Hon Peter Dunne
Minister of Revenue

MEDIA STATEMENT

Dunne welcomes paper on tax and bond market

Revenue Minister Peter Dunne has welcomed the publication of an issues paper seeking feedback on possible changes to tax rules that may be hindering the development of a domestic bond market.

The paper, "AIL, NRWT and the bond market", looks at whether AIL – the approved issuer levy – should apply at a zero rate, rather than the usual 2% on interest paid on corporate bonds that meet certain criteria.

Well developed domestic capital markets have an important role to play in economic growth," Mr Dunne said.

"New Zealand's corporate bond market is a very small but growing part of our financial system, with corporate bonds on issue having risen in value from $12 billion to $23 billion since 2005.

"AIL, which in some circumstance is an alternative to paying non-resident withholding tax on interest paid to non-residents, is sometimes identified as a possible impediment to further growth of our bond market.

"The issues paper suggests that reducing AIL to 0% on bonds could make it marginally cheaper for New Zealand businesses to issue bonds to non-residents.

"However, to protect the tax base, a 'widely held' test would be used to determine whether a financing instrument was indeed a bond rather than a loan from a financial institution. Bonds that are listed on a stock exchange would automatically qualify for the zero rate under a separate test.

"As part of the policy development process, the issues paper seeks feedback on the need for and the workability of the suggested changes to the tax rules. I urge all interested parties, including businesses to have a say on these important matters," Mr Dunne said.

"AIL, NRWT and the bond market" is published at www.taxpolicy.ird.govt.nz.

Submissions close on 30 October 2009.

Mark Stewart - Press Secretary, Office of Hon Peter Dunne
Cell +64 21 243 6985