Tim Hunter aka “Chalkie” has a fascinating article in today’s DomPost on why foreigners are so keen to buy New Zealand assets – tax. He discusses Wellington Electricity Network and Lochinver to make the point that “the real appeal of investing in New Zealand is how easily foreign companies manage to avoid paying tax” – anywhere.
“There are huge tax advantages available to overseas investors that simply cannot be accessed by locals. They crank up the returns available to foreign buyers and make New Zealand assets worth more to overseas owners than to New Zealand residents.”
He looks Wellington Electricity Network as an example, and also Lochinver. Read it and weep – or get mad.
WED was bought by Cheung Kong Infrastructure Holdings for $785million. It makes a loss, not because of its cashflow but because of its debt – 80% of its asset value. The debt is to a CKI company registered in the British Virgin Islands at a premium rate 12.5%. It pays no tax in New Zealand becuase of the loss and pays no tax anywhere else because it is owned in the Bahamas “where , like BVI, the tax system is a warm bath for companies to float in the dark and listen to the sound of money – no company tax, no withholding tax, no captial gains tax, nothing.”
Chalike discusses the Lochinver sale as well.
Chalkie reckons we should welcome foreign investment, but not so much that we meet it at the airport with the tax equivalent of a red carpet on the tarmac, a chauffeur-driven limousine, free accommodation at Kauri Cliffs and an invite to John Key’s house for drinkies every Friday night. Whatever the benefits of overseas ownership – and there will be some – Chalkie reckons we should also take account of the costs.
The issue is the same whether the assets are companies or farmland. The would-be buyer of Lochinver Station near Taupo has been named as Pure 100 Farm, described by the Overseas Investment Office as “a wholly owned subsidiary of Shanghai Pengxin Group”.
It may be, but its immediate parent is Milk New Zealand Holding, owner of the former Crafar and Synlait farms in Waikato and Canterbury. Milk New Zealand Holding is wholly owned not by Shanghai Pengxin, but by Milk New Zealand Investment, a company registered in the British Virgin Islands. The ownership was disclosed to the Companies Office on August 13.
Chalkie reckons owning New Zealand farms through a Caribbean tax haven may have tax advantages – or is that xenophobic?
The ownership was disclosed on August 13. On August 2 Farrar’s Kiwiblog (repeated in National Business Review) carried this post in support of Steven Joyce’s “xenophobia” attack on Labour’s Grant Robertson on TV3’s The Nation.
Interestingly, a couple of the commenters on Kiwiblog were awake to the murky ownership of the Lochinver would-be buyers. However I think Chalkie is right – we should pay attention to the costs of foreign investment, and we need tot alk about that rec carpet rollout.
Joyce’s thoughtless bullying exemplifying National’s thoughtless “soundbite” approach leaves New Zealand wide open. At least Labour will keep New Zealand for New Zealanders and will also close the tax loopholes available to multinational corporates.
Time for a change.
P.S. For more on Wellington Electricity Network’s history and the stupidity of asset sales to foreigners, see this Fabian Society paper comparing outcomes for water and electricity networks in Wellington.