In yet another sign of the liberalizing impact of tax competition, New Zealand lawmakers are lowering the nation’s corporate tax rate and moving toward a territorial tax regime (the common‐sense approach of only taxing income earned inside national borders).
Kiwi officials openly admit that these reforms are driven by a need to compete with other nations, further confirming the need to protect and promote fiscal rivalry from the anti‐competition schemes of international bureaucracies such as the Organization for Economic Cooperation and Development.
Tax-news.com reports on the New Zealand reforms:
New Zealand Finance Minister Michael Cullen has announced a 3% cut in the country’s rate of corporate income tax along with a series of other measures designed to improve the nation’s international business competitiveness.
The most significant component of Cullen’s 2007 Budget, announced in parliament on Thursday, was the decision to reduce the rate of corporate tax to 30% from April 1, 2008. “Business has long argued that such a reduction will assist in boosting productivity and competitiveness and attracting more foreign direct investment increasing labour productivity and wage rates,” Cullen stated, adding that the move would also “reduce the attractiveness of structuring businesses so as to report minimal profits within New Zealand.”
…[A]ccording to Cullen, the review of the international business tax regime could be of greater significance than the corporate rate cut or the research and development tax credit in contributing to future economic growth and could cost far less. “Our current tax rules in relation to New Zealand companies investing in offshore activity impose additional costs that are not faced by businesses resident in other countries. This has created an incentive for New Zealand firms to migrate,” Cullen observed. Currently, New Zealand taxes New Zealand residents on their worldwide income. This includes any income that is earned by a foreign company that is controlled by New Zealand residents.