It has announced a partial backdown that will give existing companies a five-year grace period. It has also modified the proposed capital gains tax on investment from overseas, so it is less of a burden on local investors.

'The government is eager that the public see the proposed changes to taxation on overseas investments as fair and reasonable and we have listened very carefully to the hundreds of submissions on this proposal,' says revenue minister Peter Dunne.

As part of the deal, the government has agreed to exclude from the new tax rules interests in foreign companies where:

' The company is resident, and listed on a recognized exchange in Canada, Germany, Japan, Norway, Spain, the United Kingdom or the United States;

' The company is liable to income tax in the foreign country, because it has its place of incorporation or head office there;