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Govt To Plug Tax Loophole As Stapled Securities Attract Interest

Fuseworks Media
Fuseworks Media

Wellington, Feb 22 NZPA - The Government today moved to plug a
tax loophole involving stapled stock instruments, such as those
being offered for Auckland's international airport.

Stapled securities are not common in New Zealand, but are
increasingly used in Australia.

They combine two or more securities, for example a unit in a
trust and a share in a company, which then can not be separately

The Canadian Pension Plan Investment Board (CPPIB) fund bidding
for Auckland International Airport has included stapled securities
in its offer

It is offering $3.6555 a share in a complicated deal with a cash
component, plus stapled securities comprising a mix of ordinary
shares and convertible notes.

Finance Minister Michael Cullen and Revenue Minister Peter Dunne
said today they will update the tax rules to prevent a serious loss
to the revenue base from the use of those securities.

"Stapled stock instruments are relatively common overseas but
until recently have not been used much in New Zealand, and our tax
rules have yet to catch up," Mr Dunne said in a statement.

Companies can use stapled stock instruments to pay tax-deductible
interest to shareholders as a substitute for dividends, creating
problems for tax-gathering if the instruments are issued to foreign
investors in New Zealand companies.

"If those instruments were to become common in New Zealand the
amount of debt deductions against our tax base could increase
significantly," said Mr Dunne.

Cabinet decided to change the Income Tax Act to ensure that
stapled securities will be treated as equity for tax purposes -- and
no deductions for interest payments will be available.

"Securities that have already been issued will not be affected
by the legislative change," said Mr Dunne.

The move was announced without consultation with interested
parties because "there is growing interest in using these
instruments in the New Zealand market following on from their
international popularity".

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