tax on that income. But once the income is distributed to shareholders as a dividend, tax will be imposed.”