Chartered Accountants Australia and New Zealand (CA-ANZ) has stressed that by implementing the Taxation (Neutralising Base Erosion and Profit Shifting) Bill in its current form, the New Zealand Government would be “going further than most other OECD countries.”
The Bill was introduced in the Parliament in December last year. It includes measures to prevent multinationals from using artificially high interest rates on loans from related parties to shift profits out of New Zealand; and to prevent hybrid mismatch arrangements that exploit differences between countries’ tax rules to achieve an advantageous tax position.
In its submissions to the Finance and Expenditure Committee, CA-ANZ said that the Bill includes many examples of overreach, lacks coherence, and is out of proportion relative to the problem being addressed.
CA-ANZ noted that the proposals to link debt pricing to the ultimate parent company’s credit rating are “unprincipled, have significant overreach, and should not proceed.”
According to CA-ANZ, the proposed legislation to address hybrid and branch mismatches will result in increased complexity and uncertainty, and cost of capital. It explained: “Most OECD countries need additional rules to address hybrids because they tax income on a territorial basis. New Zealand taxes income on a worldwide basis so does not need to undertake the same level of reform to achieve the same result. Overreach in the hybrids area will impact SMEs.”
CA-ANZ recommended that the implementation of the proposals is phased or delayed in line with the country’s major trading partners/providers of foreign capital. “It is not in New Zealand’s interest to lead BEPS (and in particular hybrids) implementation,” it said.
CA-ANZ said: “It is not in New Zealand’s best interests to be an outlier from international norms in any international tax regime. We have past experience of this and if we continue down this path it is likely to manifest in problems in the future.”