New Zealand Finalizes MNE Tax Avoidance Rules

New Zealand Finalizes MNE Tax Avoidance Rules

A bill aimed at tackling multinational tax avoidance will come into force on July 1, 2018, New Zealand’s Revenue Minister, Stuart Nash, has announced.

According to the Minister, the Taxation (Neutralising Base Erosion and Profit Shifting) Bill – which passed its third reading in Parliament on June 26 – is due to take effect from July 1 and will considerably improve the integrity of the country’s tax system.

Nash said that the bill, once enacted as expected, would prevent MNEs from using base  erosion and profit shifting (BEPS) strategies, including artificially high interest rates on loans from related parties (and other related-party transactions) aimed at shifting profits out of New Zealand.

The bill also includes rules to tackle hybrid mismatch arrangements that exploit differences between countries’ tax rules to achieve an advantageous tax position, and artificial arrangements to avoid having a taxable presence or a permanent establishment in New Zealand.

“Companies should ideally pay tax in the right country,” Nash said. “This legislation will ensure that MNEs pay tax based on the actual economic activity they carry out in New Zealand.”

The Minister added: “It is not in the interest of New Zealand taxpayers if MNEs avoid paying taxes here. The changes address the problem of companies operating cross-border and using aggressive tax structuring to reduce the tax they pay.”

Nash said: “Most MNEs operating here pay the tax they should and are compliant. But some adopt BEPS strategies to minimize their tax obligations. The BEPS strategies distort investment and threaten the integrity of tax systems all over the world. It also means governments lose out on tax revenue. Unlike smaller domestic companies and individuals, large companies with cross-border structures can exploit opportunities to get around tax rules.”