Post by Sapphire Capital on Jul 24, 2008 22:38:08 GMT 4
Australia and New Zealand edge closer to mutual recognition of credits
International Tax Review
Australia and New Zealand's finance ministers expect negotiations on a new tax treaty between the two countries to conclude successfully by the end of this year. They agreed the most recent version in 1995 and an amending protocol was added 10 years later.
At a meeting on July 17, Wayne Swan, Australia's treasurer, and Michael Cullen, New Zealand's finance minister, also discussed mutual recognition of imputation and franking credits between companies that invest in the other's country, which does not exist at the moment.
"Under current arrangements investors on both sides of the Tasman are being double-taxed," Cullen said. "And investment flows between us are distorted in a way which doesn't sit well with wider moves towards a Single Economic Market.
The issue relates to where a taxpayer in one country pays tax on dividends received from a company based in the other, which has also paid tax on the dividends. The taxpayer gets a credit for the tax they paid through the double tax treaty between Australia and New Zealand, but the company does not.
Legislation addressed the issue in 2003, allowing companies from both countries to pass on credits they obtain from doing business and paying tax in the other jurisdiction. New Zealand amended its tax law again in 2006 to stop companies from engaging in a practice known as credit streaming, or allocating imputation credits to dividends paid to a New Zealand investor if the payment of the dividends results in a tax deduction in Australia
While New Zealand seems anxious to move forward on the issue, Australia does not appear to be in such a hurry. Swan said New Zealand should make a submission on mutual recognition to the review of his country's tax system. The review panel is due to report to Swan by the end of next year.
Australia has more to lose from mutual recognition. Figures from 2007 show it had more than $50 billion invested in New Zealand companies, while $20.5 billion had been invested the other way.
In a recent speech, Cullen conceded that Australia may be more reluctant to introduce mutual recognition because of the precedent it feels the move would set between it and other countries.
International Tax Review
Australia and New Zealand's finance ministers expect negotiations on a new tax treaty between the two countries to conclude successfully by the end of this year. They agreed the most recent version in 1995 and an amending protocol was added 10 years later.
At a meeting on July 17, Wayne Swan, Australia's treasurer, and Michael Cullen, New Zealand's finance minister, also discussed mutual recognition of imputation and franking credits between companies that invest in the other's country, which does not exist at the moment.
"Under current arrangements investors on both sides of the Tasman are being double-taxed," Cullen said. "And investment flows between us are distorted in a way which doesn't sit well with wider moves towards a Single Economic Market.
The issue relates to where a taxpayer in one country pays tax on dividends received from a company based in the other, which has also paid tax on the dividends. The taxpayer gets a credit for the tax they paid through the double tax treaty between Australia and New Zealand, but the company does not.
Legislation addressed the issue in 2003, allowing companies from both countries to pass on credits they obtain from doing business and paying tax in the other jurisdiction. New Zealand amended its tax law again in 2006 to stop companies from engaging in a practice known as credit streaming, or allocating imputation credits to dividends paid to a New Zealand investor if the payment of the dividends results in a tax deduction in Australia
While New Zealand seems anxious to move forward on the issue, Australia does not appear to be in such a hurry. Swan said New Zealand should make a submission on mutual recognition to the review of his country's tax system. The review panel is due to report to Swan by the end of next year.
Australia has more to lose from mutual recognition. Figures from 2007 show it had more than $50 billion invested in New Zealand companies, while $20.5 billion had been invested the other way.
In a recent speech, Cullen conceded that Australia may be more reluctant to introduce mutual recognition because of the precedent it feels the move would set between it and other countries.