Announcements
PUBLISHED 21 September 2004

New tax rules for foreign-owned banks

The government will introduce legislation to ensure foreign-owned banks operating in New Zealand pay enough tax on their New Zealand income, Revenue Minister Michael Cullen announced today. New income tax thin capitalisation rules specific to foreign-owned banks will be included in the taxation bill planned for November and are expected to apply from 1 July 2005. For more information see the government's media statement.


Hon Dr Michael Cullen
Minister of Revenue

MEDIA STATEMENT

New tax rules for foreign owned banks

The Government will introduce legislation to ensure foreign-owned banks operating in New Zealand pay enough tax on their New Zealand income, Revenue Minister Michael Cullen announced today.

"The New Zealand tax payments of foreign-owned banks have not appeared to reflect their reported profits in recent times," Dr Cullen said. "I am advised that they are using certain features of our tax rules to pay less tax in New Zealand."

"The legislative change should result in these banks paying around $360 million more a year in New Zealand tax," Dr Cullen said.

For tax purposes, new rules specific to banks will deny them interest deductions if they do not hold a level of capital equivalent to four percent of their New Zealand banking assets, weighted for risk.

"If banks want full interest deductions for tax purposes, they will also be required to have enough capital in New Zealand to fully fund their offshore investments," Dr Cullen explained.

Once the legislation is enacted, the situation will be monitored carefully to ensure that banks pay a level of tax appropriate to their New Zealand-sourced income and their worldwide operations.

The Government has consulted with the banking industry on the development of these proposals, with the result that many of the industry's concerns about the new legislation have been addressed.

The legislation will be included in a taxation bill to be introduced in November.

Contact: Leigh Pearson [press secretary] 04 4719 412 or 021 270 9013
Helen MacKenzie [for technical issues] 04 4719 728