Tax option is not RFRM
The tax method put forward in the government discussion document on the taxation of offshore investments is a substantial move away from the ‘risk free rate of return’ method recommended in the 2001 Tax Review.
Wednesday, December 17th 2003, 11:17PM
by Rob Hosking
The ‘standard rate of return’ proposal was one of two included in the joint Treasury/Inland Revenue Department officials’ paper released this week. However the other method – a set of four possible offshore investment rules that could apply - "doesn’t have a bolters chance," says Shewan.
"It should be consigned to the same hole they found Saddam Hussein in," he says.
It is understood the IRD favours the standard rate of return method, while the Treasury has pushed hard for the other option.
Finance Minister Michael Cullen has thus far refrained from indicating a preference.
It is a mistake to see the ‘standard rate of return’ as the same as that proposed in the 2001 review, says Shewan.
"It’s a substantial refinement, a move away from that. It has a fixed rate of 4% as a proxy for dividend yield, so it does not move around. It also would allow deductions for interest paid – under the risk free rate of return there was no interest deduction, although the net amount was set against tax."
Cullen himself though has referred to the new proposal as "a version of the ‘risk free rate of return method’ recommended by the Tax Review."
The time frame for any changes is likely to shift out into 2005. Although the deadline for submissions on the options is only on February 15, Shewan says any changes are still too late for next year’s annual Tax Bill.
Unless special legislation is brought in, that puts any change out until early 2005.
The original target for settling this issue was June 2004.
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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