Transtasman double-dip tax move raises corporate cheer

Friday 19th January 2001

By Nick Stride

Accountants are optimistic new talks with Australia will see an end to "triangular" double taxation of dividends, bringing benefits to corporates and shareholders worth hundreds of millions of dollars a year.

But a more wide-ranging pact recognising all imputation credits is still in the political too hard basket.

Officials from the two countries held a first round of talks last month. The respective treasurers, Michael Cullen and Australia's Peter Costello, have instructed the officials to find "a workable model for recognition of imputation credits in triangular cases."

Triangular taxation occurs when New Zealanders hold shares in an Australian company with a New Zealand subsidiary - for example, Telstra or AMP - or vice versa. A large chunk of Telecom's shares, for instance, is held by Australian institutions.

The local subsidiary pays tax in its country of domicile. But when dividends are distributed to shareholders by the parent company the tax already paid is not recognised, meaning shareholders are taxed twice on the same earnings.

Accountants say the issue has huge implications for New Zealand corporates and for transtasman investment flows. Tax considerations influenced the decisions by Lion Nathan and Nufarm to shift their head offices to Australia.

Previous talks on recognition, in 1992 and 1996, foundered on worries about the fiscal cost to each country of recognising tax paid in the other.

Deloitte Touche Tohmatsu partner Mike Shaw said an agreement on triangular taxation could help stop the migration of major corporates. "Whatever the current potential fiscal cost of triangular taxation, it will be worth it in the longer term," he wrote in a letter to clients.

Tower Corporation chairman Colin Beyer said this week a wider mutual recognition pact could encourage Tower to keep its head office in New Zealand.

However, such a pact is still seen as being politically unacceptable.

PricewaterhouseCoopers partner Stuart McCulloch said one roadblock in the way of a wider agreement was the fact neither country knew how much of its citizens' money was invested in the other country. It was therefore impossible to forecast the fiscal impact.

Another serious issue was the risk other trading partners would ask for the same treatment, again posing an unquantifiable fiscal risk.

Officials are to report back to their ministers on the triangular taxation issue by June 30.

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