GPG gets its own overseas tax rule

Tony Gibbs

The Government has caved in to pressure to exempt Guinness Peat Group from changes to the international tax rules, at least for the next five years.

The exemption is not contained in the tax bill tabled in Parliament yesterday but will be brought in by way of a supplementary order paper - a mechanism used for last-minute changes of mind.

The bill also makes it clear that there is no retrospectivity to the new regime, so investors in other offshore companies will have time to consider the implications and adjust their affairs accordingly.

"I'm a happy man," GPG director Tony Gibbs said after a day of intensive lobbying.

"I'm looking forward to a couple of glasses of wine. It's a sensible pragmatic answer to a difficult problem."

The amendment does not mention GPG by name but will apply to any company exactly like it in being:

* Resident and stock exchange-listed in one of the old "grey list" countries, which includes the United Kingdom.

* Dual-listed in New Zealand as well.

* Widely held, with a "substantial" New Zealand shareholder base.

* But not a mutual fund or investment trust.

GPG has more than 28,000 New Zealand shareholders, many of them loyal to GPG chairman Sir Ron Brierley.

The company has been lobbying hard for a change to the new investment tax regime announced last month, encouraging its mum and dad shareholders to express their views to the Government. Many did.

Deloittes tax partner Thomas Pippos said the Government had found a "credible" tax policy reason for the exemption: the five-year holiday would allow time to complete a review of another part of the international tax regime, that covering controlled foreign companies.

The review will consider whether the rules should distinguish between active investment, such as investing in factories, and passive investment, such as investing in securities.

Gibbs said the five-year period gave the Government time to change the CFC rules if it wanted to and for GPG then to decide what to do.

Revenue Minister Peter Dunne said a five-year holiday would give companies time to consider shifting their headquarters to New Zealand.

The part of the new regime GPG objected to introduces a capital gains tax on shares held directly in seven "grey list" countries - Canada, Britain, Germany, Japan, Norway, Spain and the United States - where investors only have to pay tax on dividends.

It only applies to investors with more than $50,000 invested in shares overseas (excluding Australia) and there are provisions limiting the amount of tax paid in any one year, but if the investor sells and brings the money back to New Zealand, 85 per cent of any gains not already taxed will be taxable.

Earlier in the day, Dunne and Finance Minister Michael Cullen were sticking to the line that "nearly all of the protest over the proposed changes is coming from a group of investors who have investments in countries that are favoured under the current tax rules and who will now have to pay the same level of New Zealand tax on their overseas shares as all other direct investors in overseas shares".

National's finance spokesman, John Key, said the u-turn was a well-deserved win for GPG's shareholders.

"But it goes to show how ludicrous the whole policy is that somehow the shareholders of one British company are different from the shareholders of another."

PricewaterhouseCoopers tax partner Peter Boyce said investors in overseas shares had time to work out whether they would be adversely affected by the new tax rules for savings and investment - and most would not - and to adjust their affairs if necessary.

The transition provisions in the bill make it clear there is no retrospectivity.

"If after considering the implications people figure out it would be beneficial to exit [an investment overseas] before April 1 next year they will have the opportunity to do that," he said.