On June 27, 2016 the following 3 BEPS Papers that were released by the New Zealand Government have been published on the website of the New Zealand Inland Revenue:
· Base erosion and profit shifting (BEPS) – update on the New Zealand work programme
· New Zealand’s plan to ensure multinationals pay their fair share of tax
· New Zealand’s taxation framework for inbound investment - A draft overview of current tax policy settings
Base erosion and profit shifting (BEPS) – update on the New Zealand work programme
This paper from the Office of the Minister of Revenue to Cabinet provides context for the BEPS issue and describes the work that has taken place so far at the OECD and within New Zealand. It also outlines New Zealand’s proposed BEPS policy work for the next 12 months.
This paper sets out for your information background to the OECD/G20 BEPS project, the related OECD/G20 initiative regarding a global Standard for Automatic Exchange of Financial Account Information in Tax Matters (in short, Automatic Exchange of Information, or AEOI) and New Zealand’s response to the OECD/G20 recommendations.
In particular the paper covers:
a. the broad principle underpinning New Zealand’s taxation of multinationals;
b. what BEPS and AEOI are;
c. what the G20 and OECD propose we should do about BEPS and AEOI;
d. what New Zealand has done, and plans to do, to address BEPS issues and AEOI; and
e. whether implementing the initiatives in the BEPS Action Plan mean New Zealand can better tax multinationals.
In this respect paper discusses a.o.:
· Principle underpinning New Zealand’s taxation of multinationals;
· What is BEPS?
· What is AEOI?
· What do the G20 and OECD propose we do about BEPS and AEOI?
· What is New Zealand doing to address BEPS and AEOI?
- More robust tax laws;
- International agreements and co-operation;
- Greater transparency of tax information;
- New Zealand’s current administrative measures to address BEPS
Click here to be forwarded to the report as available on the website of the New Zealand Inland Revenue, which will open in a new window.
New Zealand’s plan to ensure multinationals pay their fair share of tax
This document provides a summary of the work undertaken to date to address BEPS, as well as an outline of planned work. In this respect the document discusses the following three categories of which then information is provided on the actions already taken by Ne Zealand and which further changes are in the pipeline:
· Making tax law more robust
· Increasing international cooperation
· Improving transparency and exchange of information
Click here to be forwarded to the document: “New Zealand’s plan to ensure multinationals pay their fair share of tax” as available on the website of the New Zealand Inland Revenue, which will open in a new window.
New Zealand’s taxation framework for inbound investment - A draft overview of current tax policy settings
This draft document describes New Zealand’s approach to taxing foreign investment income. It is being used as the basis for targeted consultation with private sector representatives, but is being released more widely to facilitate a wide understanding of the trade-offs the Government faces in responding to BEPS. A final version of this paper will be released in the next few months together with consultation documents for public feedback on measures to address BEPS.
This paper presents an overview of New Zealand’s framework for taxing income earned on inbound investment. It is intended to provide a context for discussions of recent and prospective changes to the taxation of such income.
Developing a framework for taxing inbound investment is not a simple exercise. It involves making judgements, balancing a variety of factors that can point in different directions. The impact of taxes on the pre-tax cost of capital is one but only one of a number of important factors that must be taken into account. For example, it is important that the taxation of inbound investment fits within a coherent national tax system.
New Zealand has had a series of reviews over the last couple of decades that have examined the issues from a variety of points of view and have, in the end, resulted in the present framework. This paper reflects that accumulated thinking. While the analysis is complicated, it arrives at some clear conclusions. These conclusions are not cast in stone; if circumstances changed in the future, they would need to be reconsidered.
The company tax is the principal tax applying to inbound investment. Its structure is broadly consistent with international norms, while having features designed to respond to New Zealand’s particular economic and institutional context. International consistency simplifies the interaction of New Zealand’s tax system with those of other countries.
The documnent itself statest hat the principal conclusions of the paper may be summarised as:
· It is in New Zealand’s interest to levy company income tax and non-resident withholding tax (NRWT) on income from activities carried on within New Zealand’s borders. These taxes are broadly consistent with international norms, and provide significant funding for Government priorities and programmes that would otherwise be needed to be raised elsewhere.
· Base-protection measures, such as thin capitalisation and transfer pricing rules, are sensible to protect the tax base and ensure that New Zealand gets its fair share of revenues.
· There is a continuing case for NRWT on interest from related-party debt to supplement the company tax and to play a role in determining New Zealand’s share of taxes on activities within its borders.
· Deviations from normal tax rules, intended or otherwise, can lead to substitution of low-taxed investors for tax-paying investors, reducing national income without necessarily lowering the overall pre-tax cost of capital to New Zealand or increasing investment. Accordingly, base-maintenance provisions that ensure the intended level of tax is collected will often be in New Zealand’s best interest.
· NRWT on portfolio debt has been modified by the approved issuer levy (AIL) to provide relief from taxation in circumstances where it is in New Zealand’s interest to do so. On balance, continuing with New Zealand’s AIL/NRWT system for third-party debt is likely to be in New Zealand’s best interest.
In this respect the document discusses a.o. the following subjects:
· Main features of the taxation of inbound investment
· The impact of taxation on foreign direct investment
· The company tax
o Location-specific economic rents
o Sunk investment
o Foreign tax credits available abroad
o Less than perfectly elastic supply of inbound capital
o Relationship to personal income tax
o Transfer pricing and tax base erosion
o Distortions
o The rate of company tax
· Non-resident withholding tax (NRWT) on interest on related-party debt
o Foreign tax credits available to parent
o Tax-exempt parent
· Debt and equity advanced by a foreign parent and thin capitalisation provisions
· Deviations from normal rules, marginal investors and welfare implications
· BEPS
o Resident country tax avoided
o New Zealand tax avoided
o Broader context
· Unrelated-party debt and NRWT/AIL
o Pros and cons of AIL/NRWT option compared with targeted exemption
o Implications of the branch loophole
o Summary of conclusions for unrelated-party lending from abroad
Click here to be forwarded to New Zealand’s taxation framework for inbound investment as available on the website of the New Zealand Inland Revenue, which will open in a new window.
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