Cautionary tax tale from Cullen

Finance Minister Michael Cullen has written to the boards of state-owned enterprises, reminding them to be cautious when entering into big financial deals.

In the June 24 letter, Cullen said SOEs should not be "leading the market" when it came to developing "tax planning strategies".

"Broad government policy in relation to SOEs is that they should as far as possible be able to compete on an equal footing with the private sector, while acting as good corporate citizens by being good employers and exhibiting a sense of social responsibility."

There were also constraints on SOE activities arising out of the fact that Crown ownership carried with it expectations of ethical behaviour.

Cullen said the Government recognised that the boundaries of what might be considered aggressive could change and there would always be an element of judgment involved.

"The purpose of this letter is to communicate to SOE boards that they should take a conservative approach when making these judgments, and to provide further guidance on tax planning activities."

Transpower was criticised for leasing its assets to overseas investors for a $34.6 million payout. It said such deals were common and meant more tax being paid in New Zealand, while not putting ownership at risk. The deal was organised by US investors to take advantage of provisions in their tax code.

Cullen said the tax-planning component of SOE transactions should not be "overly aggressive" from a New Zealand or international tax perspective.