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New Zealand: New BEPS law enacted, includes transfer pricing measures

New Zealand: New BEPS law, includes transfer pricing

New tax law—Taxation (Neutralising Base Erosion and Profit Shifting) Act—has been enacted.

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The new law—referred to as the “BEPS Tax Act”—contains various rules that will affect New Zealand businesses that have cross-border dealings. These changes generally apply from income years beginning on or after 1 July 2018. 

Among the measures in the BEPS Tax Act are the following: 

  • New interest rate rules for inbound related-party debt require rates generally to be based on the group credit rating, rather than on the stand-alone New Zealand borrower.
  • New Zealand taxpayers, rather than Inland Revenue, must justify their transfer pricing positions. Inland Revenue will have seven years (rather than four years) after the year of filing, to finalise a challenge to those positions.
  • Sales by non-resident multinationals to New Zealand customers will be taxable if there is “New Zealand facilitation” of those sales and New Zealand and/or foreign tax avoidance. The rule only applies if the applicable income tax treaty does not have up-to-date “permanent establishment” provisions.
  • Income will be taxed and deductions will be denied depending on the foreign tax treatment of these amounts. This will be relevant for transactions or entity structures with different tax classifications in New Zealand and overseas.

Multilateral Instrument

The Multilateral Instrument (MLI) has entered into force in New Zealand, and updates New Zealand’s network of income tax treaties. Particular provisions, including the “permanent establishment” article, will be modified depending on how New Zealand and the other treaty country have agreed that the treaty will be changed. The first income tax treaties to be updated are those that New Zealand has with Poland, Sweden, and the United Kingdom. Others will be updated progressively as countries complete their domestic processes for implementing the MLI.

 

Read a July 2018 report [PDF 219 KB] prepared by the KPMG member firm in New Zealand

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