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Companies Abusing PIE Rules to Avoid Tax: Govt

Contributor:
Fuseworks Media
Fuseworks Media

Wellington, Sept 5 NZPA - The Government is moving to close a
loophole which it says enables land-owning companies to abuse new
investment rules to avoid tax
.

Changes to the PIE (portfolio investment entity) rules introduced
last
year, will come into force in October.

PIEs are designed to prevent lower-income people being over-taxed
on their earnings through passive savings vehicles such as managed
funds.

PIE investors on low personal tax rates would be taxed on their
earnings at 19.5 percent.

Investors on higher personal tax rates will be taxed at 33
percent until the start of the 2008/09 income year, when the rate
drops to 30 percent.

Dividends paid by companies qualifying as PIEs are not taxed,
unless the shareholder elects that they are.

But the Revenue and Finance Ministers, Michael Cullen and Peter
Dunne, said today PIEs were being abused.

"It appears that, because PIEs can invest in land, some
land-owning companies that run active businesses are contemplating
using a gap in the new rules to structure the land part of their
business as a PIE, to reduce final tax on shareholder earnings,"
the Ministers said.

"That is against the policy intent of the PIE rules."

PIES are meant to be passive but can receive rents from
land-holdings.

Listed property trusts with commercial buildings are regarded as
complying, but active businesses that hold most of their assets in
land, such as airports, hotels and rest homes, do not.

One way companies get around the rules is by splitting
their land from their operating business, qualifying the
land-owning company to become a PIE, but stapling the two companies'
shares together.

Another way is using the land-owning company to lease land and
buildings to the operating company, which takes a stake of no more
as 10 percent. The group then qualifies to be a PIE.

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