New Zealand's legislative response to Base Erosion and Profit Shifting (BEPS), the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 received Royal assent on 27 June 2018 and came into force on 1 July 2018. The new legislation introduces changes to New Zealand's international tax law with a breadth that is unprecedented in recent times. A number of fundamental and complex measures have been introduced, such as:

• Introduction of a permanent establishment anti-avoidance rule
• Novel restricted transfer pricing rules for inbound related party debt pricing (essentially "capping" the New Zealand interest rate based on parent credit rating)
• New hybrid and branch mismatch rules
• Changes to thin capitalization rules, lowering the debt capacity of many groups
• Provisions strengthening transfer pricing rules, including specifically codifying the Organisation for Economic Co-operation and Development (OECD) guidelines
• Provisions extending Inland Revenue information gathering powers

The changes have been in the public domain for nearly a year and we have made submissions to Inland Revenue highlighting various issues together with recommendations that the BEPS legislation should be deferred to allow further consideration of the right approach for New Zealand. For the most part the law has been enacted as originally proposed. Under the new law, there are wide-reaching (and economically significant) impacts and time sensitive consequences for multinational businesses to consider.

New Zealand Revenue Minister Stuart Nash says the BEPS legislation is only a first step and has asked Inland Revenue to continue working closely with international agencies like the OECD and G20 to consider whether any further measures are warranted. While highly significant, these changes may be looked back on as only the first step in a fundamental redesign of how New Zealand taxes international commerce.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young New Zealand, Auckland

• Dean Madsen
  dean.madsen@nz.ey.com
• Polina Belykh
  polina.belykh@nz.ey.com

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ATTACHMENT

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