Technical Decision Summary: Extra pay period write-off

On 6 December 2022, Inland Revenue published TDS 22/22. The Tax Counsel Office (TCO) determined that a Taxpayer’s final tax liability could not be written off under s 22J and cl 1(c) of sch 8, part B of the Tax Administration Act 1994 (TAA). TCO also held that the correct interpretation of the words “amount of tax” in s 22J and cl 1(c) was that they prescribed the full amount of a person’s final tax liability for a tax year and not a part of the liability. Therefore, since the Taxpayer’s final tax liability for the year was a composite amount (i.e., not all of the Taxpayer’s final tax liability arose solely because of an extra pay period), the TCO concluded that none of the taxpayer’s final tax liability for the year could be automatically written off under s 22J and cl 1(c).

Technical Decision Summary: Whether settlement payments were taxable employment income

On 20 February 2023, Inland Revenue published TDS 23/01. The Tax Counsel Office (TCO) determined that the settlement payments were not in the nature of payments for hurt and humiliation and the Record of Settlement was not a sham to the extent of the description of settlement payments.

Determination: A type of attributing interest in a foreign investment fund for which a person may use the fair dividend rate method

On 25 January 2023, Inland Revenue published FDR 2023/01 - A type of attributing interest in a foreign investment fund for which a person may use the fair dividend rate method (Units in the Plato Global Macro Equity Fund– Class Z). Inland Revenue found that any investment by a New Zealand resident investor in units in the Plato Global Macro Equity Fund– Class Z, (previously Two Trees Global Equity Macro Fund -Class Z) to which none of the exemptions in sections EX 29 to 43 of the Income Tax Act 2007 apply, is a type of attributing interest for which the investor may use the Fair Dividend method to calculate the interest of foreign investment fund income.

Public Guidance Work Programme Update

On 8 February 2023, Inland Revenue issued its first work programme for 2023.

Projects IR expect to begin consulting on next

• PUB00417 - Income tax – Land – Deductibility of holding costs of land
• PUB00397 - Income tax – Land – income tax obligations of renting to flatmates
• PUB00429 - Income tax – Land – Main home exclusion and secondees
• PUB00436 - GST – Disposal of an interest in a joint venture involving landPUB00445 - Reissue of BR Pub 20/01-20/05 – Investing into a US Limited Liability Company – NZ tax consequences – series of 5 rulings

Public Rulings: GST treatment of directors’ fees and board members’ fees

On 22 February 2023 Inland Revenue issued three public rulings, and accompanying fact sheet, addressing the GST treatment of directors’ fees and board members’ fees.

• BR Pub 23/01 – GST – Directors’ fees
• BR Pub 23/02 – GST – Fees of Board Members not appointed by the Governor-General or Governor-General in Council (from page 7)
• BR Pub 23/03 – GST Fees of Board Members appointed by the Governor-General or Governor-General in Council (from page 14)
• Fact sheet

The rulings are not a change in the Commissioner’s view, the Commissioner has expanded on his view and, for the first time, concludes that professional directors are not eligible to be registered for GST. Therefore the Commissioner has prepared Operational Position OP 23/01 giving guidance on how these rulings will be applied and the Commissioner is aware that some professional directors are registered for GST, having incorrectly taken the view they are carrying on a taxable activity.

OP 23/01

• The Commissioner will not require these taxpayers to retrospectively deregister, however, those professional directors who are not carrying on a taxable activity must deregister with effect from 30 June 2023, or such other date as may be determined by the CIR

.The rulings apply from 1 April 2023 for an indefinite period and BR Pub 15/10 will be withdrawn on 31 March 2023.

Determination EE 23/01 – Declaration of January flood events/Cyclone Gabrielle as an emergency event for the purpose of family scheme income

On 27 February 2023, Inland Revenue issued Determination EE 23/01 Declaration of January flood events, beginning 26 January 2023 and Cyclone Gabrielle, which crossed the North Island of New Zealand during the period of 12 February 2023 to 16 February 2023, as emergency events for the purposes of family scheme income. The determination is made under s 91AA5 of the Tax Administration Act 1994 and for the purposes of s MB 13(2)(r)(i) of the Income Tax Act 2007 which is used in the calculation of a person’s Working for Families Tax Credit entitlement. Section MB 13(2)(r)(i) excludes certain payments from being included in family scheme income. A payment made between 26 January 2023 and 31 August 2023 (inclusive) to relieve the adverse effects of the January flood and Cyclone Gabrielle will not be included in a person’s family scheme income.

National standard costs for specified livestock determination 2023

On 24 February 2023, IR issued NSC 2023, which lists the national standard costs for specified livestock, pursuant to s EC 23 of the ITA.

