Call for trans-Tasman company tax credits
The trans-Tasman economy could be NZ$5 billion better off if New Zealand and Australia recognised each other's system for offsetting company tax credits.
So says a new report commissioned by Business New Zealand and a group of corporates listed on both the Australian and New Zealand stock exchanges.
The paper, written by economic consultancies NZIER and the Centre for International Economics (CIE), says the lack of mutual recognition of imputation and franking credits is holding Australasian business back.
Currently companies based in one country with operations in the other have their profits taxed twice, because the two jurisdictions do not recognise each other's offsets.
Companies use imputation and franking credits to offset tax they have already paid on their profits. These credits offset the amount of tax that their resident shareholders would otherwise have to pay on the dividends they receive.
A system of mutual recognition would be likely to deliver a $NZ5.3b increase in trans-Tasman GDP, the NZIER/CIE report said.
Currently some NZ$7.4b of Australasian share dividends could potentially be taxed twice - first via company tax in the destination country, and then via personal tax regimes in the investor's economy, it said.
"Australian equity investors in New Zealand face an effective tax rate of some 60 per cent, and New Zealand investors in Australia face an effective tax rate of 53 per cent.
"The existing regime can be seen as a form of tariff on trans-Tasman investment flows."
As a result investment decisions were being made at least in part to minimise tax, rather than on a purely economic basis, the report said. Firms may not be growing their activities as much as they would without this distortion.
One option would be for New Zealand and Australia to adopt mutual recognition of franking credits (in Australia) and imputation credits (in New Zealand).
"Having mutual recognition... would slightly reduce the tax take in both countries, but this would be more than offset by the greater profits circulating in the economies of countries, boosting savings, investment and growth," Business New Zealand chief executive Phil O'Reilly said.
- © Fairfax NZ News
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