Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Profit shifting tax bill “goes too far

28 Feb 2018

Profit shifting tax bill “goes too far”

Legislation aimed at halting profit shifting by international corporations “starts out very sensibly, but then goes too far,” says John Cuthbertson, New Zealand Tax Leader for Chartered Accountants Australia and New Zealand.

“Government overreach is a theme across a number of areas of the Taxation (Neutralising Base Erosion and Profit Shifting) Bill.

“The drafters of the Bill should have taken a deep breath before including sections which are an overreaction to the problem and potentially damaging to the New Zealand economy,” Cuthbertson said.

Chartered Accountants Australia and New Zealand (CA ANZ) today [28 Feb] made an oral submission on the Bill to the Finance and Expenditure Select Committee.

Cuthbertson said CA ANZ understood the Government’s concerns about base erosion and profit shifting (BEPS) because these activities damaged the integrity of the tax system.

“However, we have significant concerns on two fronts regarding the Bill as it is currently framed – firstly, limiting interest deductions in New Zealand based on the credit rating of the parent company or highest rated member of the group.

“We support limitations, but the rules, as currently written, are at odds with the arms-length principle, are at odds with approaches in other countries and will cause double taxation.

“Secondly, we are very worried by the complexity of rules governing hybrid mismatches – the cross-border arrangements that take advantage of differences in the tax treatment of hybrid entities and instruments.”

He said “Not only are these rules complex, the legislation has been developed in relative haste so inevitably there will be errors and unintended consequences”.

In its written submission, CA ANZ says the Bill:

• Runs the risk of New Zealand being too far ahead of the OECD pack on base erosion and profit shifting (BEPS) and other countries may not follow. “Other countries have not adopted the measures in full because they have determined that it is not in their national interest to do so.”

• Doesn’t fully consider its wider impact on the New Zealand economy. “…there is limited analysis in the current package on the implications for the costof capital for New Zealand businesses and, more importantly, on any overall effect on the New Zealand economy as a whole.”

• Has been developed in isolation rather than as part of an overall package. “As a result of the truncated timeframe, the reforms lack coherence.”

• Is out of proportion relative to the size of the problem.

• Includes many examples of overreach.

An example of the latter, the CA ANZ submission says, is the breadth of rules governing hybrid mismatches.

The proposed rules, it says, will result in a large number of taxpayers being affected. “There is a high risk of overreach in the SME sector, particularly in respect of branch transactions.

“If the legislation were to be enacted in its current form, it would result in increased complexity, uncertainty and cost of capital.”

Implementation should be phased or delayed in line with that of our major trading partners.

Interest limitation proposals

Cuthbertson said the Bill’s interest limitation proposals to prevent related parties using excessive interest rates – “high-priced debt” – to shift profits out of New Zealand were “particularly concerning.

“The proposed restricted transfer pricing rule, by limiting interest deductions in New Zealand by reference to the credit rating of the parent company or highest rated member of the group, does not take into account significant differences among businesses in a group, including their size, the industry they operate in and the relative importance of the New Zealand business in the world-wide group.

“Also from a practical and commercial perspective, it will be difficult to apply.

“Most New Zealand tax managers will not know the credit ratings of all businesses in the wider group.”

The CA ANZ written submission proposes a new approach to interest limitation to ensure everyone plays the game properly.

This includes allowing the Commissioner of Inland Revenue to recognise otherwise disregarded terms and conditions of loans where recognition would be consistent with the overall purpose of the rules.

Also to allow interest deductions on loans which retain materially equivalent terms and conditions to existing significant third-party debt.

