Tax Laws Fair to Electricity Companies

  • Bill Birch

The Rt Hon Bill Birch, Minister of Finance and Revenue, and Hon Max Bradford, Minister of Energy, today rebutted Trustpower's attack on the tax consequences of electricity reform as being deceptive and self-serving.

The Ministers rejected Trustpower's claims that power companies, as part of the business separation, are being required to distribute shares in new retail/generation companies to existing shareholders and that this could give rise to taxable dividends.

"That is absolutely false", the Ministers said.

The Bill does not require or encourage Trustpower or any other power company to distribute shares to shareholders.

"How power companies comply with the Electricity Reform Bill, and whether this includes the distribution of new shares to shareholders or not, is a matter for them to choose. If they decide to provide their shareholders with benefits by way of a distribution of shares in the new retail/generation company, that is a dividend and dividends are taxable. As Trustpower itself states, there is no difference from a tax point of view if the shareholders receive cash instead of shares," the Ministers said.

Other options are available to power companies. They can, of course, sell the retail/generation business and retain the proceeds of that sale in the lines business. No dividend taxation would then arise. Community trusts will be able to distribute shares they own in retail/generation businesses directly to the community or customers with no dividend tax.

Allowing a relaxation of the depreciation clawback rules would open up a hole in the tax base. Trustpower"s proposed solution, allowing assets to be transferred at depreciated value, would give special tax concessions to power companies. It would also mean that the company that ends up owning the asset would eventually have to pay tax on the excess depreciation deducted by the company selling the asset. This is not sensible or fair.

Under existing tax legislation, where assets are transferred to new owners depreciation clawback may arise - this has nothing to do with the Electricity Reform Bill. If for example Trustpower intended to form a retail company prior to this legislation, they would have had to pay tax on any excess depreciation.

The Electricity Industry Reform Bill will ensure that the benefits of electricity reform are passed on to consumers by way of lower prices. It should not be used by the industry as a vehicle to seek tax concessions. They should be subject to the same tax laws as everyone else."