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."
PO Box 39010, Wellington Mail Centre, Lower Hutt 5045
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(As of August 2017)
|Corporate income tax rate||28%|
|Capital gains tax rate||0%|
|Branch tax rate||28%|
|Royalties from patents, know-how, etc.||15% (c)|
|Payments to contractors||15%|
|Branch remittance tax||0%|
Net operating losses (years)
Source: EY 2017 Worldwide Corporate Tax Guide and Deloitte