Forum Archive Index - December 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Shares and Winner 69,



Thanks for your respective explanations.

>
> 
>It is a form of (part) recompense to foreign holders of the NZ
>company tax paid by on Telecom's (and other companies') profits and
>included as an imputation credit for NZ tax payers.  Foreigners
>can't use NZ imputation credits.  
>
>

I accept the explanation.  But it does seem odd that New Zealand does 
this yet no other countries do it.  Or do they?  Can anyone name 
another country that gives tax paid back to foreign investors?

>
>
>The money is not from Telecom's
> (or other companies') coffers, but is allowed as a full tax credit
> for Telecom (or other) by the IRD.  It has no cost to either Telecom
> or the other shareholders.  NZ taxpayer holders of Telecon get a
> dividend of 7.5 cps (5.0cps + imp.tax credit of 2.5cps), while
> foreign holders get 5.8824cps.  Ask yourself who's better off. 
> 

As Winner pointed out:

5.8824c less 15% witholding tax leaves 5c as a dividend.

So if you were Australian, then you would have to show on your tax 
return an amount of 5.8824c (gross) less witholding tax of 0.8824c 
leaving a net dividend of 5c.  Is that correct?

I guess it would then depend on what your income level was in 
Australia as to whether you would have any extra income tax to pay 
over there.

However, the fact remains that the New Zealand income tax department 
is giving back 0.8824c of tax to overseas investors for every 
Telecom share held by those investors.  

True, you could also argue that the IRD are 'giving back' (by way of 
imputation credits) 2.5c of tax to New Zealand investors for every 
Telecom share held by those New Zealand investors.  But these New 
Zealand investors will be spending the money in New Zealand paying 
GST and generally helping the local economy bubble along.

The overseas investors are simply repatriating the dividend money 
back offshore.  This is a process which the IRD is incentivising by 
giving the overseas investor back 15c in the dollar of the tax that 
Telecom has already paid.  If the IRD didn't do this, wouldn't the 
same overseas investors be more inclined to ask the company (Telecom 
in this instance) to leave the retained earnings in New Zealand and 
so benefit the New Zealand economy?  It seems to me that if you were 
an overseas investor and you sole objective was to repatriate 
as much income as you could 'back home' then New Zealand would be the 
place to invest.

I guess what I'm asking here is:
"Is government policy contributing to the shortage of investment 
capital available in New Zealand?"

SNOOPY



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