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The National Party’s proposal to introduce a foreign buyers tax could open New Zealand up to international legal disputes, and see pushback from global powers such as China, according to some tax experts – and the Government.
The National Party is proposing a 15% tax on foreign home buyers, who purchase houses worth more than $2 million.
New Zealand has dozens of international tax treaties, many which feature “non-discrimination” articles. Tax experts from the private sector and Inland Revenue have identified four agreements, including with China, which appear to prohibit a tax such as National’s foreign buyers tax.
Experts say these clauses represent a major hurdle to implementing a foreign home buyers’ tax. And Labour’s overseas investment spokesperson, David Parker, said there was no way Chinese citizens could be subject to a foreign buyers tax.
“The central source that National has booked to pay for half of their tax cuts has officially collapsed,” he said.
These non-discrimination articles feature in our double tax treaties with China, Japan, Mexico and Australia.
The National Party, in its proposal, acknowledged that some free trade agreements – which are separate from tax treaties – would prohibit New Zealand from imposing a foreign buyers tax.
As a result, it said Australians and Singaporeans would be exempt under its plan. With those two exclusions, National estimated its tax could still net more than $700m each year.
ROBERT KITCHIN/Stuff
National Party deputy leader Nicola Willis is standing by the party’s tax plan.
But if the exclusions were to go wider, then expected revenue would fall.
Before the 2018 foreign home buyers ban came into force, buyers from China made up $1.5 billion of the New Zealand housing market each year.
Parker said Chinese buyers made up almost 40% of the entire offshore buyers market, before the NZ First and Labour Government blocked those sales in 2018.
Tax law expert, Professor Craig Elliffe of the University of Auckland said the non-discrimination clauses would be difficult to navigate. He said domestic law changes in New Zealand could override the tax treaties, but doing so would in itself be a breach of international law.
“Non-discrimination articles are very strange provisions,” he explained.
“They were sort of designed as early free trade agreements, saying you wouldn’t tax or deal with non-residents in a way that is more prejudicial to your own residents or citizens.”
If a future government passed law with a focus on foreign home buyers without renegotiating these tax treaties, then Elliffe said New Zealand could face international disputes.
“That is a breach of international law, and it’s not something, normally, that is done,” he said.
ROBERT KITCHIN/Stuff
David Parker says the foreign buyers tax could not be put into force.
National Party finance spokesperson Nicola Willis on Thursday insisted the foreign buyers’ tax could come into force, and tax buyers from China.
Asked about China, party leader Christopher Luxon said there would “absolutely” be a foreign buyers tax for Chinese buyers under a government he led.
“We are rock solid on our numbers and on our assessments,” he said.
Mayne Wetherell tax law partner Brendan Brown said tax treaties could be overcome, but he said the agreements with China, Japan, and Mexico posed a real hurdle.
“There are issues that need to be worked through, but when governments are designing measures like these, there are steps they can take,” he said.
He said those countries could choose to dispute the change, but governments could negotiate a resolution.
“I somehow doubt that it would be the most important international relations issue for Japan, Mexico, or China,” he said.
“As far as tax goes it’s fairly niche – we’re talking about individuals who want to buy a house and are currently prohibited from doing so.”
For the New Zealand and China agreement, the non-discrimination article states it is not possible for residents of China to be subject to “any taxation or any requirement connected therewith which is other or more burdensome than the taxation” of New Zealand citizens.
The $700 million foreign home buyers’ tax revenue was central to National’s tax plan, released on Wednesday. That plan promised an increase to family payments and also offered income tax cuts, but that relied on a series of cost-cutting initiatives and a new foreign home buyers’ and offshore gambling tax.
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