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Monitoring and enforcing: Determining if MNEs pay their “fair share” of New Zealand tax.

The Inland Revenue document Multinational Enterprises Compliance Focus (2019) focuses on the base erosion and profit shifting (BEPS) measures implemented since the previous version of the document (2016) was released, and explains how compliance with these measures will be monitored and enforced to determine that MNEs pay their “fair share” of New Zealand tax.

Overview of Inland Revenue’s position

In general, Inland Revenue’s stated compliance approach is to encourage a “right from the start” approach by working co-operatively with MNEs when possible.

New Zealand’s implementation of BEPS measures have, to date, included:

  • A permanent establishment anti-avoidance rule
  • Anti-hybrid legislation
  • A restricted transfer pricing rule for setting interest rates (and various modifications to transfer pricing and thin capitalisation generally)

There is a new BEPS disclosure form and guidance (available on the Inland Revenue’s website) accompanying these developments. The BEPS disclosure form will need to be completed with the 2019 tax returns having June to September balance dates and for the 2020 tax return for all others.

The BEPS disclosure requirement has received little publicity, only a single mention in the document. Taxpayers must disclose the implications of the BEPS changes on their tax calculations, and need to consider all of these implications well in advance of a tax position being taken. Affected taxpayers need to determine that their supporting documentation is in order and up to date. Inland Revenue will be reviewing taxpayers filings when the BEPS disclosures made are not aligned with their expectations, and these taxpayers can expect more detailed questions and risk activity as a result.

Dual residence risk

The ongoing risk of dual (Australian and New Zealand) tax residence for companies receives a brief mention in the document. Inland Revenue has suggested that strategic management of any New Zealand subsidiaries be undertaken locally, to avoid adverse tax consequences.