BEPS Cabinet paper released, 14 December 2016
On 14 December 2016, the Minister of Revenue, the Hon Michael Woodhouse, released a Cabinet paper providing information on base erosion and profit sharing (BEPS) measures being considered by the Government. The measures are intended to strengthen the transfer pricing and permanent establishment rules to address BEPS strategies used by some multinationals.
In the paper it was agreed that Inland Revenue and Treasury should develop a package of measures to counter transfer pricing (TP) and permanent establishment (PE) avoidance and that the package should include:
• measures to prevent the avoidance of a PE in New Zealand, which would be similar in effect to this aspect of the Australian/UK diverted profits tax (DPT) (including a possible override of New Zealand’s Double Tax Agreements and consistent with the OECD’s BEPS measures)
• amendments to New Zealand’s transfer pricing legislation so New Zealand can collect better information, tax multinationals more in accordance with the economic substance of their activities here (in accordance with the OECD’s new transfer pricing guidelines), and so that Inland Revenue does not have the burden of proof in transfer pricing cases
• adoption of other OECD BEPS measures relating to TP and PE avoidance, which includes strengthening New Zealand’s tax treaties so they cannot be used for this purpose
• other domestic law amendments to address issues specific to New Zealand, and
• administrative measures to make it easier to assess and collect tax from uncooperative multinationals in practice (particularly in relation to transfer pricing).
The Cabinet paper notes that the preference at this stage is to counter TP and PE avoidance through a package of measures tailored to the New Zealand environment rather than a DPT. However, the introduction of a separate DPT has not been ruled out.
The Government plans to release a discussion document on the package in early 2017. The discussion document will be used as a basis for consultation on the package with the public. Inland Revenue and Treasury are to consult with other interested Government agencies in preparing the discussion document, such as the Ministry of Foreign Affairs and Trade and report back to Cabinet with a draft of the proposed discussion document before its release.