On 14th February 2018 government announced that it will recommend a change to transfer pricing provisions in a bill designed to lessen tax avoidance by multinationals.
This bill concerns the new rule to limit the rate of deductible interest on related party cross border debt (the restricted transfer pricing rule) in the Taxation (Neutralizing Base Erosion and Profit Shifting) Bill (the BEPS Bill). Officials have become aware that as the Bill is drafted, the use of the general transfer pricing ownership threshold means this rule does not apply as widely as was intended.
Officials will be recommending to the Finance and Expenditure Committee that in line with the stated policy intention, the ownership threshold is changed to align with that in the thin capitalization rules, which also deal with the issue of interest deductibility.
Officials will recommend to the Committee that the restricted transfer pricing rules be amended so that they will also apply to a New Zealand person borrowing from a non-resident person or group if the lender and borrower would be associated if their voting interests were determined based on their highest shareholder decision-making right rather than their average shareholder decision-making rights.
New Zealand’s Finance and Expenditure Committee will hear testimony on the bill on 28th February and 2nd March.
