The Finance Minister and Revenue Minister have announced the Government’s final decisions on proposals to address base erosion and profit shifting (BEPS) on 3rd August 2017.
In combination the new measures will:
- Stop foreign parents charging their New Zealand subsidiaries high interest rates to reduce their taxable profits in New Zealand.
- Stop multinationals using artificial arrangements to avoid having a taxable presence in New Zealand.
- Ensure multinationals are taxed in accordance with the economic substance of their activities in New Zealand.
- Counter strategies that multinationals have used to exploit gaps and mismatches in different countries’ domestic tax rules to avoid paying tax anywhere in the world.
- Make it easier for Inland Revenue to investigate uncooperative multinational companies.
According to the proposals, these decisions have been arrived at after weighing up public feedback on three government discussion documents relating to: hybrid mismatch arrangements; interest limitation rules; and transfer pricing and permanent establishment avoidance. For the most part, the proposals will proceed as originally devised but in some instances, public feedback made a good case for refining the scope of proposals or for fleshing out technical detail. The government will carry out further targeted consultation on matters of technical detail (including draft legislation), without reducing the effectiveness of the proposals.
It is expected that the BEPS measures will be included in a tax bill to be introduced by the end of the year, for enactment by July 2018.