The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (IF) has agreed to develop a two-pillar solution to address the tax challenges that come from digitising the economy. New Zealand is a member of the OECD and IF. More details on the two-pillar solution are on the OECD website.
Amount A of Pillar One
Amount A of Pillar One co-ordinates a reallocation of taxing rights to market jurisdictions for a share of the profits of the largest and most profitable multinational enterprises (MNEs) operating in their markets, regardless of their physical presence.
Amount A has not yet been finalised. More information is available on the OECD website.
Amount B of Pillar One
Amount B of Pillar One provides an optional simplified and streamlined transfer pricing approach. Jurisdictions may opt to apply this to in-country baseline marketing and distribution activities for fiscal years beginning on or after 1 January 2025. The OECD/G20 Inclusive Framework on BEPS’s report on Amount B of Pillar One is on the OECD website.
Report on Amount B of Pillar One - OECD
As New Zealand has not opted to apply this approach, its introduction does not change our current rules or practice. Our existing simplification measure for small foreign-owned wholesale distributors is still available, and existing transfer pricing rules apply in all other cases.
Simplification measures for transfer pricing
Foreign-owned distributors operating in New Zealand
Arm’s length outcomes for foreign-owned distributors operating in New Zealand must be determined in accordance with existing transfer pricing approaches.
In line with paragraph 6, New Zealand will not treat the approach as providing an arm’s length outcome (including for the purposes of Article 9 of the Model Tax Convention, and by extension Article 25). The conforming changes to the Model Tax Convention commentary provide tax certainty about this. This means foreign-owned distributors operating in New Zealand that use this approach:
- will not be considered compliant with New Zealand’s domestic transfer pricing rules
- will not discharge the taxpayer’s burden of proof concerning those rules
- will expose the taxpayer to shortfall penalties.
If double taxation arises from a transfer pricing adjustment, relief will not be provided based on the application of the approach. This is in line with paragraph 77 of the approach and the conforming changes to the Model Tax Convention commentary.
Existing transfer pricing rules
Paragraph 43 of the approach confirms that the approach has no bearing on existing transfer pricing and does not change any existing OECD guidance. The methodology and guidance used in the approach, including all design elements and defined terms, are specific to the approach. No element or term should be construed as implying that it would be acceptable under existing transfer pricing rules. That is, existing transfer pricing rules must be applied without any reference to the approach.
New Zealand-owned distributors operating offshore
A foreign jurisdiction may apply the approach to distributors operating in its jurisdiction. If a New Zealand-owned distributor operates in a jurisdiction that applies the approach and the jurisdiction is not a covered jurisdiction within the scope of the political commitment to the approach, it must still apply existing transfer pricing approaches to the transaction in respect of its New Zealand obligations.
If New Zealand has a treaty with the relevant jurisdiction, and a transfer pricing adjustment leads to double taxation, relief will not be provided based on the application of the approach. This is consistent with paragraph 77 of the approach and the conforming changes to the Model Tax Convention commentary.
Pillar Two
The Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act (the Amendment Act) enacts Pillar Two (the GloBE rules) in New Zealand through amendments to the Income Tax Act 2007 (the ITA) and Tax Administration Act 1994 (TAA). The term used in the ITA to describe New Zealand’s GloBE rules is the ‘applied global anti-base erosion rules’ (applied GloBE rules), and the term used for tax imposed under the applied GloBE rules is ‘multinational top-up tax’.
The applied GloBE rules consist of an Income Inclusion Rule (IIR) – including a domestic IIR (DIIR) – and an Undertaxed Profits Rule (UTPR).
The IIR and UTPR components of the applied GloBE rules apply for fiscal years beginning on or after 1 January 2025. The DIIR component of the rules applies for fiscal years beginning on or after 1 January 2026.
For more information on the applied GloBE rules, see this Tax Information Bulletin on the Tax Technical website.
Tax Information Bulletin vol 36 no 4, May 2024
More information on Pillar Two is available on the OECD website.
Global Anti-Base Erosion Model Rules (Pillar Two) | OECD
These documents will help you implement the GloBE rules.
- The GloBE Information Return (GIR)
- Guidance on how to complete certain aspects of the GIR
- The GIR Multilateral Competent Authority Agreement
- GIR XML Schema and User Guide
See more background information in this 2025 news release from the OECD.