The tax landscape in New Zealand is changing, with less M&A and fewer transactions work because of the financial downturn, a tightening of bank lending and the effects of the February 2011 earthquake in Christchurch. However, some in the market comment ...
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The tax landscape in New Zealand is changing, with less M&A and fewer transactions work because of the financial downturn, a tightening of bank lending and the effects of the February 2011 earthquake in Christchurch. However, some in the market comment that interest in M&A is picking up, with clients increasingly discussing acquisitions and restructuring. There is also consistent demand for specialists in areas such as goods and services tax (GST) and transfer pricing.
The government has given more resources to the Inland Revenue Department (IRD) to increase their audit activity. The effects of more scrutiny are being felt by both tax professionals and their clients. "The IRD has been buoyed by the wins that they have had. Inspectors are adopting a much more challenging approach," said a partner.
More tax disputes are going to court. The IRD has won several anti-avoidance cases, causing taxpayers to become more focused on risk management and managing their tax positions. "With the anti-avoidance law having gone the way it has in this country, the IRD is chalking up a number of victories that emboldened a number of IRD investigators," said one partner. "Tax avoidance still perplexes the tax community," commented another.
The corporate tax rate was lowered in 2010 from 30% to 28%, with effect from the 2011-2012 fiscal year. "The corporate tax rate has not had a huge impact just yet," says Andrew Ryan of Minter Ellison Rudd Watts.
The GST rate was raised to 15% from 12.5% in October 2010, which has been absorbed by the economy. "There was the introduction of transitional issues when the GST was issued, but the corporate rate probably in itself has not had a big impact," commented David Haywood of Ernst & Young.
In its latest economic survey of New Zealand, the OECD recommended that the government remove its favourable tax treatment of housing and inefficient regulatory constraints on supply.
In addition to reforms set out in the government's 2010-2011 budget, the organisation suggested other tax reforms that could further stimulate growth and saving. These options include aligning corporate, capital and labour income tax rates at lower levels, or adopting a dual income tax approach.
The government addressed some key tax issues in its 2010-2011 budget, stating that a comprehensive realisation-based tax on capital gains would help reduce bias towards housing investment.
There has been great debate over the possible introduction of a comprehensive capital gains tax (CGT). Many business groups and organisations, including the IMF and the OECD, have argued in favour of one.
Commentators have said that the government could use a CGT to rebalance the economic distortions created by the reliance on property investment.
The incumbent National Party government opposes a CGT and are arguing for alternative measures, while the Labour Party has heralded the tax as necessary to improve the economy.
However, others are worried that the introduction of a CGT would reduce M&A activity and bring implications for New Zealand's tax treaties.
Tax professionals agree, however, that companies should expect few rule changes before the general election due in November 2011.
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