New Zealand: New Zealand issues draft guidance on BEPS-related reforms
International Tax Review is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

New Zealand: New Zealand issues draft guidance on BEPS-related reforms

Sponsored by

sponsored-firms-russel-mcveagh.png
intl-updates-small.jpg

In June 2018, reforms intended to address BEPS became law in New Zealand with the enactment of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (BEPS Act).

In June 2018, reforms intended to address BEPS became law in New Zealand with the enactment of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (BEPS Act). Given the complexity of some of the reforms, the New Zealand Inland Revenue has taken the unusual step of issuing, and seeking feedback on, draft guidance regarding the application of the new rules.

New Zealand BEPS-related reforms

On August 3 2017, the New Zealand government announced its final policy decisions on proposals to address BEPS (see 'New Zealand's BEPS proposals go beyond OECD's recommendations' in the August 2017 edition of International Tax Review for our summary of the policy decisions.) The BEPS Act includes measures that:

  • Address hybrid mismatch arrangements;

  • Address arrangements that avoid creating a permanent establishment;

  • Further limit related-party interest deductions; and

  • Further strengthen the transfer pricing rules and Inland Revenue's enforcement powers more generally.

The BEPS Act reforms have been controversial in many respects, with concerns raised during the legislative process that the reforms go beyond what is necessary to implement the OECD's BEPS recommendations, and in certain respects depart from international norms, including provisions of New Zealand's double taxation agreements.

The reform process for the BEPS Act has also been controversial. This has been partly due to the ambitious legislative timetable which meant there were only a few days between enactment and certain measures taking effect on July 1 2018.

Inland Revenue's draft guidance regarding the BEPS Act

The Inland Revenue typically publishes guidance after the enactment of tax legislation. For the BEPS Act, the Inland Revenue has taken the unusual step of publishing draft guidance and seeking public feedback on that draft guidance.

One example of an explanation provided in the draft guidance concerns a rule which requires certain borrowers to assume (for transfer pricing purposes) the credit rating of the company in its worldwide group with the most long-term senior unsecured debt (i.e. not necessarily the parent). The draft guidance acknowledges that long-term senior unsecured debt is not defined in the BEPS Act and suggests that in many circumstances a borrower "will be able to consider non-current liabilities on each [group] member's balance sheet". Such an interpretation would be a pragmatic application of the rule, especially for a borrower that is part of a large worldwide group. The guidance, however, goes on to caution that such an approach "may not be sufficient to differentiate between long-term senior unsecured debt and other instruments as subordinated or secured debt…".

The above example illustrates the practical issues taxpayers face in complying with the BEPS Act. Because the new legislative provisions are so detailed and prescriptive, the Inland Revenue's guidance will necessarily be of limited value in some cases. Submissions on the draft guidance closed on September 28 2018.

more across site & bottom lb ros

More from across our site

Despite the relief, Brazil’s government has also presented a bill which seeks to re-impose a tax burden on companies’ payroll, one local tax specialist told ITR
Jeremy Brown arrives at the firm after a near 16-year career with Deloitte
PwC could elect a woman into the senior leadership position for the first time; in other news, KPMG Australia has extended its CEO’s term
The Senate report into PwC’s scandal is titled ‘The cover up worsens the crime’
Law firms that are conscious of their role in society are more likely to win work, according to a survey of over 23,000 in-house professionals
The firm’s tax business generated a quarter of HLB’s overall revenues in 2023
While successful pillar two implementation will require collaboration across all units, a combination of internal and external tax advice is at the centre of the effort
Binance has also been accused of manipulating foreign exchange rates via currency speculation and rate-fixing
Six individuals should have raised questions over information they received but did not breach professional standards, according to the firm
The partnership of KPMG UK has installed Holt for a second term as CEO and senior partner; in other news, a Baker McKenzie partner has sued the IRS
Gift this article