Banking continuity issues

Clauses 408 and 416

Issue: Ownership interest requirements

Submission

(29 – Russell McVeagh)

The proposed legislation refers to the “new parent” holding all ownership interests in the “initial parent”, and the “initial parent” holding all ownership interests in its direct and indirect subsidiaries. Exceptions need to be made to these ownership requirements to deal with instruments that are regarded as equity for tax purposes that do not convey real ownership interests.

Comment

Officials agree that certain exceptions will need to be considered if the proposed legislation is to carry out its intended policy objectives. Officials have considered the carve-outs proposed and agree they are necessary.

Recommendation

That the submission be accepted.

Submission

(29 – Russell McVeagh)

The present definition of “ownership interest” in the proposed legislation means either a voting interest or a market value interest, but not both. The definition should not be mutually exclusive and the continuity of both voting interests and market value interests should be preserved.

Comment

Officials agree that the continuity of both voting interests and market value interests should be preserved.

Recommendation

That the submission be accepted.

Issue: References to execution, beginning and ending of a non-operating holding company restructure

Submission

(29 – Russell McVeagh)

Terms such as “execution”, “beginning” and “end” should not be used in the proposed legislation. This is because it is difficult to determine the exact timing of a restructure.

Comment

Officials accept that it may be difficult to determine the exact timing of the beginning and end-date for this type of restructure. We agree that the legislation should reflect the fact that there will not be a single clear-cut beginning or end-date for this type of restructuring.

Recommendation

That the submission be accepted.

Issue: Other drafting matters

Submission

(29 – Russell McVeagh)

A number of technical changes need to be made to the current draft legislation. The majority of those are minor drafting matters that are needed to ensure the draft legislation is applicable to taxpayers.

Comment

Officials have considered all the changes proposed in the submission and agree they are necessary.

Recommendation

That the submission be accepted.

Submission

(Matter raised by officials)

The proposed legislation should also include a requirement that the shareholders will need to hold the same proportion of ownership interests in the new parent company as they had done in the initial company once the restructured arrangement is completed.

Comment

The amendment will further improve the integrity of the proposed legislation.

Recommendation

That the submission be accepted.