New Zealand - Focus on taxation of multinational businesses 

October 31: The taxation of multinational businesses is a focus of recent reports from New Zealand’s tax authority.

The Inland Revenue Department (IRD) documents—Multinational Enterprises Compliance Guide and an IRD Policy report on the Taxation of multinationals—highlight the increasing tax focus on multinational businesses.

Tax officials have raised concerns about the effectiveness of New Zealand’s current tax rules in preventing the reduction of New Zealand taxable profits by multinationals. Among the risk areas highlighted are the use of related-party debt and “tax arbitrage” (using different tax treatments for instruments and entities to produce lower or no tax).

Some of the policy responses being considered include alternatives to the current thin capitalisation tests, broadening the ambit of New Zealand's transfer pricing rules, and tightening the deductibility rules for hybrids.

KPMG observation

Tax professionals in New Zealand have noted that there are some fundamental questions not being addressed. The problems identified and the possible solutions assume an unstated ideal of what would be New Zealand’s taxable profit. A key question is whether New Zealand’s domestic tax treatment is to be determined by other countries tax’ rules.

As has been observed, New Zealand’s tax system has been developed with a view of what is best for New Zealand. For example, the thin capitalisation and non-resident withholding tax rules have been constructed against the background of New Zealand’s need for foreign capital. The problems and possible solutions may need to be tested against those objectives as authorities seek to determine what is an appropriate tax base for the future.

Read an October 2013 report [PDF 84 KB] prepared by the KPMG member firm in New Zealand: IRD focuses on multinationals

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