We provide confidence and certainty for our customers
It's important that we give our customers certainty about what is expected of them to comply. Providing clear guidance on obligations and improving their understanding of legislative and administrative requirements is the first step towards aiding compliance. Knowing what is expected of them and how to go about it gives our customers the confidence they need to get it right.
Some customers are still uncertain about their obligations in some areas. We will be working hard to clarify areas of confusion to help them manage their tax in the future.
Legislative certainty
For customers to be compliant it's important that they understand the intent of legislation and how it applies to them. When rules and regulations are updated we'll work to make it clear what we expect of our customers and what tax practices are appropriate.
We offer a range of online information sources for customers about current tax issues and emerging risks.These include the Business Tax Update e-newsletter, Revenue Alerts and notification of binding rulings.
Foreign investment funds (FIFs)
A number of changes to the foreign investment fund tax rules have resulted in customers misapplying, or abusing, the rules.
We're improving the education we provide for finance professionals and we will verify annual reporting to give assurance that the information is correct. We will identify those who choose not to comply and take enforcement action, when needed.
What you can do
- If you have prepared incorrect reporting for a client, you must inform them so they can correct their tax position.
- If you think you may have got your FIF obligations wrong you can make a voluntary disclosure.
Controlled foreign companies (CFCs)
Changes to CFC rules mean active income of controlled foreign companies is generally no longer subject to tax in New Zealand. The details of the change were published in the Tax Information Bulletin Vol 21, No 8, Part II.
To ensure that the new rules are followed we will be reviewing the structures and tax returns of all major taxpayers with significant CFC investments.
What you can do
If you think you may have got your CFC accounting wrong you can make a voluntary disclosure.
Life insurance providers
Major changes have been made to the specialist tax rules relating to life insurance. They introduce new complexities, especially in relation to transitional provisions, particularly in the first few years.
We're working with life insurance providers to help them understand the changes and how they affect their business so they can apply them correctly. We'll be monitoring providers to make sure they make the appropriate changes and we'll be focusing on the introduction of any structures or techniques that minimise their tax obligations.
What you can do
Contact a trusted advisor or your Inland Revenue compliance manager if you're unsure about how the changes affect your business.
Confidence in meeting their obligations
A customer needs to be certain and confident in handling their tax and social policy entitlements. If they understand what they need to do and how to go about it, it's much easier for them to meet their obligations. Most people try to get it right but sometimes, due to a lack of knowledge or skills, they make a mistake. We encourage customers to seek our position on transactions so they're certain about what we expect from them.
Large enterprises
Large enterprises make up just 0.1% of registered entities but they account for half of the tax collected from companies. It's important that we continue to monitor their tax compliance to ensure the correct tax positions are being taken.
To encourage compliance and promote better practices we're piloting cooperative agreements with several large enterprises. The agreements establish cooperative working practices by defining behaviours and timeframes, and provide increased certainty on tax compliance. The large enterprise agrees to disclose material risks, and we commit to working closely with them to provide quick resolutions on tax issues. This approach also reduces the compliance costs for both Inland Revenue and large enterprises.
We continue to enter into memorandums of understanding (MOUs) with some large enterprises, eg, when issuing statutory notices to receive information on third parties. The MOUs describe a streamlined process based on limited points of contact and define timeframes for response on both sides.
Each large enterprise group is provided with an Inland Revenue compliance manager to help support the exchange of information and advice. Compliance managers apply their specialist knowledge of the industry to help with tax compliance.
We're continuing to monitor trends and test the application of new legislation such as the change in the GST and company tax rates. We're also doing research, analysing risk reviews and conducting test audits where needed. As a result of the change in the company tax rate we'll be working through a transition period, during which we'll be checking imputation credit accounts to make sure the correct ratios are being used.
We're continuing to work with the banking and energy industries to address emerging issues. We're maintaining our focus on international financial reporting standards, offshore records retention and leasing, and we're also looking into financing structures, cross-border transactions and share-based remuneration.
What you can do
- If you're uncertain about the application of legislation you can request a binding ruling.
- If you've made a mistake or are not meeting your obligations you can make a voluntary disclosure.
Property
The property market continues to feature strongly in our economy. However, not all customers are aware of their obligations. Income from property transactions, like other income, may be taxable and must be declared.
We have a monitoring and alert system in place which notifies us when a property is transferred. We're also focusing on people who buy land and then hold on to it for a long time before reselling at a profit (land banking). Many customers believe this behaviour has no tax implications, however, this may not be the case.
We'll continue to work with industry groups and to run education campaigns to help customers understand their obligations. We've developed a Tax and property transactions (IR361) guide to explain some of the lesser understood tax issues involved in buying or selling any property. It specifically covers areas where we've seen mistakes occurring. We'll investigate customers who choose not to comply.
What you can do
If you've failed to declare income from property you can make a voluntary disclosure.
