New legislation to improve the fairness of the tax system and prevent large multinationals from exploiting rules in order to shift their profits offshore has passed another step closer to becoming law.
Revenue Minister Stuart Nash has taken the Taxation (Neutralising Base Erosion and Profit Shifting) Bill through its second reading in Parliament. Detailed debate will continue during the Committee stage once the House resumes in June.
“New Zealand and other countries are taking action to prevent multinational corporations from engaging in aggressive tax planning. This practice, known as base erosion profit shifting, or BEPS, is a challenge for tax systems around the world,” says Stuart Nash.
“The tax strategies mean that some large multinational companies pay little tax in New Zealand, or, in fact, anywhere else in the world, despite having a significant economic presence here. This threatens the revenue base that Governments need to deliver public services and erodes the overall fairness and integrity of our tax system. It distorts competition and effective and efficient allocation of resources and enables some multinationals to exploit tax rules to get an advantage over other businesses.
“The tax system must be fair for all income earners, regardless of their size or the complexity of their arrangements. The Taxation (Neutralising Base Erosion and Profit Shifting) Bill contains a comprehensive package of measures designed to combat BEPS, ensure fairness and equity and improve the integrity of the tax base”, says Mr Nash.
The changes will prevent multinationals from using BEPS strategies, including:
- artificially high interest rates on loans from related parties to shift profits out of New Zealand
- related-party transactions which are intended to shift profits to offshore group members in a manner that does not reflect the actual economic activities undertaken in New Zealand and offshore
- hybrid mismatch arrangements that exploit differences between countries' tax rules to achieve an advantageous tax position
- artificial arrangements to avoid having a taxable presence or a permanent establishment in New Zealand
- tactics to stymie an Inland Revenue investigation, such as withholding relevant information that is held by an offshore group member.
“New Zealand's response to BEPS is generally aligned with Australia's tax legislation and broadly consistent with the OECD and G20 action plan,” says Mr Nash.