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Inland Revenue

Tax Policy

Letter to the Minister of Finance

New Zealand government coat of arms

Office of the

Consultative Committee on Full Imputation and International Tax Reform

PO Box 3724

23 March 1988

Hon R O Douglas
Minister of Finance
Parliament Buildings

Dear Mr Douglas,

On behalf of the Consultative Committee on Full Imputation and International Tax Reform, I enclose Part 1 of the Committee's report on the reform proposals outlined in the Consultative Document on International Tax Reform. The report outlines the Committee's recommendations on the main elements of the international tax regime. We will report separately on further details of our recommended regime and on the proposals in the Consultative Document on Full Imputation.

The Consultative Document proposed that the main taxing regimes, the branch equivalent and the comparative value regimes, take effect from 1 April 1988. We have therefore concentrated in this report on the matters which need to be decided before 1 April 1988 so that taxpayers will know with as much certainty as possible whether they are to be affected after that date. We believe that, once you have made your decisions, taxpayers will have a considerable degree of certainty.

A period of uncertainty is one of the costs of the consultative process. The trade off is that taxpayers have far more input into decision making than they had previously. We believe that the benefits of the consultative process outweigh the costs and that it would be impossible to implement tax reforms as complex as these without such a process.

If you accept our recommendations on transitional provisions, most existing foreign investments owned by New Zealand residents will not be affected by the branch equivalent regime until 1 April 1990. The need for legislative certainty from 1 April 1988 would therefore be reduced.

This report deals with the major building blocks of the international regime. Because of the substitutability of different legal entities, the building blocks need to be closely integrated. In addition, the international reforms are intimately linked with the full imputation proposals, the reforms to the taxation of superannuation funds and life insurance and also future tax reforms such as the introduction of a capital gains tax. We have considered our recommendations in this context.

I would add that the recommendations in this report represent the unanimous views of Committee members .

The Committee has benefited from the input of officials of the Treasury and the Inland Revenue Department. In particular, we express our thanks to Messers Alex Duncan, Ken Heaton and David White of Treasury and Anthony Grace and Michael Rigby of the Inland Revenue Department.


Yours sincerely

Signature of Arthur Valabh, Chairman

Arthur Valabh