New Zealand Inland Revenue expands monitoring of large taxpayers

James Lester

Approach towards large taxpayer compliance

All large taxpayers are subject to an annual compliance review by Inland Revenue. The BCP requires taxpayers to supply information to Inland Revenue each year, including details of the group's structure, its financial statements and tax reconciliations. When the BCP was first introduced, Inland Revenue said it would allow greater macro-analysis of industries and the identification of variations by jurisdiction. Multinational groups could, according to Inland Revenue, expect to receive more tailored information requests and audit inquiries as a result.

Since 2012, around 600 New Zealand and foreign-owned groups have been subject to the BCP. In addition to the BCP, the compliance activities of the largest 50 corporate taxpayers are account managed by Inland Revenue on a one-to-one basis.

Expansion of the BCP

From 2017, the number of groups subject to the BCP will increase to around 900, including all foreign-owned multinational groups that have a turnover of more than NZ$30 million ($21 million). This represents a significant expansion of the BCP as a compliance tool, highlighting Inland Revenue's preference for receiving comprehensive and standardised information relating to a group's tax affairs over and above the information provided in annual tax returns.

As indicated above, the announcement coincides with questions raised by the media and opposition members of parliament about the declining number of audits carried out by Inland Revenue on large taxpayers. Inland Revenue's statement on the measure on September 30 acknowledged that the "no surprises environment" created by the BCP has reduced the need for formal audits on large enterprises to be undertaken.

OECD's guidance on tax control frameworks

Inland Revenue's Large Enterprises Update (August 2016) recorded Inland Revenue's support for the OECD's Guidance on Tax Control Frameworks, recently released by the organisation's Forum on Tax Administration (FTA guidance). Inland Revenue considers that the FTA guidance applies particularly to large enterprises, and recommends that corporate boards of directors put in place documented tax strategies as well as systems, procedures and resources to manage tax risk as a means of "setting the right tone from the top".

Inland Revenue recognises that a tax strategy will depend upon the particular circumstances of that business and the industry in question. Inland Revenue's update does refer specifically, however, to the Business and Industry Advisory Committee's (BIAC) Statement of Tax Principles for International Business. BIAC's statement covers tax planning and transparency principles, including that international businesses:

• Should only engage in tax planning that is aligned with commercial and economic activity and ensure it does not lead to an abusive result;
• Should interpret relevant tax laws in a reasonable way, consistent with a relationship of "co-operative compliance" with tax authorities; and
• Be open and transparent with tax authorities in each jurisdiction about their tax affairs and provide the relevant, reasonably requested information (subject to appropriate confidentiality provisions) that is necessary to enable a reasonable review of possible tax risk.

James Lester (james.lester@russellmcveagh.com)
Russell McVeagh
Tel: +64 4 819 7755
Website: www.russellmcveagh.com

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