Alan JudgeTax Director, Ernst & Young+64 274 483 260
Double tax agreements on the tableNew Zealand exporters will be the one to gain
"The announcement of a review of the Australia-New Zealand double tax agreement provides the Government with an immediate opportunity to boost returns for New Zealand exporters,” says Ernst & Young tax director Alan Judge.
The Government is currently consulting with the business community over reforms to international tax that should see the vast majority of foreign profits earned through overseas subsidiaries returned to New Zealand without attracting any New Zealand tax cost.
“But double tax agreements are also critical as they give our Government the opportunity to negotiate with foreign Governments to lower withholding tax on foreign income earned by New Zealanders. Lower withholding taxes will result in a double win for New Zealand exporters in that both New Zealand and foreign taxes could be reduced under proposed international tax reforms” continues Alan.
“The catch is that our Government seems to be reluctant to progress re-negotiating our double tax treaties at the same time that they are consulting on reforms to the way New Zealand taxes foreign income. This is likely to be a combination of a lack of qualified resource in the Inland Revenue Department and the fact that reducing foreign withholding taxes for our exporters also means New Zealand will have to reduce withholding tax on dividends, interest and royalties paid to the owners of the substantial foreign investment into New Zealand.”
The net result of reducing withholding taxes in our double tax treaties could be a fiscal cost to New Zealand given our heavy reliance on foreign capital.
“However, it is not sensible to keep our head in the sand on reducing withholding taxes. We were late to drop our corporate tax rate to 30%, late in considering reforms to the way we tax foreign income and are certainly not ahead of the OECD pack in looking to renegotiate our double tax treaties to reduce withholding taxes” says Alan.
The announced review of the Australian treaty could have been prompted by a much broader review announced by the Australian government looking at the future of their whole treaty programme. There seems to be a view in Australia that New Zealand will not negotiate lower withholding taxes in the Australian treaty before securing an updated treaty with the US.
“The Government should take this immediate opportunity to slash withholding rates between Australia and New Zealand. The Government may not be able to influence the exchange rate to help exporters but they can help reduce foreign taxes on export earnings. They should just get on with it, or do we want to be second to Australia yet again?"
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