New Zealand’s Inland Revenue Department (IRD) has released a report that strongly endorses the measures drawn up by the Organization for Economic Cooperation and Development (OECD) for tackling base erosion and profit shifting. The OECD action plan on base erosion and profit shifting aims to tackle issues such as the identification and characterization of income arising from the digital economy; the use of hybrid financial instruments and hybrid entities in cross-border arrangements; recommendations on controlled foreign corporation (CFC) rules; artificial avoidance of permanent establishment status; transfer pricing measures that can be applied to financial arrangements; harmful tax practices such as preferential tax regimes; transfer pricing measures in relation to intangible assets; and the development of a multilateral instrument to facilitate the implementation of cross-border tax measures.

The New Zealand report makes a series of recommendations designed to strengthen New Zealand’s ability to combat profit shifting by multinationals and other investments. It focuses on preventing multinationals from shifting profits out of the country by using related-party debt, and on removing tax advantages from certain investment vehicles, and ensuring the effective taxation of offshore investments.

The tax treatment of foreign trusts should be reviewed, and options for collecting goods and services tax (GST) on goods and services bought online should be explored.

The report also identifies a set of changes that could improve the quality and usefulness of the information collected by the IRD. These include requiring large corporate entities to file their tax returns earlier, aligning information disclosure for approved issuer levies with non-resident withholding tax disclosure requirements, and reforming the information disclosure procedure for large corporate entities.