Tax Tips: March 2017

A closer look at the Government’s recent discussion documents for the next steps in the BEPS journey for New Zealand

As we highlighted in our Tax Tips Alert: Next steps in the BEPS journey for New Zealand, the New Zealand Government released three consultation papers on 3 March 2017 setting out proposals to make it harder for foreign multinationals to shift profits outside New Zealand without economic justification.  
 

The three Consultation Papers reinforce the Government’s commitment to the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan. The Government’s stated focus is on bolstering the New Zealand tax rules to ensure multinational companies doing business in New Zealand pay their fair share of tax. While the new proposals are mainly targeted at the large multinational companies, a number of proposed measures could also impact small to medium-sized companies.
 

In this Tax Tips, we build on our 3 March 2017 Tax Tips Alert and summarise what the proposed measures will mean for multinationals doing business in New Zealand and some practical ramifications that could follow.
 

The three BEPS Consultation Papers covered the following topics:

• Strengthening our interest limitation rules
• Transfer pricing and permanent establishment avoidance
• New Zealand’s implementation of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI).

In our view, the proposals as they stand are wide-reaching and could significantly increase the compliance burden for taxpayers, including many who currently operate through low risk structures. Some of the proposals were signalled and are not totally unexpected. Others are new and arguably novel, while other proposals have borrowed aspects from Australia and the United Kingdom but appear to be more restrained than alternative measures some other countries are implementing. If the Government is focused on doing these changes (which it appears to be) then having an ongoing measured and balanced restraint to the impact and scope of the rules is to be strongly encouraged.

However, in our view, some of the proposals risk having much wider ramifications than we consider are needed (and probably than policy officials intend). Ongoing dialogue and reflection by policy officials is vital as the detailed proposals are further developed to best ensure there is an appropriate balance with the practical impact of the proposals.

Submissions relating to the interest limitation, and transfer pricing and permanent establishment avoidance discussion documents are due by 18 April 2017. Submissions relating to New Zealand’s implementation of the MLI are due by 7 April 2017.  

Download Tax Tips for more detail and analysis of this development.