New Zealand tax compliance focus 2016/17 | KPMG | AU

New Zealand tax compliance focus 2016/17

New Zealand tax compliance focus 2016/17

Darshana Elwela analyses the New Zealand Internal Revenue current compliance focus for multinational enterprises.

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National Director - Tax

KPMG in New Zealand

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Telescope placed towards the sky

The New Zealand Inland Revenue’s (IR’s) new multinational compliance focus guide highlights the key risk areas businesses need to focus on.

These issues are not just for global multinationals. Australian businesses with NZ operations should take note. For a start, IR’s ‘Basic Compliance Package’ – which requires business taxpayers to provide additional information for IR’s risk assessment purposes – has been extended to all foreign owned groups with NZ turnover of NZ$30m+.

Tax governance framework and appropriate controls around tax risk

This starts with the Board setting the right tone from the top. IR expects the firm’s tax strategy to be documented, kept up to date, and for compliance to be routinely monitored.There is also a strong push for companies to publicly disclose their NZ tax data. While NZ does not have the same tax transparency measures as Australia, the trend is clear. Greater transparency, not less, and for more and more businesses.

Support for international transactions

Some of the issues to consider include:

  • NZ funding structures – is debt funding at arm’s length rates? Is it compliant with NZ’s thin capitalisation rules? Are there ‘hybrid’ financing instruments or structures in place that may create BEPS concerns in one or both countries?
  • Transfer Pricing (TP) support – while NZ does not have statutory documentation requirements, lack of up to date TP support will be an immediate red flag for IR. And it will typically not be sufficient to simply ‘adjust’ the Australian TP analysis for NZ purposes.
  • Profitability of NZ wholesale/distribution functions – has this been benchmarked? (Expect queries for margins less than 3 percent.)
  • Restructurings – have the NZ GST and income tax impacts been appropriately considered, particularly if key functions, assets and risks are moved from NZ? 

Understanding ‘future state’ tax administration impacts

IR is embarking on a business transformation. This will impact how it interacts with business on NZ income tax, GST, PAYE and withholding taxes in the "future state".

The focus is on digital – i.e. interacting directly with your accounting and payroll systems – with faster and greater provision of information resulting.

The future is sooner than you think. With a 2017-19 implementation time frame, businesses need to start thinking now about how these changes will impact their systems and future interactions.

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