New Zealand: Transfer pricing, BEPS measures released for consultation

New Zealand: Transfer pricing, BEPS measures

New Zealand’s tax authority has released for consultation, the following proposals from the base erosion and profit shifting (BEPS) project.

Related content

  • A rule to tax “large” foreign multinational entities (MNEs) on New Zealand sales made using a related entity in New Zealand
  • Transfer pricing changes that would allow Inland Revenue (IRD) to re-characterise transactions that it considers not to align with economic substance, and impute what the IRD considers to be arm’s length conditions
  • A rule that would put greater onus on taxpayers to justify their New Zealand transfer pricing positions and encourage “cooperation”
  • A measure to extend the period IRD can dispute transfer pricing matters to seven years (from the current four-year period)
  • Further tightening of the thin capitalisation rules, which deny New Zealand interest deductions—including linking deductible debt to the parent entity’s credit rating and requiring the value of assets to be calculated net of non-debt liabilities (such as trade creditors)
  • Further detail on New Zealand’s implementation of the Multilateral Instrument which potentially affects transactions with income tax treaty partner countries

KPMG observation

What are some initial impressions about the proposals? First, it appears that the introduction of a transfer pricing re-characterisation rule is aimed at "commercially irrational" arrangements that would not be entered into by third parties. Also, taxpayers would also need to note the shifting of the burden of proof in transfer pricing matters, from the IRD to the taxpayer. Given that the IRD would not only receive information from other tax authorities (under the country-by-country reporting and other information exchanges), the IRD may also have comparables data, that the taxpayer does not have, on which to base assessments. The proposals would have broad reach that must be considered carefully. 

 

Read a March 2017 report [PDF 588 KB] prepared by the KPMG member firm in New Zealand

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