BEPS decisions

Judith Collins announced:

Finance Minister Steven Joyce and Revenue Minister Judith Collins have today announced the Government’s final decisions on proposals to address base erosion and profit shifting (BEPS).

“The new measures will significantly strengthen our tax rules and our ability to ensure that multinationals are taxed fairly and on the basis of their actual level of economic activity in New Zealand,” Mr Joyce says.

In combination the new measures will:

• Stop foreign parents charging their New Zealand subsidiaries high interest rates to reduce their taxable profits in New Zealand.

• Stop multinationals using artificial arrangements to avoid having a taxable presence in New Zealand.

• Ensure multinationals are taxed in accordance with the economic substance of their activities in New Zealand.

• Counter strategies that multinationals have used to exploit gaps and mismatches in different countries’ domestic tax rules to avoid paying tax anywhere in the world.

• Make it easier for Inland Revenue to investigate uncooperative multinational companies.

These measures won’t solve the issue of base tax erosion, but they wil help significantly. At the end of the day though companies which operate globally will seek to have as much tax as possible paid in countries with lower corporate tax rates. This is why the corporate tax rate needs to be globally competitive – otherwise fewer companies will be tax resident in NZ.