On December 14, the Minister of Revenue Michael Woodhouse has released information on BEPS measures being considered by the Government that would strengthen the transfer pricing and permanent establishment rules to address base erosion and profit shifting (BEPS).
Diverted profits tax (DPT), which has been adopted by Australia and the UK, impose a separate tax on the diverted profits that arise from the transfer pricing and PE avoidance related BEPS strategies. The aim of a DPT is to tax profits that multinationals divert offshore (rather than allocate to their New Zealand operations). While it is likely to achieve greater taxation of these profits, it could impact on perceptions of the predictability and fairness of New Zealand’s tax system for foreign investment, the Government stated.
Government currently considers to take certain features of a DPT and combine them with the OECD’s BEPS measures and some domestic law amendments to produce a package that is tailored for the New Zealand environment. Similar to the DPT adopted by the UK and Australia, the package would be an anti-avoidance measure, but would not tax non-resident suppliers without a material physical presence in New Zealand. Such non-resident suppliers include multinationals that have been the focus of some public concern in New Zealand and internationally.
The Government plans to release a discussion document to consult on this issue in early 2017.
Sources: Inland Revenue - Discussion Document
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