New tax laws are being introduced to prevent multinationals from avoiding tax by shifting profits out of New Zealand. The Taxation (Neutralising Base Erosion and Profit Shifting) Bill will affect multinationals operating in New Zealand and overseas.
The measures will be aimed at addressing:
- Multinationals that use artificially high interest rates on loans from related parties to claim tax deductible expenses
- Arrangements that exploit differences between two or more countries’ tax rules to pay less tax
- Artificial arrangements to avoid having a permanent establishment, thus avoiding a taxable presence in New Zealand, and
- Transactions with offshore group members that do not reflect the actual economic activities the multinationals are undertaking in New Zealand and offshore.
The new measures will see New Zealand’s tax laws regarding cross-border transactions become more aligned with those in Australia and are generally consistent with OECD recommendations.
If the Bill is passed in its current form, it’s expected that many of the proposed changes will come into force to align with the income years beginning on or after 1 July 2018.