NZ passes law to stop tax avoidance by multinationals
Wednesday, 27 June 2018
The taxman will begin cracking down on multinational companies rorting the system next week.
The Taxation (Neutralising Base Erosion and Profit Shifting) Bill passed its third reading Parliament on Tuesday evening and will come into effect on Sunday.
Revenue Minister Stuart Nash said the new law will 'address the problem of companies operating cross-border and using aggressive tax structuring to reduce the tax they pay'.
Inland Revenue (IRD) estimates the law would bring in an extra $200 million of tax each year.
**READ MORE:
* Google tax breakthrough as it follows Facebook booking ad revenues in NZ
* Facebook to book NZ advertising sales revenues here, not in Ireland
* Clampdown on tax rorts will bring in $200m a year, Government now says
* Multinational tax rorts in minister's sights**
Most multinational companies operating in New Zealand paid their fair share of tax, Nash said, but some companies used tactics to shift profits to countries with lower tax obligations, mostly by basing their operations in tax 'havens'.
Facebook has come under fire internationally for booking business out of Ireland, a haven that charges a 12.5 per cent company tax rate which is low by international standards. New Zealand's company tax rate is 28 per cent.
Facebook changed tack late last year when it committed to record the revenue it earned from selling advertising in New Zealand locally.
Google followed suit in February. Previously, Google invoiced New Zealand companies for advertising on its platform from Singapore.
Nash said he had asked IRD to work alongside international forums, the Organisation for Economic Co-operation and Development and G20, to consider if further changes would be needed.
The base erosion and profit shifting bill was 'first step,' towards a 'better, fairer tax system,' he said.
The bill would prevent multinational companies from:
Charging high interest rates on loans from related parties to shift profits out of New Zealand.
Carrying out transactions which are intended to shift profits to offshore group members in a manner that does not reflect the actual economic activities undertaken in New Zealand and offshore.
Using hybrid mismatch arrangements that exploit differences between countries' tax rules to achieve an advantageous tax position.
Organising false arrangements to avoid having a taxable presence or a permanent establishment in New Zealand.
Using tactics to stymie an Inland Revenue investigation, such as withholding relevant information that is held by an offshore group member.