A copy of the CA ANZ written submission is available on the New Zealand Parliament website here


ends

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

DIY Law: Government Exempts Some Home Improvements From Costly Consents

Homeowners, builders and DIYers will soon have an easier time making basic home improvements as the Government scraps the need for consents for low-risk building work such as sleep-outs, sheds and carports – allowing the construction sector ... More>>

ALSO:

Media Awards: The New Zealand Herald Named Newspaper Of The Year, Website Of The Year At Voyager Media Awards

The New Zealand Herald has been labelled a “powerhouse news operation” as it claims the two biggest prizes – Newspaper of the Year and Website of the Year – along with many individual awards at the 2020 Voyager Media Awards Website of the ... More>>

ALSO:

ASB Bank: ASB Takes The Lead Again With New Low Home Loan Interest Rate

ASB has moved again to support its customers, cutting a number of home loan rates, including the two-year special rate to a new low of 2.69% p.a. Craig Sims, ASB executive general manager Retail Banking says the reduced rate will be welcome news for many ... More>>

ALSO:

Nathan Hoturoa Gray: The Problems With Testing And Case Statistics For Covid-19

To begin to understand disease transmission in a country requires adequate testing of your population with properly vetted, accurate tests. As the world struggles to find what 'adequate percentage' of the population is necessary, (estimates predict ... More>>

ALSO:

RNZ: Fletcher Building To Lay Off 1000 Staff In New Zealand

The construction company will cut around 10 percent of its workforce as it struggles with the fallout from Covid-19. More>>

ALSO:

Can Pay, Won't Pay: Cashflow Moves Urged

Government Ministers are asking significant private enterprises to adopt prompt payment practices in line with the state sector, as a way to improve cashflow for small businesses. More>>

ALSO:

Gordon Campbell: On Why We Should Legally Protect The Right To Work From Home

For understandable reasons, the media messaging around Level Two has been all about “freedom” and “celebration”, but this is not necessarily going to be a universal experience. When it comes to workplace relations, Level Two is just as likely to ... More>>

ALSO:


Telecoms: Spark Welcomes Spectrum Allocation And Prepares For 5G Rollout Over The Next 12 Months

Spark welcomes spectrum allocation and prepares for 5G rollout over the next 12 months Spark today welcomed the announcement of the direct allocation process of 5G spectrum, with the Company to be offered management rights to 60 MHz of 3.5 GHz ... More>>

ALSO:


Trade: Record Monthly Surplus As Imports Dive

Imports in April 2020 had their biggest fall since October 2009, resulting in a monthly trade surplus of $1.3 billion, Stats NZ said today. “This is the largest monthly trade surplus on record and the annual goods trade deficit is the lowest ... More>>

ALSO:


Media Blues: Stuff Chief Executive Buys Company For $1

Stuff chief executive Sinead Boucher has purchased Stuff from its Australian owners Nine Entertainment for $1.
The chief executive was returning the company to New Zealand ownership, with the sale is expected to be completed by 31 May.
"Our plan is to transition the ownership of Stuff to give staff a direct stake in the business as shareholders," Boucher said in a statement.... More>>

ALSO:

RNZ: Bar Reopening Night 'much, Much Quieter'

Pubs and bars are reporting a sluggish first day back after the lockdown, with the fear of going out, or perhaps the joy of staying home, thought to be a reason for the low numbers. More>>

ALSO:

Stats NZ: New Zealand’s Population Passes 5 Million

New Zealand's resident population provisionally reached 5 million in March 2020, Stats NZ said today. More>>

NIWA: Seven Weeks Of Clearing The Air Provides Huge Benefits: Scientist

Seven weeks of lockdown has provided evidence of how pollution can vanish overnight with benefits for the environment and individuals, says NIWA air quality scientist Dr Ian Longley. Dr Longley has been monitoring air quality in Auckland, Wellington ... More>>

ALSO:

Government: Milestone In Cash Flow Support To SMEs

A significant package of tax reforms will be pushed through all stages in Parliament today to throw a cash flow lifeline to small businesses. More>>

ALSO:



University Of Canterbury: Astronomers Discover The Science Behind Star Bursts That Light Up The Sky

University of Canterbury (UC) astronomers are part of an international team that has revealed how explosions on the surface of a white dwarf star can increase its brightness by thousands or millions of times making it look like a new star. For ... More>>

Air NZ: Air New Zealand Adds Business-timed Flights For Regions

Air New Zealand will operate business-timed flights in and out of a number of regional ports from next month.
The flights will allow customers in Hamilton, Tauranga, Napier, New Plymouth, Palmerston North, Nelson, Dunedin and Invercargill to undertake a day of business in either Auckland, Wellington or Christchurch... More>>

ALSO: