Chapter 1 – Introduction

This document sets out the Government’s policy framework for international taxation.

New Zealand’s international tax policy must address four basic questions:

• Who is a resident of New Zealand?
• What is New Zealand-source income?
• How should New Zealand residents be taxed on their foreign-source income?
• How should non-residents be taxed on their New Zealand-source income?

The answers to these questions are often inter-related. Answers to one question may alter the answers that can be made to others.

To put these inter-relationships into context, the Government has developed a framework for consideration of international tax principles and objectives. This sets the groundwork for the detailed development of policy proposals.

The first decision based on the framework has been made. This is the change to Non-Resident Withholding Tax (NRWT) on interest announced in this year’s Budget.

Chapter 2 outlines the policy framework which the Government has developed and explains why the particular framework was selected.

Chapter 3 sets out directions for reform of the taxation of non-residents. It first discusses the taxation of debt supplied by non-residents. Detailed decisions on this have been announced in the Budget. The paper then goes on to cover the taxation of non-residents’ equity investments.

The taxation of residents’ foreign-source income is the subject of Chapter 4.

The paper concludes in Chapter 5 with an outline of the Government’s proposals to co-ordinate its international taxation actions with those of other governments.