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New Zealand Sets Out Limited BEPS Response

by Mary Swire,, Hong Kong

29 June 2016

The New Zealand tax system is already quite robust by international standards, the Government says, adding that a few of the base erosion and profit shifting (BEPS) recommendations do not require a response.

A Cabinet paper released by the Inland Revenue on June 27, 2016, states that "New Zealand already has controlled foreign company (CFC) rules that meet the standards recommended by the OECD in the final report on Action 3, on designing effective CFC rules." Similarly, New Zealand does not need to make changes to domestic tax law to address Action 5, on addressing harmful tax practices, it said.

The paper points out that there are a number of initiatives that New Zealand has either already implemented or will implement to address the three key BEPS themes – more robust tax laws, international agreements and cooperation, and greater transparency of tax information.

According to the paper, the Government aims to consult on hybrid mismatch and interest limitation rules this year, which will be followed by appropriate rules in March 2017. It adds that the Government may consider whether to implement other measures to help address BEPS concerns (for example, officials will shortly report on the diverted profits tax adopted by the UK and Australia and possibly proposals on increased public transparency of information about the tax paid by multinationals in New Zealand).

Next, New Zealand will sign up to the OECD's multilateral instrument, which will be open for signatures by December 31. The instrument seeks to amend countries' network of tax treaties to insert a new anti-treaty abuse article, a new permanent establishment definition, anti-hybrid entity rules, and dispute resolution articles. The Government will also introduce legislation to implement the revised OECD Transfer Pricing Guidelines to address misallocation of profits to low tax jurisdictions.

Finally, the paper reveals that the Government is introducing legislation to require New Zealand multinational companies to prepare country-by-country reports in line with the OECD's proposals contained in BEPS Action 13. According to the paper, the Government is already starting to exchange Inland Revenue's taxpayer binding ruling information with foreign tax administrators.

Revenue Minister Michael Woodhouse said: "Our tax settings are already sound, but there is always room to improve. We have already strengthened our CFC rules, thin capitalization rules, bank minimum equity rules, and, more recently, I introduced legislation to improve our non-resident withholding tax rules. The next steps include stronger rules preventing excessive payments from a New Zealand company to its foreign parent, greater disclosure requirements for multinationals, and further sharing of tax data with foreign authorities."

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