The deregulation of major world economies led to increased globalisation of enterprises which provided opportunities for New Zealand and Australian taxpayers to expand or move their businesses offshore. The globalisation brought niche opportunities for businesses to develop profitable offshore operations. The growth in offshore investments triggered the problems associated with the erosion of the New Zealand and Australian tax base. The risk in New Zealand was identified by the Labour led Government in the early 1980’s; when New Zealand entities began investing in tax haven countries to take advantage of lower tax rates in these countries. As a result in late 1980’s, New Zealand and Australia introduced offshore investment rules. The reasons for the introductions of the offshore investment rules by the two countries were similar, but the rules differed in a number of ways. One of the main differences was that New Zealand did not differentiate between active and passive activities. On the other hand, the Australian tax rules exempt active business activities carried out offshore. Recently, the New Zealand Government announced that it is reviewing the Controlled Foreign Company (CFC) rules and like Australia, New Zealand CFC rules would exempt active income from tax; and only passive income would attract income tax. This dissertation explores and compares the development of offshore investment rules in Australia and New Zealand. The exploration of the offshore investment rules involves a comparison of the history, economic theories, and tax avoidance possibilities. The main area of focus of this study is the CFC and Foreign Investment Fund (FIF) rules.