• Non-extension of Chinese DTA to Hong Kong
• French DTA: Territorial Scope
• Tax Sparing

Non-extension of Chinese DTA to Hong Kong Question: Does the double taxation agreement (DTA) between New Zealand and China extend to Hong Kong? Answer: No, because the DTA has a narrow definition of "China" for the purposes of the DTA. Since the hand-over of Hong Kong to China in 1997 they have been one country, although Hong Kong is a "special administrative district" of China. The laws of China will not apply to Hong Kong for a period of 50 years following the 1997 hand-over. The relations between China and Hong Kong are framed by the 1984 Sino-British Joint Declaration and by the Basic Law on Hong Kong, the latter being legislation promulgated by China which became effective on 1 July 1997. The Joint Declaration established the concept of "one country, two systems", and guarantees maintenance of local rule for 50 years after the hand-over of Hong Kong to China in 1997. The DTA defines "China" as meaning the People's Republic of China (PRC) and includes the territory of the PRC in which the Chinese laws relating to taxation apply. Under the Basic Law on Hong Kong, the Chinese taxation laws do not apply to Hong Kong, so the DTA between New Zealand and China is not extended to include Hong Kong.

French DTA: Territorial Scope Question: Article 27 of the French double tax agreement states that its territorial scope, in the case of France, includes "the European and Overseas Departments of the French Republic". What are these? Answer: Inland Revenue's Public Information Bulletin number 112, supplement No.5, published in August 1982, lists the European and Overseas Departments of the French Republic as: Guadeloupe; Guyane; Martinique; Reunion; and Saint Pierre-et-Miquelon. The European and Overseas Departments of the French Republic do not include France's Overseas Territories, such as Tahiti and New Caledonia.

Tax Sparing Question: Can tax sparing credits be offset against attributed foreign income from a controlled foreign company (CFC) based in the country to whom the tax sparing applies? Answer: A mechanism for economic assistance known as "tax sparing" is found in New Zealand's double tax agreements (DTAs) with the following countries: China; Fiji; India; Korea; Malaysia; Philippines; and Singapore. Tax sparing arises as a result of fiscal incentives that are granted by these countries to encourage investment in certain areas of their economy by reducing or eliminating tax on income from new investments for a certain period. New Zealand permits a foreign tax credit for the tax even though owing to tax concessions, it has not been paid. A tax sparing credit is not available under the CFC rules in relation to a tax concession of a foreign country utilised by a CFC. This is because a New Zealand resident taxpayer is allowed a credit under New Zealand's domestic law for income tax actually paid or payable by a CFC only, and the benefit of a tax sparing provision in a DTA is not extended to the CFC. A DTA allows a credit for tax paid (or deemed to be paid under a tax sparing provision) by a New Zealand resident only. The CFC is not a New Zealand resident for the purposes of the DTA.