All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

New Zealand: Government response to BEPS project



Brendan Brown

Greg Neill

The New Zealand government has recently released a report detailing possible reforms to address base erosion and profit shifting (BEPS) concerns. The OECD's work on BEPS issues has been well publicised. The next stage in that project is for tax authorities from OECD member countries – such as New Zealand – and participating non-member countries to develop an action plan for addressing BEPS.

The initial advice to the New Zealand government from the Inland Revenue and Treasury was that New Zealand should adopt a three-pronged approach to BEPS concerns:

  • Contributing to the OECD's BEPS project;

  • Reviewing domestic law and prioritising projects that will address BEPS concerns; and

  • Co-ordinating with Australia given its importance as a trading partner.

Reform projects

A recent tax policy report released by the Inland Revenue and the Treasury has provided more detail on reform projects for prioritisation as part of New Zealand's response to BEPS.

The first possible reform project identified is the proposed broadening of the thin capitalisation rules. It is proposed that:

  • The scope of the inbound thin capitalisation rules be broadened to apply to New Zealand companies owned or controlled by a consortium of foreign investors, as well as to New Zealand companies controlled by a single foreign owner; and

  • The rules for calculating limits on the level of debt and deductible interest expenditure allowable to the New Zealand group be tightened.

A second possible project identified relates to withholding taxes, and in particular withholding taxes on interest. It is understood that a possible concern relates to a timing mismatch between when interest expenditure is deductible to the payer, and when withholding tax becomes payable on the interest.

The recent report also foreshadows a possible review of tax arbitrage opportunities arising from cross-border mismatches in the treatment of hybrid instruments or hybrid entities. That review will be based on OECD work that will consider policy developments in other countries.

New Zealand's response to BEPS has so far been measured, reflecting the fact that domestic law already contains provisions limiting opportunities for tax planning, including comprehensive controlled foreign corporation and foreign investment fund regimes and a thin capitalisation and transfer pricing regime.

Furthermore, New Zealand's general anti-avoidance rule (GAAR) is now being applied in a broader way than GAARs in most other jurisdictions.

As an example, New Zealand's debt/equity boundary for tax purposes generally follows the legal form of the arrangement, but the GAAR has in some cases been applied to deny interest deductions under hybrid arrangements and shareholder debt, thereby, in effect, denying an interest deduction to a taxpayer that has a business need for the funds borrowed and that has complied with both the thin capitalisation and transfer pricing regimes.

Multinationals doing business in New Zealand therefore need to be aware that the recent more expansive application of the GAAR is a source of particular uncertainty, alongside whatever new measures targeting BEPS may be implemented.

Brendan Brown (

Tel: +64 4 819 7748
Greg Neill (

Tel: +64 9 367 8879

Russell McVeagh


more across site & bottom lb ros

More from across our site

The Italian government published plans to levy capital gains tax on cryptocurrency transactions, while Brazil and the UK signed a new tax treaty.
Multinational companies fear the scrutiny of aggressive tax audits may be overstepping the mark on transfer pricing methodology.
Standardisation and outsourcing are two possible solutions amid increasing regulations and scrutiny on transfer pricing, say sources.
Inaugural awards announces winners
The UN’s decision to seek a leadership role in global tax policy could be a crucial turning point but won’t be the end of the OECD, say tax experts.
The UN may be set to assume a global role in tax policy that would rival the OECD, while automakers lobby the US to change its tax rules on Chinese materials.
Companies including Valentino and EveryMatrix say the early adoption of EU public CbCR rules could boost transparency of local and foreign MNEs, despite the short notice.
ITR invites tax firms, in-house teams, and tax professionals to make submissions for the 2023 ITR Tax Awards in Asia-Pacific, Europe Middle East & Africa, and the Americas.
Tax authorities and customs are failing multinationals by creating uncertainty with contradictory assessment and guidance, say in-house tax directors.
The CJEU said the General Court erred in law when it ruled that both companies benefitted from Italian state aid.