BEPS Bill Introduced
Four specific BEPS (Base Erosion Profit Shifting) areas will be targeted under legislation recently introduced into Parliament.
The OECD/G20 Action Plan has seen the development of 15 actions which are aimed towards assisting countries in combatting strategies used, predominantly by multinationals, to erode their taxes bases via the shifting of profits from one taxing jurisdiction to another, the latter usually being a low/no tax state.
While the latest proposals are tailored specifically for NZ’s environment, they are still broadly consistent with the OCED/G20 guidance.
The Taxation (Neutralising Base Erosion and Profit Shifting) Bill contains measures to:
- prevent the use of artificially high interest rates on loans from related parties to shift profits out of NZ (interest limitation rules);
- prevent the use of hybrid mismatch arrangements that exploit differences between countries’ tax rules to achieve an advantageous tax position;
- counter artificial arrangements which attempt to avoid having a taxable presence (a permanent establishment) in NZ; and
- prevent the use of related-party transactions (transfer pricing) to shift profits into offshore group members in a manner that does not reflect the actual economic activities undertaken in NZ and offshore.
While each provision has its own commencement date specified in the Bill, most will have application to income years beginning on or after 1st July 2018.
Full commentary on the new Bill can be found here – http://taxpolicy.ird.govt.nz/sites/default/files/2017-commentary-nbeps-bill.pdf
Where are they up to…
Just in case you were losing sleep over it:
The Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Bill (249-1): (which is an omnibus Bill containing amendments aimed at modernising and improving the settings for the administration of the tax system, and at improving the current tax settings within a broad-base, low rate framework), received its first reading on 24 May 2017, was reinstated into Parliament on 8 November 2017, and is now awaiting the FEC’s report, which is due on 29th March 2018.
Trusts Bill (290-1): (which proposes replacing the Trustee Act 1956 and the Perpetuities Act 1964 to make trust law more accessible to everyday users by clarifying and simplifying core trust principles and essential obligations for trustees to improve understanding about how trusts operate), received its first reading on 5th December 2017 and now awaits a report from Justice Committee, which is due by 5th June 2018.
Bright-line, an afterthought…
While clearly at the forefront of one’s mind simply due to the continued Press it has received since its introduction, remember not to overlook the fact that the Bright-line rules contained in section CB 6A (ITA07), only apply where the existing taxing provisions in sections CB 6 to CB 12 do not.
With Bright-line recognised as being a very black and white provision (particularly if the owner of the land has never resided on it, so the main home exemption is clearly unavailable), you might ask, what is the point therefore, of considering the potentially more grey application of sections CB 6 to CB 12, which naturally will take more time and therefore add potential cost to your client’s file, if an ultimate taxable outcome has already been determined.
The answer is because taxation under non-Bright-line provisions may provide a more favourable outcome to your client in terms of their overall taxation position. For example, deductions for residential land expenditure under Bright-line are capped and ring-fenced (s.DB 18A – bright-line income + land net income), whereas no such limitations exist where the applicable taxing provision is CB 6 to CB 12.
Now clearly for 9 out of 10 transactions (if not 9.9) it will not make the slightest difference, however I just wanted to draw attention to the issue, because we all can be such habitual beasts at times, getting stuck in the routine rut, and sometimes overlooking what may just be sitting on the side of the road waiting for us to use to our advantage (or more importantly, our client’s).
Richard Ashby BBus, CA, CPA PARTNER
Em: [email protected]
Ph: +64 9 365 5532 Fx: +64 9 309 5260
Mb: +64 21 823 464
