Wednesday, October 30, 2013
New Zealand's Inland Revenue Department (IRD) has released a report that strongly endorses the measures drawn up by the Organization for Economic Cooperation and Development (OECD) for tackling base erosion and profit shifting.
According to Revenue Minister Todd McClay, "The central issue is that international tax standards have not kept pace with developments in the global economy. While it may seem like a simple matter to clamp down on the corporates involved, Governments are mindful of the threat to international trade arising from knee-jerk reactions."
The report makes a series of recommendations designed to strengthen New Zealand's ability to combat profit shifting by multinationals and other investments. It focuses on preventing multinationals from shifting profits out of the country by using related-party debt, and on removing tax advantages from certain investment vehicles, and ensuring the effective taxation of offshore investments.
The Government is urged to examine problems with the thin capitalization and transfer pricing rules, and to consider whether New Zealand should restrict interest deductions on hybrid instruments, where the interest payment is not taxed in the foreign jurisdiction. Similarly, the Government is called on to investigate whether an anti-arbitrage rule for offshore entities should be implemented, and to design an active income exemption for offshore branches. The tax treatment of foreign trusts should be reviewed, and options for collecting goods and services tax (GST) on goods and services bought online should be explored.
The report also identifies a set of changes that could improve the quality and usefulness of the information collected by the IRD. These include requiring large corporates to file their tax returns earlier, aligning information disclosure for approved issuer levies with non-resident withholding tax disclosure requirements, and reforming the information disclosure procedure for large corporates.
"What we're looking at is an overhaul of international tax rules to update global tax rules from the industrial age to the digital age. Taken in that context, the OECD's suggested timetable for addressing the issue over a period of up to two-and-a-half years is dynamic and ambitious. We will continue to support the OECD initiative," McClay said.