The Taxation (Neutralising Base Erosion and Profit Sharing) Act received Royal assent on 27 June 2018 with many of its provisions applying from 1 July 2018. The Act introduces several changes to tax legislation aimed at ensuring multi-nationals pay tax on the actual economic activity carried out in New Zealand. The Base Erosion and Profit Sharing (“BEPS”) legislation seeks to limit multinational’s ability to use artificial structures and arrangements to reduce the tax they pay in New Zealand. The changes will limit the ability of multinationals to use:
- Artificially high interest rates on loans from related parties to shift profits out of New Zealand.
- Related-party transactions which are intended to shift profits to offshore group members in a manner that does not reflect the actual economic activities undertaken in New Zealand and offshore.
- Hybrid mismatch arrangements that exploit differences between countries’ tax rules to achieve an advantageous tax position.
- Artificial arrangements to avoid having a taxable presence or a permanent establishment in New Zealand.
- Tactics to stymie an Inland Revenue investigation, such as withholding relevant information that is held by an offshore group member.
We highlighted the changes to the thin capitalisation and hybrid mismatch rules in our June Tax Alert. While targeting multinationals, some of these changes will affect all taxpayers with foreign ownership or trading across borders.
Following hot on the heels of the enactment of the BEPS legislation, the Government released its next tax bill on the 29th of June. The Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill proposes measures to simplify tax returns for individuals, update the Tax Administration Act, amendments to make KiwiSaver more accessible, and many other policy, remedial and technical changes to tax legislation.
We will keep you updated on the details of these proposed changes over the coming months.