Tax rules have to take account of the way that capital can move from country to country, taking advantage of different national tax policies as well as economic conditions. Other taxes will be undermined if international tax policy is not effective, both because means will be found to transform income into untaxed overseas income, and because the tax system will not be accepted as just if income from overseas does not bear a fair share of total tax.

These issues have become important as the New Zealand economy has been made more open, and because other tax changes such as GST and imputation may be unermined if international transactions provide tax loopholes.

• The key immediate problem is to block the transformation of domestic income into foreign-source income.
• Immediate tax haven legislation is needed.
• More important, but less urgent, is the need for allocation rules.
• In the long run, New Zealand should seek an international agreed unitary allocation rule.
• More complete disclosure of international transactions should be required, along lines recently adopted by the USA.
• The international implications of imputation need careful attention and monitoring. It seems wise to maintain withholding taxes, lower the corporate tax rate as little as possible, not make more generous foreign tax credit, and probably subject foreign dividends to tax.