Key Practical Issues to Eliminate Double Taxation of Business Income – New Zealand Report to the International Fiscal Association in Paris 2011

Abstract

This paper considers New Zealand's hybrid tax credit system consisting principally of a credit system combined with exemption features in respect of certain classes of income, both of which aim to provide relief to minimise the impact of foreign income being taxed in a foreign jurisdiction as well as in New Zealand. At first sight, these credit and exemption regimes would appear to relieve New Zealand residents from incurring income tax liability on foreign sourced income in both the source jurisdiction and New Zealand. This is generally true for the immediate recipient of the income, although the extent of the relief can vary depending on the basis in which the income is taxed in New Zealand and the foreign jurisdiction due to the manner in which the New Zealand foreign tax regime operates, as discussed later. Furthermore, as will be examined in further details in this paper, the New Zealand tax system may not provide adequate relief against double taxation of foreign income where the immediate recipient of the foreign income is not the ultimate beneficiary of the income, and the foreign sourced income is repatriated to another entity or person (whether or not the ultimate beneficiary of that repatriated income is a New Zealand resident). The paper focuses on the practical problems of double taxation arising from the NZ tax credit systems.