borrowers who do not have an AIL or NRWT obligation because of the onshore branch exemption. Officials consider that the application of the onshore branch exemption is not a permanent solution to this issue as the majority of foreign banks do not have a New Zealand branch. However, officials do not consider it is possible to develop a robust solution to this issue as part of the current project. Therefore, the option to restrict the onshore branch exemption as covered above should not apply if the New Zealand branch holds a banking licence and the borrower is not associated with the non-resident. Summary of impact analysis Option Main objective and criteria Benefits Costs/risks Option 1 Does not meet main Fiscal cost neutral NRWT is perceived as a – – status quo objective Avoids adding voluntary tax by those Does not meet criteria additional complexity to with the resources and (a), (b) or (c) the tax system desire to avoid it Option 2 Meets main objective If successfully applied Taxpayers will have – specific Partially meets criteria this option achieve limited certainty whether rules (a) and (b) policy intent rules apply which will Does not meet criterion increase compliance (c) costs Will be difficult to where there are non-tax reasons for a particular structure) Option 3 Meets main objective More closely aligns with Limiting to related – extend Meets criteria (a), (b) income tax treatment parties results in a wider definitions and (c) which will assist definition for related applying to the taxpayers to comply parties than third parties NRWT Prevents structuring around existing (preferred definitions option) Option 4 Meets main objective More closely aligns with Complex and – more closely Meets criteria (a), (b) income tax treatment internationally novel align NRWT and (c) and economic incidence Taxpayers with revenue with the of interest derived towards end of financial De minimis and investment will have to arrangement allowing payments in finance tax payments in rules year after deductions advance of interest (preferred will limit application option) Option 5 Does not meet main No need to change Very complex and – income tax objective NRWT rules internationally novel deductions until Partially meets criteria Addresses cash flow Deductions will no NRWT is paid (a) and (b) concerns for businesses longer match economic Does not meet criterion with revenue derived incidence which causes (c) towards end of problems for thin investment capitalisation and continuity May breach clauses in some DTAs Not particularly effective for taxpayers with a tax loss
borrowers who do not have an AIL or NRWT obligation because of the onshore branch exemption. Officials consider that the application of the onshore branch exemption is not a permanent solution to this issue as the majority of foreign banks do not have a New Zealand branch. However, officials do not consider it is possible to develop a robust solution to this issue as part of the current project. Therefore, the option to restrict the onshore branch exemption as covered above should not apply if the New Zealand branch holds a banking licence and the borrower is not associated with the non-resident. Summary of impact analysis Option Main objective and criteria Benefits Costs/risks Option 1 – status quo Does not meet main objective Does not meet criteria (a), (b) or (c) Fiscal cost – neutral Avoids adding additional complexity to the tax system NRWT is perceived as a voluntary tax by those with the resources and desire to avoid it Option 2 – specific rules Meets main objective Partially meets criteria (a) and (b) Does not meet criterion (c) If successfully applied this option achieve policy intent Taxpayers will have limited certainty whether rules apply which will increase compliance costs Will be difficult to where there are non-tax reasons for a particular structure) Option 3 – extend definitions applying to the NRWT (preferred option) Meets main objective Meets criteria (a), (b) and (c) More closely aligns with income tax treatment which will assist taxpayers to comply Prevents structuring around existing definitions Limiting to related parties results in a wider definition for related parties than third parties Option 4 – more closely align NRWT with the financial arrangement rules (preferred option) Meets main objective Meets criteria (a), (b) and (c) More closely aligns with income tax treatment and economic incidence of interest De minimis and allowing payments in year after deductions will limit application Complex and internationally novel Taxpayers with revenue derived towards end of investment will have to finance tax payments in advance of interest Option 5 – income tax deductions until NRWT is paid Does not meet main objective Partially meets criteria (a) and (b) Does not meet criterion (c) No need to change NRWT rules Addresses cash flow concerns for businesses with revenue derived towards end of investment Very complex and internationally novel Deductions will no longer match economic incidence which causes problems for thin capitalisation and continuity May breach clauses in some DTAs Not particularly effective for taxpayers with a tax loss