Most Read Contributor in New Zealand, September 2016
The exemption is provided for in the Tax (International and
Remedial Matters) Bill now before the House. It will apply
from the date the Bill receives the Royal Assent, to both existing
corporate bonds and those yet to be issued.
The Bill allows interest to be paid without the application of
either AIL or non-resident withholding tax on registered securities
issued by approved issuers if the security is:
denominated in NZ dollars
at the time of issue, offered to the public, and not privately
not asset-backed, and
either listed on an exchange registered under the Securities
Market Act 1988 (currently only the NZDX qualifies) or which at the
time of the payment of the interest, or previously, meets certain
"widely held" requirements.
The "widely held" requirements are that:
there are 100 or more holders of the security
the issuer has reasonable grounds for expecting that 100 or
more of the holders are not associated with other holders, and
no person or group of associated persons holds more than 10% by
value of the securities.
In addition, the registrar and paying agent for the security
must carry on their activities in New Zealand.
The Government Commentary refers to the proposal as a 0% rate of
AIL but, from a legal perspective, it is simply an exemption.
The restriction on asset-backed securities is intended to apply
to securitization vehicles, rather than to prevent the exemption
applying to secured debt. The Government's concern is that
securitizations coupled with a tax exemption could result in
significant damage to the New Zealand tax base, by allowing the
profit margin on New Zealand lending to be easily moved
There is no change to the requirement that AIL can only be paid
on interest derived by a person who is not associated with the
payer. Issuers should consider whether the existence of a trustee
for bondholders has the unintended consequence that this
requirement is currently not met.
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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