Tax Information Bulletin Vol 35, No 1 February 2023

Inland Revenue has published a Tax Information Bulletin for February 2023 covering:

New Legislation

• SL2022/295 - Order in Council – Tax Administration (Regular Collection of Bulk Data) Regulations 2022
• SL2022/306 - Order in Council – Income Tax (Fringe Benefit Tax, Interest on Loans) Amendment Regulations (No 2) 2022
• SL2022/315 - Order in Council – Taxation (Use of Money Interest Rate) Amendment Regulations (No 3) 2022
• SL2022/316 - Order in Council – Student Loan Scheme (Repayment Threshold for 2023–24 Tax Year and Subsequent Tax Years) Regulations 2022
• SL2022/342 - Order in Council – Tax Administration (Extension of Deadline for Research and Development Loss Tax Credit Statements) Order 2022 

Ruling

• BR Prd 22/14: Bank of New Zealand

Determination

• TRU 22/01: Variation to s 59BA(2) of the Tax Administration Act 1994 for trustees of certain trusts that derive a small amount of income

 Revenue alert

• RA 22/01: Consequences of acquiring, possessing or using electronic sales suppression tools 

QWBA’s

• QB 22/10: Can a close company deduct interest on a shareholder loan account where the amount is not known until after balance date

Technical decision summaries

• TDS 22/20: GST – taxable activity
• TDS 22/21: Whether subdivision was a profit-making undertaking or scheme and a taxable activity

Legal Decisions – Case Summaries

• CSUM 22/05: Supreme Court confirms Frucor’s tax avoidance and finds shortfall penalties apply
• CSUM 22/06: Court of Appeal confirms High Court order that backdating of child support liability was invalid

Tax revenues rebounded as economies recovered from the COVID-19 pandemic

On 30 November 2022, the OECD published the Revenue Statistics 2022. The report shows that the OECD average tax-to-GDP ratio rose by 0.6% to 34.1% in 2021. This is the second strongest year-on-year increase since 1990. The report also shows that in OECD countries for which 2021 data on tax revenues was available, tax-to-GDP ratios increased in 24 countries, declined in 11 and remained unchanged in one. The recovery in tax revenues in 2021 was driven by corporate income tax and value-added tax. The report also includes a special feature examining the changes in revenues from different tax types in 2020 and 2021.

OECD release BEPS Action 14 documents

On 24 January 2023, the OECD released several documents in relation to BEPS Action 14. This includes:

• A New BEPS Action 14 Peer Review Assessment Methodology;
• MAP Statistics Reporting Framework; and
• APA Statistics Reporting Framework

Public comments released on the design elements relating to the simplification of transfer pricing rules

On 30 January 2023, the OECD published the public comments it received on the design elements of Amount B under Pillar One relating to the simplification of transfer pricing rules.

OECD releases manual on the handling of multilateral mutual agreement procedures and advance pricing arrangements

On 1 February 2023, the OECD published a Manual on the Handling of Multilateral Mutual Agreement Procedures and Advance Pricing Arrangements (MoMA) as part of the Forum on Tax Administration's tax certainty agenda. The MoMA aims to provide guidance on multilateral mutual agreement procedures and advance pricing arrangements for both taxpayers and tax administrators. It outlines different approaches based on the practices of various jurisdictions but does not impose binding rules. The MoMA allows tax administrators to determine if procedures are appropriate for their own programs and offers suggestions on how to incorporate them into their domestic guidance. The Manual also outlines the expected actions and cooperation from taxpayers to allow for multilateral consideration of these cases. This is part of the work done within the FTA MAP Forum. Further information on dispute resolution can be found on the OECD website.

OECD releases technical guidance for implementation of the global minimum tax

On 2 February 2023, the OECD released technical guidance to assist governments with implementation of the 15% minimum tax rate for multi-national enterprises (MNEs). The Agreed Administrative Guidance for the Pillar Two GloBE Rules aims to ensure coordinated outcomes and greater certainty for businesses as they move to apply the global minimum corporate tax rules from the beginning of 2024. Together with the release of Safe Harbours and Penalty Relief and public consultation on the GloBE Information Return and Tax Certainty, the release finalises the Implementation Framework as set out in the October 2021 Statement Two-Pillar Solution to Address the Tax Challenges Arising from the Digitisation of the Economy.

Inaugural Meeting of the Inclusive Forum on Carbon Mitigation Approaches (IFCMA)

On 9 February 2023, the inaugural meeting of the new OECD forum was held to discuss the challenges facing governments accelerating the low-carbon transition, and the role that IFCMA could play in supporting improved data and information sharing, evidence-based mutual learning and multilateral dialogue. A replay of the forum and more information can be found here.

New horizons in capacity building for tax transparency

This report presents the capacity-building and outreach activities carried out by the Global Forum on Transparency and Exchange of Information for Tax Purposes throughout 2022, in support of the global implementation of the tax transparency standards (exchange of information on request and automatic exchange of financial account information).

Note: The items covered here include only those items not covered in other articles in this issue of Tax Alert.