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New Zealand: New Zealand Inland Revenue releases MNE compliance focus document


Hamish Journeaux

The New Zealand Inland Revenue has released a document setting out its compliance focus in respect of multinational enterprises (MNEs).

The document sets out the general approach the Inland Revenue will take in monitoring the tax positions of MNEs. It also details a number of specific tax regimes or arrangements (including international financing agreements and transfer pricing, discussed further below) that the Inland Revenue has identified as key focus areas for ongoing compliance monitoring. Therefore, the document is a useful resource for MNEs to consult in regard to their New Zealand tax risk management.

As mentioned in previous updates, there is significant media and public interest in New Zealand regarding the tax treatment of MNEs and whether they are paying their "fair share" of tax in New Zealand. The Inland Revenue makes reference to this, noting in the introduction to the document that while Inland Revenue is "confident that most [MNEs] are paying the tax they should in New Zealand, the public appears less convinced."

Two aspects of the document provide useful practical guidance regarding areas of risk that the Inland Revenue has identified. One concerns cross-border financing arrangements and the other concerns the Inland Revenue's transfer pricing focus.

The document notes that cross-border financing arrangements comprise a substantial part of the related-party dealings by New Zealand members of multinational groups, and that the documentation in respect of these financing arrangements is often "minimal or non-existent".

The document also lists a number of details that are "fundamentals", which should be clearly documented in related-party transactions. These include:

  • Purpose or intention of the financing;

  • Full names of all lenders, borrowers and other parties;

  • Total amount available under the loan facility and currency;

  • Interest rate (either absolute rate, or external benchmark rate plus a margin);

  • Interest payment dates;

  • Term of loan facility and repayment obligations;

  • Details of fees payable;

  • Nature of security given;

  • Nature and details of guarantee given; and

  • Amendments to the financing agreements over time.

The document further lists a number of risks, which, if present, will result in additional scrutiny from the Inland Revenue. Examples include where interest rates or guarantee fees are priced at non-market rates, or where the MNE uses hybrid instruments and hybrid entities in structured arrangements.

In respect of transfer pricing, the document highlights some areas that the tax agency is actively focused on reviewing:

  • Wholesalers or distributors that purchase and sell goods without significant transformation; and

  • MNEs who restructure their operations involving the shifting of any major functions, assets or risks away from New Zealand.

Inland Revenue endorses the OECD's recommendations in respect of transfer pricing documentation. This approach is for an MNE to maintain two forms of documentation:

  • A master file providing a high level overview of the MNE's global business operations and transfer pricing policies; and

  • A local file providing detailed information regarding material related-party transactions.

The document signals that tax compliance on the part of MNEs remains a priority for the Inland Revenue. We can expect to see that cross-border financing arrangements and transfer pricing compliance generally will remain an area of particular focus for the Inland Revenue.

Hamish Journeaux (, Auckland

Russell McVeagh

Tel: +64 9 367 8037


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