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Dunne Explains NZ’s Tax Approach To Multinationals

by Mary Swire, Tax-News,com, Hong Kong

10 December 2012

New Zealand Revenue Minister Peter Dunne has addressed issues around the tax treatment of large multinational companies, stressing that the country is pursuing international projects and agreements as the answer to such problems.

Dunne believes that international tax regimes have "struggled to keep pace with new business models and technologies not contained by location or national borders." In particular, the growing dominance of the internet has resulted in many companies having "a very limited physical presence in most countries in which they operate – including New Zealand." The vast majority of such companies' work, including programing, website design, the running of servers, and the sale of advertising, is done overseas, meaning that "New Zealand, like other countries, may have very limited taxing rights," Dunne said.

According to Dunne, international tax deals are the key to ensuring that multinationals are taxed appropriately in various jurisdictions. New Zealand is taking an active part in a number of talks, particularly through its involvement in the Organization of Economic Co-operation and Development (OECD).

Dunne explained: "A key issue is that foreign companies are taxed on the activities that they actually perform in New Zealand, so under international norms, New Zealand, like any other OECD nation, may have no right to tax profits from revenues generated from New Zealand."

On the domestic front, the government took steps in its 2010 Budget to prevent foreign multinationals from reducing their New Zealand profits through debt funding by tightening the thin capitalization rules. In addition, the government’s tax policy work program includes a project to ensure that certain investment structures cannot be used to escape the application of these rules. Dunne has also now requested a report from Inland Revenue into the tax treatment of such companies.

TAGS: tax | business | tax avoidance | commerce | group taxation | agreements | internet | e-commerce | multinationals | New Zealand

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