Bank directors criminalised under proposed rules

The Big Four banks are concerned their directors would be criminalised by a new bill. Photo: Lynn Grieveson

Two of the country’s big four banks say proposed legislation to prevent foreign companies from gaming our tax system could inadvertently criminalise bank directors, Thomas Coughlan reports

BNZ and Westpac made submissions on the Taxation (Neutralising Base Erosion and Profit Sharing) Bill at a select committee on Wednesday and raised concerns about information sharing restrictions.

Both banks were supportive of the Government updating and changing regulations to accommodate changing business practices but said the current proposals would raise serious compliance issues for banks.

The banks took issue with the bill’s provision for enhanced information gathering powers, saying they were satisfied with current powers.

“Inland Revenue does have information gathering powers within New Zealand, they can ask us to give them information on our customers for example. Because that is under the Tax Administration Act it overrides any privacy laws,” said Campbell Rapley, BNZ’s Head of Taxation.

The bill would require banks to provide the same information to IRD about a client’s offshore interests. The banks say this poses a compliance problem for New Zealand’s ‘Big Four’ Australian-owned banks, which have large and diverse interests overseas. An IRD order to surrender information to the New Zealand Government might conflict with privacy laws in other jurisdictions, causing a compliance issue for the banks.

“Let’s say IRD comes to BNZ and says we’re aware of Mr Jones in Hong Kong. We’d like his bank information from your Hong Kong affiliated company,” said Rapley, “If the IRD ask for us for his information we have to give it to them, but there could be Hong Kong privacy laws that our directors are breaching”.

The stakes were high because the bill provided criminal penalties for non-compliance, he said.

“That creates a difficult situation for the directors. Which of the two criminal laws do I want to break?"

Westpac raised similar concerns in its submission.

Rapley said that the IRD already had tools they could use to gather this information from other tax jurisdictions. New Zealand has Double Tax Agreements with many of its major trading partners, which assist the IRD in gathering information on tax avoiders.

Inter-company lending rules also came under scrutiny at the select committee. The bill attempts to address the practice of international branches of a company lending to its New Zealand branch in order to claim a tax deduction or shifting profits overseas where they can be taxed at a lower rate.

Jo Sawden, Head of Tax at Westpac said that the bill represented “a departure from broad transfer pricing rules and doing so is out of step with international norms”.

“By taking a different path to overseas the proposed rules leave New Zealand taxpayers open to a risk to double taxation,” she said.