International taxation

Tax laws are becoming more complex internationally as Governments compete with each other for global economic wealth and tax revenue. Some jurisdictions use tax incentives as a mechanism to encourage and influence local and foreign investment. New Zealand has moved in the opposite direction and developed a broad-based tax system that avoids the use of tax incentives.

Some practical illustrations of the additional complexity that arises when investing internationally:

  • Variation in tax policies and laws between countries can result in quite different treatment of identical transactions. For example, differences in the treatment of share capital and debt can be of critical importance when considering the availability of interest deductions to an overseas subsidiary and the domestic tax treatment of interest and dividend income from foreign subsidiaries.
  • Many jurisdictions, including New Zealand, subject foreign income to double taxation when it is distributed to shareholders. This issue of double tax can be of critical importance in considering structuring options for overseas investment and business activity. It can have significant implications for the way in which overseas businesses are conducted as well as for the mix of equity and debt funding necessary in order to optimise tax outcomes.
  • Many jurisdictions, including New Zealand, operate complex international tax regimes that seek to tax profits of foreign-owned subsidiaries. However, there can be considerable inconsistency in the systems of exemption and concessional treatment that maybe available.
  • Most jurisdictions have anti-transfer-pricing rules to ensure that their tax bases are not eroded by excessive charges to foreign-owned entities operating in that jurisdiction. At the same time, it is necessary to ensure that costs incurred locally in relation to overseas operations are fully deductible.
  • New Zealand is a party to a significant number of bilateral taxation protocols (double tax treaties) with other OECD member countries. These treaties override domestic tax laws in order to allocate taxing priorities to one of the signatory jurisdictions and limit the imposition of taxes in various circumstances.

Venturing into overseas business operations can be difficult enough without the added complication of reconciling the associated international tax implications.

Grant Thornton's New Zealand tax professionals will work with you to provide a practical solution to the tax issues that confront your international business and reconcile competing tax issues and objectives inherent in cross-border business and investment. We will work with our overseas colleagues to develop the structuring solution that is most suited to your business having regard to its commercial and operational requirements.

Grant Thornton will also provide continuing support in managing the ongoing risks arising from your existing international business.

Our tax advisers can assist in relation to:

  • Structuring inbound and outbound investment and business activity
  • International transfers and secondments of personnel
  • Managing ongoing risks and opportunities associated with existing international operations
  • Transfer pricing
  • Management and administration of international tax compliance obligations

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Click here to read about what the effect of the new thin capitalisation rules will have on foreign investments in New Zealand.

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