Central and local government
The integrity of the GST and remuneration systems and processes used by central and local government continues to be an area of focus. Ongoing changes in the public sector are seeing a number of agencies undergo restructure or organisational change, increasing the risk of process or calculation errors.
We will continue to give advice and guidance on the correct tax treatment of specific issues through a range of channels. For more difficult compliance issues we've established cross-agency working groups to make sure the issues are understood, so we can provide the most appropriate solutions to fix the problems.
We're using a programme of system and process reviews to help identify where customers are getting it wrong. We're encouraging customers to conduct self-reviews and check they are meeting their responsibilities.
What you can do
- Review your systems and processes.
- If you're uncertain about the application of legislation you can request a binding ruling.
- If you're in doubt about a compliance issue you can search our website, contact a trusted professional or contact us.
- If you think you may have got your tax obligations wrong you can make a voluntary disclosure.
Transfer pricing
Over two-thirds of world trade involves multinational enterprises and over half comprises associated party transactions. It's important that New Zealand maintains its share of multinational tax in line with value added (functions, assets and risks) and accepted international practices. Transfer pricing affects a wide range of business enterprises, from large multinationals to small New Zealand businesses which export through overseas associates.
Our transfer pricing programme has focused on losses to ensure they haven't resulted from non-market pricing and thin capitalisation. We're keeping a close eye on groups with above average debt that may have been exposed to losses and asset write-downs. We're also monitoring New Zealand-owned multinationals for possible importation of losses from overseas subsidiaries through non-arm's length subsidies and support payments.
New controlled foreign company rules apply from the 2010 income year. So, transfer pricing rules now have more significance for controlled foreign companies, and we've added several questions to our disclosure form to reflect this. We'll follow up any unusual patterns or trends that emerge.
We're redirecting our resources so we can manage more requests for advance pricing agreements (APAs). These can provide certainty by resolving potential transfer pricing disputes early and reducing compliance costs, especially for complex cases involving intangibles or restructuring.
We publish guidelines to help businesses understand their obligations. If a company's business activities and economic performance don't match declared profits we'll ask why.
We'll continue to evaluate transfer pricing issues annually across all large enterprise groups. If we identify a high-risk entity or issue we will investigate.
What you can do
See our website for more information about transfer pricing and APAs.
High-wealth and high-income individuals
We work with more than 160 high-wealth individuals. They often have complex tax affairs and it's important that we tailor our interactions to help them understand and meet their obligations. We're building a profile of high-income earners to establish their level of risk to the tax system.
We are working towards establishing more cooperative working practices to give our customers increased certainty on tax compliance. Customers can also request binding rulings on tax issues or arrangements.
We've introduced two-yearly risk reviews of our high-wealth customers. Building better relationships with these customers helps us identify areas of risk earlier, work closely with them during the risk assessment process, and resolve issues quickly. We're continuing to closely monitor arrangements that reduce tax, particularly when there is no clear commercial benefit.
What you can do
- If you're uncertain about the application of legislation you can request a binding ruling.
- If you think you may have got your tax obligations wrong you can make a voluntary disclosure.
Losses - common errors
Every year a number of customers make mistakes when reporting or claiming their tax losses. The errors range from simple arithmetic and transposition errors through to companies carrying forward losses after a shareholder continuity breach, or offsetting a loss to another company when they don't have sufficient common ownership. Most errors result in a revenue loss.
We're doing research to find out why people are making simple mistakes around losses, and how we can help make it easier for them to meet their obligations. We're continuing to run an education campaign to help people understand what they need to do to avoid common mistakes.
We'll be contacting customers who have losses carried forward at the end of one income year that do not equal the loss brought forward in the next income year, and asking them to make a voluntary disclosure.
What you can do
- Keep track of company ownership changes
- Use our checklist on completing tax returns with losses.
- If you think you've got it wrong you can make a voluntary disclosure.
New immigrants
We work with the immigrant community and Immigration New Zealand to help new migrants comply with their New Zealand tax and social policy obligations. It's important that we understand different cultures to tailor our interactions with communities. This also helps us to identify potential areas of non-compliance.
We're doing research to help us understand the tax and social policy issues for immigrants and we should know the initial results by the end of 2011. We'll use the information to develop education and tools to help immigrants understand and comply with New Zealand's tax obligations.
Binding Rulings
We can issue binding rulings for customers to provide certainty about the interpretation of tax laws. Last year we introduced an enhanced process around binding rulings. We offer "pre-lodgement meetings" for businesses, so they can contact us before submitting an application. These meetings help to clarify the issues and determine the scope of the ruling.
Our aim is to complete all rulings within three months of receiving an application.
e-Channel compliance
We provide a range of information and a number of electronic services to help people and businesses self-manage their tax obligations and social policy entitlements. Businesses can file their GST and employer monthly schedules online, providing a faster and more accurate and convenient service for our customers.
We're doing research into how moving customers to an online space may affect compliance and attitudes to filing, and perception of accountability.
This section of the document
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Date published: 22 Jul 2011
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