A Government announcement is expected today on attempts to clamp down on multinational companies avoiding paying tax in New Zealand.
This is a difficult world-wide issue so it will be interesting top see what is proposed. The Government has been looking into what it might be able to do about this for some time.
Long-awaited measures to clamp down on multinational tax rorts are expected to be unveiled by Revenue Minister Judith Collins on Friday morning.
Company tax makes up 15 per cent of New Zealand’s total tax take of $63 billion, but a Cabinet paper said there were concerns multinationals were not paying their fair share.
Profit-shifting has prompted G20 nations to back a crackdown by the Organisation for Economic Cooperation and Development, called Beps.
An Inland Revenue briefing to Collins released last month confirmed officials were working on proposals to tighten transfer pricing and “permanent establishment” rules and hybrid instruments and on limiting the interest payments that foreign firms could deduct from the profits of their New Zealand subsidiaries.
Judith Collins only took over the Revenue portfolio late last year. Previous Revenue Minister Michael Woodhouse put this out last September:
A strategy used by some large multinationals to shift profits overseas and minimise their New Zealand tax is the focus of international tax proposals released for consultation today, says Revenue Minister Michael Woodhouse.
“A discussion document which proposes that New Zealand adopt the OECD recommendations on hybrid mismatch arrangements was today released for consultation,” says Mr Woodhouse.
“Our international tax rules are sound, but the Government considers that New Zealand’s rules on hybrids can be stronger.
“Hybrid mismatch arrangements are one of the base erosion and profit shifting strategies used by multinationals to exploit the difference between how two countries might treat a cross-border transaction, resulting in less tax.”
The OECD recommendations remove the advantage of using hybrids.
“It is important that our rules complement those of other countries, particularly Australia and the UK who have both announced their intentions to adopt the OECD recommendations in this area.”
IRD in November:
Hybrid mistmatch arrangements are one of the main base erosion and profit shifting (BEPS) strategies used by some large international companies to pay little or no tax anywhere in the world.
The OECD developed recommendations for anti-hybrid measures in its 15 point Base Erosion and Profit Shifting (BEPS) Action Plan.
A Government discussion document, Addressing hybrid mismatch arrangements, seeks comments on how the OECD recommendations could be implemented in New Zealand:
Part I of the document describes the problem of hybrid mismatch arrangements, the case for responding to the problem, and a summary of the OECD recommendations.
Part II of the document explains the OECD recommendations in greater depth and discusses how they could be incorporated into New Zealand law.
Submissions closed on 11 November 2016 (extended from 17 October 2016).
Perhaps today’s announcement is a result of this.
Hybrid financial instruments and transfers
The First Discussion Draft defines a hybrid financial instrument as any financing arrangement that is subject to either different tax characterizations under the law of two or more jurisdictions such that a payment will have different tax treatments (e.g., a loan in one jurisdiction and equity in another), or different manner in which tax will be assessed on the instrument (e.g., deduction in one jurisdiction while the other jurisdiction gives an exemption). The different tax characterizations will result in a D/NI outcome.