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BEPS Work Beneficial For Business, Says NZ Minister

by Mary Swire,, Hong Kong

18 March 2014

New Zealand's efforts to tackle base erosion and profit shifting are to support businesses, not to penalize them, New Zealand Revenue Minister Todd McClay told an International Fiscal Association event.

McClay told attendees that initiatives designed to crack down on BEPS are not aimed merely at grabbing taxes. "The goal is to make company taxes more transparent – even in their application across companies and countries."

McClay said: "It is not in the interest of New Zealand businesses and individual taxpayers if multinational companies can avoid paying their fair level of taxes in New Zealand or elsewhere. Countering BEPS helps to level the playing field. Moreover, if New Zealand suffers base erosion due to BEPS, other taxes must increase to make up the difference, which can reduce the efficiency and competitiveness of the New Zealand economy."

Part of the BEPS work has been the consideration of how to tax companies operating online, he noted. McClay identified three main problems arising from the growth of the digital economy: "Some firms in the digital economy are able to arrange their affairs so that they do not pay tax anywhere, i.e. the BEPS problem; some aspects of the current taxing framework may not be well adapted to how business is conducted in the digital economy; [and] firms can derive income from advertising and using data from users in a country, without paying tax in that country," he said.

Discussing the Organisation for Economic Cooperation and Development's work, McClay noted that one suggestion has been that the taxation of profits should move more towards where consumption of products and services occur. "This would be a sea change," he warned. "It would mean that New Zealand exporters would be taxed on their income when they export goods or services to other countries. This sort of change could impede international trade and is not likely to happen in the near future, if ever."

Next, McClay addressed concerns raised by New Zealand businesses about the compliance burden associated with the OECD's project on common reporting standards, which would require the automatic exchange of information by companies where funds are held on the country of residence of investors or depositors. New Zealand is working with the OECD to develop approaches to a common reporting standard, McClay said. Adding: "An automatic exchange of information is in our national interest, since measures to improve compliance by the few, non-compliant taxpayers allow lower taxes for the vast majority of taxpayers who voluntarily comply with their tax obligations. New Zealand will therefore participate in this work and a key focus for us will be on minimizing the compliance burden."

The Inland Revenue Department will hold a workshop on April 1, 2014, in conjunction with Business New Zealand that will provide more detail on the areas that are being examined by the OECD. Any changes to domestic law will be subject to the generic tax policy process.

A public conference on tax administration will also be held in June, where the Government will seek outside input on future developments in this area.

TAGS: compliance | tax | business | tax compliance | tax avoidance | tax incentives | law | corporation tax | tax authority | tax planning | transfer pricing | tax rates | New Zealand | tax reform | standards | trade | services | Tax | Tax Evasion

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