The New Zealand government is rein in tax breaks for foreign investors by strengthening the taxation of highly leveraged investments by foreigners, according to the annual Budget delivered by Finance Minister Bill English on Thursday.

It outlined changes to the thin capitalization rules intended to prevent non-residents from using excessive interest costs to reduce their tax liabilities.

Revenue Minister Peter Dunne said the changes would help to ensure multinational companies paid their "fair share" of tax.

"New Zealand welcomes foreign investors, but we expect everyone participating in the New Zealand economy to contribute their share of tax," Dunne said in a statement.

The thin capitalization rules were designed to address the situation where non-resident investors could artificially load debt into their New Zealand investments to limit their tax exposure.

However, they currently applied only where one non-resident owned at least 50 percent of a New Zealand investment, which meant they applied to traditional multinational companies, but not to other types of non-resident investors, such as private equity investors.

"If other types of investors have the ability to take excessive interest deductions which reduce their tax liability, then that is not fair. The thin capitalization rules should apply," Dunne said.

The government would extend the rules to cover non-residents acting together, and together having a controlling interest in a New Zealand investment.

The change is expected to generate 20 million NZ dollars (16. 48 million U.S. dollars) over three years from 2014-2015.

Another area of concern is around the issue of shareholder debt, which could allow companies operating in New Zealand to have excessive levels of debt without the thin capitalization rules applying.

"This defeats the intent of the rules, so we have decided shareholder debt should be excluded from the worldwide group safe harbor debt calculations," said Dunne.

"And this also means that groups with high levels of external debt should not be affected by these changes."

The changes will apply from the start of the 2015-2016 income year. Endi