High interest, high business tax rates penalising investment

While we do not agree companies operating in New Zealand should aggressively seek to pay the minimum tax possible in New Zealand, this is no time to be signaling we are about to tighten our company tax rules, the Employers and Manufacturers Association says.

The statement is in response to the release of an Issues Paper by Inland Revenue yesterday which ostensibly would tighten the rules on deductions claimed on interest paid in New Zealand by non-resident investors.

The Issues Paper also has ramifications for the low levels of tax collected in New Zealand on profits made here by global giants such as Google and Apple.

"The far bigger issue at stake is the urgent need to attract much more foreign investment into local productive enterprises," said Kim Campbell, EMA's chief executive.

"The larger challenge for us is how can we reduce our high company tax rate or develop other ways to make New Zealand a far more attractive investment proposition," he said.

"The focus should be on finding new ways to attract much more foreign direct investment here.

"While we support in principle proposals to plug perceived gaps in the thin capitalisation rules the overall emphasis on this just now is simply not justified.

"This is no time to be putting up possible deterrents to investment when we have many large scale infrastructure projects required, the rebuild of Christchurch, and the urgent need to recapitalise our industrial base, especially in Auckland.

"Though the rule changes proposed at first glance would place foreign equity investors on the same basis as wholly owned local investors, everyone also knows it is possible to ensure tax can be paid in the country where the tax rate is lowest, with the costs falling, including the costs of debt, where the tax rates are highest.

"The changes proposed by IRD would still allow this to occur for many global businesses.

"Global companies are constantly manoeuvring to domicile their payments where they can maximise the legitimate income from their IP and minimise their tax obligations.

"The issue the IRD should be addressing is how can we drastically reduce New Zealand's high interest, high company tax regime to make New Zealand a far more attractive place to invest while protecting the tax base."
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