New Zealand Government Ratifies BEPS Convention

New Zealand Government Ratifies BEPS Convention

New Zealand’s Inland Revenue today announced that the Government has ratified the OECD’s Multilateral Convention to implement tax treaty-related measures to prevent base erosion and profit shifting (BEPS).

The BEPS Convention, negotiated by over 100 countries and jurisdictions, updates the existing network of bilateral tax treaties and reduces opportunities for tax avoidance by multinational enterprises (MNEs).

The Convention will modify existing bilateral tax treaties to swiftly implement the tax treaty measures developed in the course of the BEPS project. Treaty measures that are included in the BEPS Convention include those on hybrid mismatch arrangements, treaty abuse, and permanent establishment. The BEPS Convention also strengthens provisions to resolve treaty disputes, including through mandatory binding arbitration, which has been taken up by 28 signatories.

Normally these changes require a manual process of renegotiating each tax treaty individually. However, the BEPS Convention would allow countries, including New Zealand, to adjust their existing tax treaties with other participating countries swiftly to adapt to the OECD’s new treaty provisions on anti-abuse, dispute resolution, and transfer pricing.

For New Zealand, the BEPS Convention would enter into force from October 1, 2018. The Convention entered into force last month for Austria, the Isle of Man, Jersey, Poland, and Slovenia.

In accordance with the rules of the BEPS Convention, its contents will start to have effect for existing tax treaties from 2019.

New Zealand’s ratification of the BEPS Convention follows the recent enactment of measures to tackle BEPS, which took effect on July 1, 2018. The new measures will prevent MNEs from using 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 new measures will also 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.