Response to the Consultation on “Possible changes to income tax rules on interest”

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HM Customs and Revenue (United Kingdom)

This letter represents the views of the New Zealand Bankers’ Association (“the NZBA”). The NZBA is the New Zealand banking industry group, established to represent and promote policy outcomes which contribute to a safe and successful banking system that benefits New Zealanders and the New Zealand economy.

The NZBA is concerned that the proposals relating to Yearly Interest and Quoted Eurobonds in their current form will undermine the efficiency of the funding operations that New Zealand Banks have established in the United Kingdom (the “UK”). This will in effect increase the cost of funds to the New Zealand economy obtained through the UK funding operations. Ultimately, the imposition of such a cost will either be passed into the New Zealand banking system or, more likely, require consideration of the UK funding operations to be relocated outside the UK.

The issue is that New Zealand is a net capital importer and the New Zealand Banks operate to largely intermediate the supply of funds to the New Zealand economy. As part of this, currently, the major New Zealand Banks utilise their UK funding operations to access the Euro and US debt capital markets, with all of the proceeds then being on lent back to New Zealand.

To date, the UK has been a successful locale from which to base such operations. At a broad summary level, these operations involve the UK branch of a subsidiary of a New Zealand incorporated and registered Bank sourcing funds, usually through the issuance of short-term commercial paper and medium-term notes from the Euro and US markets and onlending those funds (at a margin) to its New Zealand parent bank. The margin from these activities (which has been agreed with HMRC) is subject to tax in the UK.

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