Envoi: New Zealand Rules from April 2007: Treating Different Foreign Portfolio Investments as Fungibles

Abstract

From a tax policy point of view, one of the demerits of a foreign investment fund regime is that it causes the law to treat forms of investment that are similar in economic purpose and effect as if they were different. In particular, it I likely to distinguish between direct investments by individuals in foreign companies that carry on an active business and indirect investments in such companies via foreign investment vehicles of one kind or another, most commonly mutual funds or investment companies. On April 11 2006 the New Zealand Ministers of Finance and of Revenue issued a joint statement that outlined new rules for taxing New Zealand residents’ portfolio investments, both domestic and foreign. A prominent feature of the proposed rules is consistent treatment for all foreign portfolio investments that involve less than ten per cent participation in the investee entity. A second feature is that for tax purposes New Zealand investor will treat their foreign portfolio investments as a single pool, calculating annual gains or losses over the whole pool.

Keywords: Foreign investment fund regimes, Law reform New Zealand

JEL Classification: K33, K34