New Zealand tax compliance obligations and risks taxpayers should be aware of

17 February 2021

To reduce the tax gap - the difference between the amount of tax the Inland Revenue (IRD) would have collected if every taxpayer had paid their proper amount of taxes and the amount of tax the IRD actually collected - the IRD follows a strategy of active prevention. They do this by:

  • Identifying potential tax risk areas
  • Releasing public guidance on matters of concern
  • Targeting corporate groups through early engagement before they lodge their tax return

Corporates

From a large corporate perspective, the main international risk areas the IRD will examine when a multinational sets up a business in New Zealand or does business in New Zealand include:

Transfer pricing risk

Companies that are attempting to shift the taxation of profits to the country with the lowest tax rate.

Related party debt risk

Companies with excessive debt in New Zealand to attempt to obtain the maximum deduction in New Zealand.

Offshore service hubs risk

Companies that have set up a centralised operating model to operate from a low tax jurisdiction to undertake most commercial transactions of the multinational business in New Zealand.

Individuals

From an individual perspective, the risk areas the IRD are focusing on include:

Property brightline risk

Untaxed gains arising from the sale of residential land (within New Zealand and abroad) are being examined to ensure they don’t fall foul of the residential brightline tests.

Overseas income risk

New Zealand tax residents are subject to New Zealand tax on their worldwide income. With transparency between tax authorities and financial institutions across the OECD, any undisclosed income (sourced outside New Zealand) that has not been subject to the New Zealand tax net will be queried.

Tax rate restructure risk

Any restructure in light of the 39% marginal tax rate coming into effect from 1 April 2021 will be reviewed by Inland Revenue. Trust disclosure rules (from 1 April 2021) enacted in December 2020 will enable Inland Revenue to challenge any restructures made prior to 1 April 2021 if they consider there to be an element of anti-avoidance.

If you are interested in setting up a business in New Zealand, or need tax advice for your existing business in New Zealand or yourself personally, please get in touch with the Findex Tax Advisory team.

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February 2021