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June 7, 2022

New Zealand Inland Revenue Officials consult on domestic adoption of OECD Pillar Two

Executive summary

New Zealand Inland Revenue Officials have released an Officials’ issues paper discussing New Zealand’s potential adoption of the Organisation for Economic Co-operation and Development (OECD) Pillar Two GLOBE rules. The paper outlines the New Zealand Inland Revenue Officials’ (Officials) views as to whether New Zealand should adopt the GLOBE rules, and if so, how and when the rules should apply.

It is important to note that the document represents the views of the Officials only. The New Zealand Government is yet to make a final decision on New Zealand’s adoption of the OECD Pillar Two proposals.

Detailed discussion

Adoption of Pillar Two

The Officials’ overall preference is for New Zealand to adopt the GLOBE rules, and to do so while conforming closely to the OECD Model Rules. The two primary reasons for this position are:

  • Enacting a complying income inclusion rule (IIR) will ensure that New Zealand collects the revenue from any undertaxed constituent entities of New Zealand-headquartered multinational enterprises (MNEs) (as opposed to revenue being allocated overseas under the respective countries’ under-taxed payments rules (UTPRs)). Inland Revenue expects that around 20 to 25 New Zealand MNEs will be covered by the GLOBE rules; choosing not to let any potential revenue leak offshore is a logical step.

  • Adopting the GLOBE rules will also ensure that New Zealand is seen as supporting its part in the OECD Pillar Two project. Given New Zealand’s active participation in the OECD processes, this is an unsurprising view.

The Officials consider that bespoke settings that are inconsistent with the GLOBE rules create double taxation risks, and New Zealand as a small capital-importing economy is particularly sensitive to any foreign investment implications.

Timing of potential adoption

The Officials’ view is that New Zealand should wait to ensure that a “critical mass” of other jurisdictions adopt the GLOBE rules before progressing further. As well as looking to the European Union, the United Kingdom and the United States (US), New Zealand will in particular, look to follow Australia’s lead given the close economic relationship between the two states. If a decision is made to adopt the rules, Inland Revenue has indicated that it is likely that domestic legislation adopting the GLOBE rules would be enacted in 2023, with the rules coming into effect in 2024.

Adoption of the rules as a package

For reasons of efficiency and compatibility, the Officials have indicated a clear preference for the New Zealand GLOBE rules to be implemented as closely aligned to the OECD Model Rules as possible. Therefore, the scope, mechanism, and implementation of the rules are not the subject of consultation in this paper. Significantly, this means that key operating provisions of the GLOBE rules would apply in New Zealand (as set by the OECD’s Inclusive Framework). This includes: the determination of in-scope constituent entities, calculation of GLOBE income, covered taxes, effective tax rate, and top-up tax, and the imposition of the IIR and UTPR.

New Zealand-specific design considerations

Specifically, the Officials consider that the New Zealand settings should:

  • Require annual registrations – In-scope MNEs are likely to be required to notify Inland Revenue that they are within the scope of the GLOBE rules through an annual registration process. This process would apply to both New Zealand-headquartered MNEs and foreign MNEs with constituent entities located in New Zealand.

  • Treat the GLOBE taxes as a separate tax type to income tax – This means GLOBE liability would have its own compliance requirements outside of annual income tax return processes.

  • No New Zealand imputation credits should arise for taxes paid – New Zealand corporate income tax paid typically qualifies for imputation credits, which can be passed along to shareholders as imputed dividends; this imputation mechanism usually prevents double taxation of corporate income. The Officials consider that the permitting of imputation credits to arise for additional top-up taxes paid in New Zealand would significantly undermine the policy intent of the GLOBE rules (by giving a dollar-for-dollar credit to the shareholder). Furthermore, the Officials consider that extending the imputation credit regime to any GLOBE tax liability would exclude the New Zealand IIR from being a “Qualified IIR” under the rules (i.e., other countries’ UTPR would therefore continue to apply).

  • Not adopt a Domestic Minimum Tax (DMT) – The Officials consider that New Zealand may not need to implement a DMT due the small, expected number of Pillar Two in-scope entities, relatively high corporate income tax rate, and general lack of tax preferences (other than for capital gains).


It is clear that the GLOBE rules will require bespoke and unique GLOBE calculations on a country-by-country level for the determination of scope (and tax impact). The difficulty will be in gathering the necessary information to perform these checks and calculations. The information required will often have multiple sources and will likely require reference to accounting, tax, and in some cases company secretarial (or other) data. This is a complex exercise that will test the capability of existing reporting systems and risk placing renewed pressure on business’ finance function.

While direct adoption of the OECD’s proposed rules may seem a simpler approach, it may not eliminate or reduce complexity. In many cases, the rules will require an effective resetting of tax attributes (such as deferred tax balances at a 15% rate, aligning with the GLOBE minimum rate). As currently formulated, this can lead to unexpected outcomes, particularly where entities have large permanent differences (which materially reduce effective tax rates) or derive losses in certain territories. Much of the impact of the proposals will not be understood until the rules are applied in practice.

While the paper consults on a number of issues, it is notable that the Officials do not consider it appropriate that IIR tax paid by a New Zealand entity should generate any imputation credits. Significantly, the Officials have set out thinking that, in their view, distinguishes tax pursuant to IIR from tax imposed under New Zealand’s Controlled Foreign Company rules. If implemented as proposed, the impact is that IIR tax will create economic double taxation as between New Zealand corporates and their shareholders. We note Australian Officials have yet to formally comment on the corresponding (franking credits) issue.

Ultimately, while there is clearly substantial momentum around the process at both a local and global level, significant practical hurdles remain. Critically, many eyes remain on the US and its agreement around process and scope. Unsurprisingly, US agreement is key to obtaining the requisite degree of consensus for the rules to have global credibility; it is still uncertain as to whether the US will adopt an OECD-mandated approach or take a different view.

Next steps

Public submissions on the discussion document are open until 1 July 2022. Following final Government decisions, legislation is expected to be introduced to Parliament later this year with enactment expected in 2023.


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

Ernst & Young Limited (New Zealand)


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