The aim of our international tax work is to collect ‘the right amount of tax at the right time through the right channels’. We do this by a providing an environment that supports New Zealand businesses operating globally and assists multi-national enterprises (MNEs) operating here.
Our role includes heading off potential non-compliance before it occurs. We closely monitor MNEs, enter into advance pricing agreements with them and provide practical guidance for self-managing their tax. We also nurture relationships with these customers and their advisors, welcoming free and frank dialogue.
This case study outlines some of the features of our international compliance approach.
- Collaboration is key - we work with other tax authorities and key business interests to foster certainty about tax and facilitate trade and investment.
- We’re also using the data and analytical capabilities that transformation has brought us to help target trends and emerging issues and customers in need of assistance.
Gathering intelligence
We’ve actively monitored all foreign-owned corporates with an annual turnover of over $30 million for several years. Seven hundred MNEs complete an annual international questionnaire to inform our approach to risk management for their tax compliance.
We also receive other key sources of information, such as country-by-country reports and summaries of tax rulings from our exchange partners from around the globe.
In more recent years, we have gained additional intelligence from the regular exchange of reports on financial account information with other countries. These are in relation to New Zealand tax residents with financial accounts in other jurisdictions.
Inland Revenue gained a new source of intelligence in March 2021 when we signed a memorandum of understanding with Toitū Te Whenua Land Information New Zealand.
We now contribute to integrity tests of overseas investors by confirming if they have outstanding taxes and any past penalties for avoidance or evasion. We receive early intelligence on major new foreign investments, enabling us to track their tax compliance right from the start.
Tailored compliance campaigns
Based on analysis of the financial account information we receive on New Zealand tax residents, we deliver tailored campaigns to customers to create greater awareness and facilitate compliance.
In 2020, we contacted almost 2,000 customers. The campaigns bring these individuals and their tax obligations into our tax system. We received more than 350 voluntary disclosures, amounting to a total tax shortfall of $6.2 million. We also expect to collect an additional $2 million annually from these customers without any further intervention.
Even better, a number of New Zealanders heard about our campaigns third hand and have also made voluntary disclosures.
We’ve also reviewed 24 New Zealand financial institutions to assess their systems for collecting and reporting this financial account information. In general, we found a high level of compliance and are working with the institutions whose systems were identified as needing to improve.
Based on our intelligence on MNEs, we deliver a range of campaigns to this customer group. The campaigns aim at specific issues or risks arising in particular sectors. In 2020, we focused on distributors, customers with repeat losses, intellectual property and financing. We contacted 331 customers to ask them to clarify their taxes or supply more information. These 331 customers account for more than one-third of the overall MNE customer base.
These deeper dives are an efficient and effective way to monitor and ensure compliance. We can confidently assure a large portion of New Zealand’s corporate tax base without needing to default to audits, which are expensive for us and customers. For instance, only 10% of the MNEs contacted this year needed a more in-depth follow-up review.
Promoting advance pricing agreements
Inland Revenue operates a programme of advance pricing agreements. These provide customers with certainty on tax for specific transfer pricing arrangements for an agreed period. In return, New Zealand gets a level of certainty that these businesses are paying the right tax over a period of time and over potential future revenue benefits. There’s less need also for audits.
Forty-six percent of the customers that have an agreement have been in this programme for more than 10 years, and 22% for more than 15 years. As at 30 June 2021, 76 customers had active agreements with us, representing tax assured of approximately $290 million a year.
Assisting other countries to build their capability
Inland Revenue plays an active role on the global stage, assisting other countries’ tax organisations to build their capabilities. Working with International partners, we’ve been supporting the implementation of international tax standards by Pacific Island nations.
We also work closely with OECD Global Relations to provide tax technical assistance. This year, we provided tax experts for virtual training events for a large number of developing countries.
In 2020-21
- 81 countries exchanged 1.1 million financial account information reports with us.
- We actively monitored 700 multi-nationals Annually, they contribute approximately $4.7 billion in tax.
- People we contacted as a result of analysing financial account reports from other countries made voluntary disclosures on a tax shortfall totalling $6.2 million.
- The total tax assured under advance pricing agreements with multi-nationals increased from $200 million in 2019-20 to $290 million this year.