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We have written a number of posts with regard to the dangers of simply shifting profits from New Zealand businesses to Australia in order to reduce the incidence of double taxation or to achieve particular taxation gains.

Frankly, there are legitimate ways of protecting Australian businesses from a significant amount, if not all, double taxation providing it is done correctly, legitimately and the various rules are complied with. It is something we are particularly experienced with and can assist you to do things the right way.

For those who prefer to take a more aggressive approach, Inland Revenue is concerned about various practices that international organisations are using in order to reduce their overall income tax liability.

These types of strategies are known as Base Erosion and Profit Shifting, more commonly referred to as “BEPS”.

New Zealand isn’t alone with regard to their concern on BEPS-type strategies. There has been increasing global concern expressed by a number of governments, particularly since the Global Financial Crisis.

What is New Zealand attitude on BEPS?

New Zealand has already moved in the direction to be consistent with the recommendations of the OECD. There are some issues that arise, though, particularly when New Zealand has an existing double tax treaty in place with the other country. This is, of course, the case with Australia.

In order to achieve the New Zealand government’s goal of meeting the OECD recommendations a Tax Bill was introduced into New Zealand’s Parliament in late 2017.

The Bill includes a number of proposals designed to address key issues such as:

  • artificially high interest rates on loans from related parties to shift profits out of New Zealand (interest limitation rules),
  • hybrid mismatch arrangements that exploit differences between countries’ tax rules to achieve an advantageous tax position,
  • artificial arrangements to avoid having a taxable presence (a permanent establishment) in New Zealand, and
  • 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 New Zealand and offshore.

The New Zealand government’s intention is to ensure the Bill is passed in time to take effect for income tax years beginning on or after 1 July 2018.

We always recommend that Australian businesses with New Zealand connections should contact us to review their situation or to explore other opportunities.

Helping Australians to do business in New Zealand is what we do.

The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.