The OECD base erosion and profit shifting project – how New Zealand might respond
On 25 October 2013, the Policy Advice Division of Inland Revenue released a third tax policy report, Taxation of multinationals , which examines options to deal with the taxation of large multinationals and the problem of base erosion and profit shifting (BEPS). This follows the earlier reports released in December 2012 and April 2013 . The report strongly endorses measures outlined in the OECD Action Plan.
The report, to the Ministers of Revenue and Finance, suggests a number of proposals for reform that New Zealand could take to play its part. The Minister of Revenue has indicated he will consider the recommendations and his decisions would be reflected in the tax policy work programme due for release later this week. The recommendations include:
- Thin capitalisation and transfer pricing: Consider directly limiting the ability to use high-priced debt. Explore the scope of the transfer pricing rules used by investors who “act together” to profit shift and so consider aligning the rules with the recently announced thin capitalisation changes for such investors.
- Hybrid instruments: Explore whether New Zealand should restrict interest deductions on hybrid instruments where the interest payment is not taxed in the foreign jurisdiction.
- NRWT on related party debt: Explore options for dealing with a wide range of arrangements that can be used to defer or circumvent NRWT on related party interest payments.
- Investment vehicles and offshore investments: Explore the need for an anti-arbitrage rule for offshore entities that seek double non-taxation of income or double deductions of expenditure by taking advantage of differences between countries’ tax rules.
- Look-through vehicles and structures: Examine the incoherence relating to different tax treatment of look-through companies, limited partnerships, foreign portfolio entities and foreign trusts.
- Offshore branches: Design the active income exemption for offshore branches to ensure it does not facilitate profit shifting through repatriation of losses.
- Foreign trusts: Review the tax treatment of the foreign trust rules. This may include strengthening the regulatory framework for disclosure and record-keeping, and deciding whether NZ’s rules are sustainable in the long term given the mismatch with other countries’ trust rules.
- GST on goods bought online: An issues paper will be released later this year examining options for collecting GST from online shopping.
Look out for more on this in our next issue once the work program has been released.
Tax Alert November 2013 contents:
- Multinationals come under the compliance spotlight
- Regular pattern of building and selling houses catches up with trustees
- The OECD base erosion and profit shifting project – how New Zealand might respond
- Chinese tax and business regulatory framework: evolving landscape and hot topics
- GST and mixed use assets
- Equity based remuneration
- Records in the cloud