Review of the Thin Capitalisation Rules

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Inland Revenue Department

The New Zealand Bankers’ Association (NZBA) is grateful for the opportunity to comment on the Issues Paper, “Review of the thin capitalisation rules” (the issues paper) released in January 2013.

The issues paper, outlines the concern that related party debt is being used to reduce the effective rate of New Zealand tax for foreign owned entities. The paper proposes a number of measures are proposed to address this concern, with the effect of broadening the ambit of the New Zealand thin capitalisation regime.

NZBA wishes to express its concern that these proposals may make New Zealand based securitisation structures unviable.

Securitisation structures are often used as a commercial means of facilitating third-party funding through the use of an independent special purpose vehicle. These structures lower the costs of funding by allowing access to new or differentiated debt markets. To be commercially viable, generally a securitisation vehicle must be independent. This requires it to be tax neutral and bankruptcy remote from the originator. In addition, the recourse of note holders of debt securities issued by the securitisation vehicle must be limited to the underlying assets. In many cases securitisation structures involve the use of complying trusts.

Currently, complying trusts are not listed in section FE 2(1) of the Income Tax Act 2007 (the Act) as an entity that must apply the thin capitalisation regime. As a result, securitisation vehicles are not currently subject to the thin capitalisation rules.

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