Inland Revenue is cracking down on multinationals to ensure they pay the correct tax in New Zealand, which could bring in approximately $200 million in tax collected every year.
New Zealand's international tax rules received an update as part of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018, as a response to the OECD/G20 Base Erosion and Project Shifting (BEPS) project.
One of the changes included measures to protect New Zealand tax base from multinationals that take an ‘aggressive' tax practices, says Inland Revenue international revenue strategy manager John Nash.
“There's a perception, since late 2012, that some multinationals pay little or no tax anywhere in the world by using international BEPS tax planning techniques,” he explains.
Although the final tax returns for the 2019 and 2020 years haven't been filed yet, he says Inland Revenue is confident that anti-BEPS measures will make a difference. Already, many multinationals have restructured because they know the new rules are effective, he adds.
Inland Revenue says it has also updated its compliance focus on multinationals as a result of the anti-BEPS measures coming into effect.
“IR closely monitors all foreign-owned corporates with a turnover of more than $30 million. They must submit information each year which must include their financial statements and tax reconciliations,” says Nash.
“We also have new intelligence from our tax treaty partners by way of country-by-country reports, telling us how major multinationals have allocated their profits around the world.
“If they don't play by the new rules, we will know who they are, and they should expect we'll be in touch. So, it makes sense for multinationals to look at restructuring their affairs, talk with us and get matters right up-front.
In order for anti-BEPS to work, it must be a global effort.
“That's why New Zealand has joined with more than 130 other jurisdictions in the OECD/G20 Inclusive Framework, resulting in major legal and practical changes globally,” says Nash.
“We have a wide tax treaty network, including 40 double tax agreements with key trading partners, and a very close relationship with our major tax treaty partner, Australia. We routinely exchange intelligence on taxpayers and specific industries with the Australian Taxation Office.
“Across Asia, we have definitely noticed an increase in exchanges of information between tax authorities. These are a great help in the early identification of aggressive arrangements, which may adversely affect the New Zealand tax base,” Nash concludes.
Inland Revenue has issued a comprehensive practical guide to all the new measures, as well as setting out its Multinational Enterprises Compliance Focus 2019 resource.