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Tax pooling review - summary

Next steps

Phase 1 of the tax pooling review has identified that tax pooling is operating well and is a service and option that is valued and used extensively by taxpayers. Tax pooling appears to be achieving the policy objectives envisaged when it was developed.

Our review has identified certain risks that exist within the tax pooling framework. IR should consider these risks and determine whether further analysis should be undertaken in order to better understand how these risks are currently being managed, the consequences of the exposure to these risks and, if appropriate, how these risks may be mitigated.

In the event that IR considers further analysis should be undertaken, we would recommend the following approach:

  • perform more in depth analysis to understand how these risks are currently being managed by the key stakeholders such as IR, tax pooling intermediaries and trustees
  • identify the potential areas of risk exposure by highlighting the significant areas of unmitigated risk and understanding the consequences of this exposure
  • consideration of opportunities that would enhance tax pooling to better meet stakeholder requirements and better manage risks.

Potential solutions

While Phase 1 of the review is focused on the identification of risks, we provide some high level comments on potential solutions that IR may wish to consider.

We note that these are merely observations we have made to date as part of the risk identification phase and therefore should not be taken as the complete suite of potential solutions. As referred to above, this may require IR to undertake a second phase of work.

  • IR should consider expanding the regulatory oversight it has over tax pooling intermediaries. Our initial view is that IR is best placed to provide that oversight as tax pooling is fundamentally part of the tax system. This may include annual checks to be performed by the intermediaries that they continue to meet the legislative requirements, together with some form of quality assurance programme over systems and processes.
  • Periodic reconciliation procedures should be adopted between IR and the tax pooling intermediaries/trustees to ensure the systems are operating as they should.
  • IR should increase its understanding of the commercial aspects of tax pooling and the policy objective of tax pooling to ensure that there is a clear understanding within IR of how the various services offered by tax pooling intermediaries operate, and how that delivers the policy.
  • IR, Treasury and the tax pooling intermediaries should hold a workshop to discuss the revenue forecasting issue and agree a process to resolve the forecasting challenges.
  • IR should consider making the use of an independent trustee as a legislative requirement on the tax pooling intermediaries.
  • Recognising that some tax pooling transactions have characteristics of financial instruments IR should hold further discussions with the Financial Markets Authority to explore any concerns that departments may have in relation to the services that are provided by the tax pooling intermediaries, for example, tax financing.
  • IR should maintain regular interactions with other agencies that have a role in the regulation of tax pooling intermediaries, including the Department of Internal Affairs, to ensure there is a good general overview of the tax pooling industry.