The Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 made a series of changes to New Zealand’s international tax rules, as a domestic law response to the OECD/ G20’s BEPS project.
To support the new rules, including the expanded information collection powers applying to large MNEs, New Zealand’s Inland Revenue has introduced a BEPS disclosure form, IR1250, together with a guidance form to assist with completion, and an extensive table intended to provide help for taxpayers to determine their hybrid compliance and disclosure obligations. The most recent set of forms is now available.
These disclosures are independent of the amendments to New Zealand’s TP legislation which took place with application for income years beginning on or after 1 July 2018.
Because New Zealand operates a self-assessment regime for taxpayers, it is important to understand whether the BEPS disclosure requirements apply and, if so, to complete them accurately and in a timely manner. It should be noted that the disclosure requirements apply to both large New Zealand resident and non-New Zealand resident entities.
There are three distinct parts to the BEPS disclosure:
- Hybrid and Branch Mismatches;
- Thin Capitalisation Group Information; and
- Restricted TP Rules.
Each part requires careful and detailed completion (to the extent relevant) by or on behalf of the taxpayer and is required to be submitted via the “myIR” electronic portal. For example, the hybrid and branch mismatch section could require:
- Hybrid entity/branch/dual resident disclosure
- Hybrid payment disclosure
- Hybrid receipt disclosure
- Double deduction disclosure
- Imported mismatch disclosure.
In the context of the restricted TP rules applicable to related-party loans of NZD10 million or more (and the consequences in terms of the deductibility of interest), a careful consideration of the restricted credit rating, group credit rating, optional credit rating insuring or lending person and loan features that may be disregarded is required, as set out in sections GC 16 – GC 18 of the Income Tax Act 2007. The answers can of course also result in an adjustment affecting the tax position of a group in one or more other jurisdictions too.
The BEPS disclosures relate to legislation which is technically complex and highly dependent on the facts and circumstances of taxpayers and the arrangements to which they are party. Many taxpayers will have undertaken work in their home jurisdictions to assess the impact of the BEPS changes, and we recommend that consideration be given to obtaining New Zealand assistance to complete the BEPS disclosures in an accurate and complete manner, and to understand the consequences. BEPS disclosures should always be considered well before completion of a taxpayer’s New Zealand and other income tax returns.
The forms, and a series of special reports by officials in relation to specific aspects of the BEPS rules (relating to interest limitation, hybrids, TP, permanent establishments and administrative measures) can be accessed from: www.ird.govt.nz/international-tax/business/beps-disclosure
Read the WTS Global Transfer Pricing Newsletter here.
