New Zealand tax bill hits interest deduction, hybrid mismatches, PEs, transfer pricing

A tax bill to counter tax avoidance by multinational companies was introduced into New Zealand’s Parliament today. The government also released its commentary on the bill, prepared by Stuart Nash, New Zealand’s Minister of Revenue.

The bill includes measures to prevent multinationals from using artificially high interest rates on loans from related parties to shift profits out of New Zealand.

It also contains hybrid mismatch previsions to stop MNEs from exploiting differences between countries’ tax rules to avoid tax.

Further, provisions applicable to groups with over EUR €750m of consolidated global turnover would prevent avoidance of permanent establishment rules. This proposed rule will deem a non-resident entity to have a permanent establishment (PE) in New Zealand if a related entity carries out sales-related activities under an arrangement with a more than merely incidental purpose of tax avoidance and if other requirements are met.

This PE will be deemed to exist for the purpose of any applicable tax treaty, unless the treaty incorporates the OECD’s latest PE article

The bill also proposes amendments to strengthen the transfer pricing rules so that they align with the OECD’s latest transfer pricing guidelines and Australia’s transfer pricing rules.

Most provisions would enter into effect July 2018.



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