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Review of double tax agreement

NEW ZEALAND will be seen as a high-tax country by international investors if it does not cut non-resident withholding tax rates in a review of a double tax agreement with Australia, tax experts say.

Finance Minister Michael Cullen has announced that New Zealand's 10-year-old double tax agreement with Australia would be reviewed.

A decision on whether to renegotiate the agreement would be made by both governments during the next few months, Dr Cullen said.

"It will in large part depend on whether New Zealand wants to lower withholding rates," he said.

Tax experts said if tax rates were cut, the changes would affect hundreds of New Zealand companies, from big telephone companies, banks and insurance firms to many small to midsized companies seeking to expand into Australia.

However, there was a chance the Government could balk at the risk that cutting tax rates could result in the loss of hundreds of millions of dollars, they said.

During the past two years, Australia has cut the rates of non-resident withholding tax to between zero and 5 percent in treaties with the United States and Britain.

"Many corporates believe similar rates should be pursued by New Zealand," Deloitte tax partner Thomas Pippos said. Without a cut, New Zealand would be seen as a high tax country. Lower rates would make it more attractive for trans-Tasman business.

The Government receives about $800 million a year from non-resident withholding taxes and any lower rate with Australia would have to be offered to the other 28 countries that New Zealand has tax agreements with.

Under the present double tax agreement with Australia, withholding taxes on interest and royalties were 10 per cent, and up to 15 percent on dividends. There was a worldwide trend to reduce them.