Investors approve fund move to Cook Islands

Investors in ING's Diversified Yield Fund yesterday voted to approve the company’s proposal to restructure the fund through the Cook Islands.

Friday, June 10th 2005, 6:20AM

by Rob Hosking

The move is aimed at restoring some of the tax minimisation lost last year when the government closed the loophole used by investments in Australian Unit Trusts (AUTs).

ING head of distribution Wayne Becker says a “significant majority” of investors opted to go with the change.

He reiterated earlier comments that the tax-efficient part of the investment is likely to be short-lived. “

A lot of that will be clarified when the Inland Revenue Department releases their documents on how offshore vehicles will be taxed.” That discussion document is due at the end of the month.

The IRD, meanwhile, is keeping an eye on structural changes such as ING’s move in the wake of closure of the AUT loophole.

IRD policy adviser David Carrigan says the department is concerned about further revenue leakage in the wake of the AUT change. “Our policy is we want rules that do not favour offshore investment over New Zealand investment.”

That will be the overall goal of the policy changes signalled in the discussion document, he says, and “I can’t really pre-empt that.”

The AUT loophole had been backed by specific binding rulings from the department. The IRD is less prepared to issue such rulings these days – and in any case they take time.

That is something not available in this case – the government looks set to abolish the main advantage in the current structure, the tax-favoured “grey list” countries – Australia, the United States, the United Kingdom, Japan, Norway, and Canada – by April 2007 at the latest.

ING did not ask for a ruling this time, says Becker.

Carrigan says the “offshore investment loops” take place because of the grey list.

“All the ones we know about utilise those grey list countries at some point.” Becker says ING has been liaising with the IRD and that the cash part of the investment in the Diversified Yield fund “which is not small”: will be taxed by way of resident withholding tax.

“We’ve been asking our investors to provide their marginal tax rate and we’ve been working with the IRD on this. We’ve also, obviously consulted our own tax advisers.”

The change, using the Cook Island, involves setting up a special purpose vehicle, which is being administered by HSBC Bank.

“There is an extra layer, an extra entity, between the fund and the underlying asset. Nothing else changes.”

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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