Lawyers say tax bill ‘too tough’

Press, 9 November 1988, Page 2

Lawyers say tax bill ‘too tough’

By

PATTRICK SMELLIE

Proposed laws to stop abuse of tax havens were too tough, and would discourage foreign investment in New Zealand, the Law Society said yesterday.

The society was making submissions to Parliament’s Finance and Expenditure Select Committtee on the Income Tax Amendment Bill (No. 6). Measures to curb taxdodging were necessary and desirable, the society said. But numerous aspects of the way the new law proposed to do this were questionable. - In particular, attempts to make the tax system neutral actually threatened to create a bias against doing business in New Zealand. “The impact of taxation can be a determining factor in a choice of investment locations,” the submission said. “New Zealand would not be furthering its attractiveness as an investment location for both New Zealanders and foreigners if the effects of favourable tax rates were to be offset by other taxation provisions perceived as unreasonably broad and complex in their application.” Furthermore, the society believed some elements of the bill went against international tax conventions by trying to extend New Zealand tax law into other countries. There was concern, among commercial clients with overseas interests that the international tax regime would "do damage to New Zealand’s economic performance in highly competitive times. “There is considerable force in the view that New Zealand ought not to introduce an international tax regime which disadvantages New Zealand enterprise by preventing

it from undertaking business offshore on the same or a similar basis to that available to major trading competitors,” the submission said. “According to the Government’s own commentaries, the way to economic prosperity in the future lies in New Zealand taking a more active role in international commerce.” But the proposed law did not take sufficient account of this, or the need for New Zealand to attract overseas investment. In other countries, international tax regimes concentrated on the use of tax havens as channels for income earned elsewhere. They did not, as the New Zealand regime would, try to remove tax concessions available in other countries where genuine business activity was under way. Other criticisms focused on the complexity and cost to businesses of complying with the new regime, and the fact that Australian legislators had noted such comprehensive regimes would not necessarily lead to more tax being collected. The society said that the credibility of the tax system would be jeopardised if individuals — particularly those with interests in foreign trusts, or superannuation arrangements — found themselves suddenly confronting highly complex tax rules. There was a real risk that such people would “simply throw up their hands in horror at the regime and not comply with it.”