New Zealand mulling tax crackdown on overseas investors

The New Zealand government is considering closing loopholes that enable overseas investors, including large multinationals, to avoid paying tax.

Revenue Minister Todd McClay said Thursday that a new official paper focused on weaknesses in the non-resident withholding tax rules for interest earned in New Zealand by non-residents.

"Non-resident withholding tax has not been significantly reformed since it was introduced in 1964. It was originally designed when financial transactions were much less complex than today," McClay said in a statement.

Without changes to the rules, there was an incentive and ability for non-residents to shift profits out of New Zealand with no or minimal New Zealand tax paid.

The government's Inland Revenue tax agency had uncovered instances where large multinationals were using sophisticated techniques to defeat the tax rules.

"This matter is a domestic law issue and is consistent with the aims of the OECD's (Organization for Economic Cooperation and Development) action plan to tackle base erosion and profit shifting. Acting to remedy this deficiency in our tax laws is part of New Zealand's response to the issue of multinational tax avoidance," McClay said.

"The government has already taken steps to tighten the thin capitalization rules to stop foreign firms from artificially loading debt on to their New Zealand operations in order to minimize their New Zealand tax," he said.

"New Zealand has also signed and ratified the OECD multilateral tax assistance convention which, together with a growing network of bilateral tax treaties, allows information sharing with other countries to limit tax avoidance opportunities."

In July last year, the OECD group of developed nations initiated moves to fight tax avoidance by large multinational companies, making seven recommendations to stop base erosion and profit shifting, the practice of multinational firms of reporting overseas incomes in low tax jurisdictions.