New Zealand

Market overview

New Zealand is not only looking to adopt BEPS proposals, it is also enthusiastic about it. The Inland Revenue Department (IRD) has not been shy about its support for a more BEPS- orientated approach to address TP issues.

In a discussion paper published in March 2017, the IRD stated: "There are international concerns about multinationals not paying their fair share of tax. This is because some multinationals use base erosion and profit shifting (BEPS) strategies to report low taxable profits in New Zealand and other countries in which they operate. These BEPS strategies include arrangements between related parties which shift profits out of New Zealand (usually into a lower taxed jurisdiction)."

"BEPS is big in New Zealand. Generally, more audit activity is coming out of the IRD," said Mathew McKay, leader of the tax practice of Bell Gully.

The New Zealand government signed up to the MLI on June 7 2017 along with dozens of other countries. This highlights a willingness by the government to embrace the OECD's BEPS provisions, but the IRD has stated that there is no need to legislate country-by-country reporting (CbCR) for New Zealand-based MNEs.

Other BEPS-related proposals put forward by the New Zealand government will enable the IRD to redefine transactions to determine what it regards to be arm's-length conditions. Another change is that the burden of proof is shifted from the IRD to the taxpayer. The IRD would be able to challenge a TP matter for period of up to seven years, an increase on the previous period of four years. The IRD's access to the information of MNEs will also be increased.

Under the proposals, the IRD would be able to issue TP adjustments to MNEs that are not 'helpful' based on the information available at the time. Any disputed tax would need to be paid earlier in any dispute process. The IRD would also have the authority to require a New Zealand entity within a multinational group to supply information held by a member of that group outside the country.

The proposals also advocate strengthening thin capitalisation interest limitation rules. There would be an interest rate cap: the interest rate on related-party debt would be limited to the rate based on the credit rating of the ultimate parent company. This would include a margin. The appropriate margin would be similar to a credit rating notch under that of the ultimate parent company.

The proposed interest rate cap is viewed by some tax practitioners as one of its kind.

Kim Jarrett, the head of transfer pricing at KPMG, and her colleagues have commented in International Tax Review that the adoption of this rule would put New Zealand out of step with the majority of counter-party jurisdictions. They also mention that it will "significantly limit interest deductions for New Zealand members of multinational groups and may lead to double tax."


Tax authorities

Inland Revenue
PO Box 39010, Wellington Mail Centre, Lower Hutt 5045
Tel: +64 4 978 0779
Website: www.ird.govt.nz


Tax rates at a glance

(As of August 2017)

Corporate income tax rate 28%
Capital gains tax rate 0%
Branch tax rate 28%
 
Withholding tax
Non-residents
Dividends 30% (a)
Interest 15% (b)
Royalties from patents, know-how, etc. 15% (c)
Payments to contractors 15%
Branch remittance tax 0%
Residents
Dividends 33%
Interest 33% (d)
 
Net operating losses (years)
Carryback 0
Carryforward Unlimited

  1. This is a final tax. If dividends are fully imputed, the rate is reduced to 15% (for cash dividends) or to 0% (for all non-cash dividends and for cash dividends if non-resident recipients have direct voting interests of at least 10% or if a tax treaty reduces the New Zealand tax rate below 15%). The rate is also reduced to 15% to the extent that the dividends are fully credited under the dividend withholding payment system (which is being phased out) or to the extent that imputation credits are passed on to foreign investors through the payment of supplementary dividends under the foreign investor tax credit regime.
  2. This is a final tax if the recipient is not associated with the payer. For an associated person, this is a minimum tax (the recipient must report the income on its annual tax return, but it may not obtain a refund if the tax withheld exceeds the tax that would otherwise be payable on its taxable income). Under the Income Tax Act, associated persons include the following:
    • Any two companies in which the same persons have a voting interest of at least 50% and, in certain circumstances, a market value interest of at least 50% in each of the companies
    • Two companies that are under the control of the same persons
    • Any company and any other person (other than a company) that has a voting interest of at least 25% and, in certain circumstances, a market value interest of at least 25% in the company
    Interest paid by an approved issuer on a registered security to a non-associated person is subject only to an approved issuer levy (AIL) of 2% of the interest payable. An AIL rate of 0% applies to interest paid on or after May 7 2012 to nonresidents on certain widely offered and widely held corporate bonds that are denominated in New Zealand currency.
  3. This is a final tax on royalties relating to literary, dramatic, musical or artistic works. For other royalties, this is a minimum tax.
  4. The 33% rate is a default rate if recipients' tax file numbers are not supplied. Individuals may elect rates of 10.5% (if their expected annual income does not exceed NZD14,000), 17.5%, 30% or 33%. The basic rate for interest paid to companies is 28%, but companies may elect a 33% rate.

Source: EY 2017 Worldwide Corporate Tax Guide and Deloitte