Base erosion and profit shifting (BEPS) update
On 27 June 2018, the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 was enacted. The Act represents the accumulation of extensive work conducted by officials following the finalisation of the Organisation for Economic Co-operation and Development’s (OECD’s) BEPS framework in late 2015. Measures contained within the Act seek to prevent multinationals from achieving tax advantages by using:
- artificially high interest rates on loans from related parties to extract profits out of New Zealand
- hybrid mismatch arrangements that exploit differences between countries’ tax rules to achieve an advantageous tax position
- artificial arrangements to avoid having a permanent establishment (PE) for tax purposes in New Zealand, and
- related-party transactions to shift profits into offshore group members in a manner that does not reflect the actual economic activities undertaken in New Zealand and offshore.
Research and development (R&D) tax credit
On 25 October 2018, the government introduced the Taxation (Research and Development Tax Credits) Bill, which proposes the introduction of a 15% R&D tax credit on eligible expenditure for businesses undertaking R&D in New Zealand. The Bill proposes a new definition of R&D, with a maximum tax credit of 18 million New Zealand dollars (NZD) to be available each year. There is also a minimum R&D expenditure threshold of NZD 50,000 per year.
The Bill proposes a limited form of refundable credits be available for the first year of the scheme (based on the existing scheme, which allows R&D tax losses to be cashed out), with the government promising a more comprehensive policy for refundable credits in place for the second year of the scheme.
It is expected that the tax credit will be enacted in early 2019 and be available for eligible expenditure incurred from 1 April 2019.
This policy replaces existing R&D incentives, which operated under a grant system.
Goods and services tax (GST) on low-value imported goods
On 5 December 2018, the government introduced the Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill. The Bill proposes to apply GST to low-value goods that are located outside New Zealand at the time of supply and delivered to a New Zealand address. Businesses that make more than NZD 60,000 of taxable supplies to New Zealand in a 12-month period will be required to register for New Zealand GST and remit GST of 15% on the sale of low-value goods. Under the proposals, low-value goods will be defined as goods valued at or below NZD 1,000.
These proposals will also apply to electronic marketplaces (EMPs) and re-deliverers. This means that EMPs will be responsible for registering and remitting GST on sales to New Zealand of low-value goods that are made through their platform. Re-deliverers are used by consumers when the supplier or marketplace does not offer shipping to New Zealand. Under the proposals, re-deliverers would be required to register and return GST in respect of goods that they re-deliver to a New Zealand address.
The Bill is expected to be enacted in mid-2019 and effective from 1 October 2019.
Customs and excise duties
The Customs and Excise Act 2018 was enacted in March 2018 and represents a monumental step towards replacing and modernising the current customs legislation. Some of the key substantive changes affecting importers, exporters, and manufacturers include:
- moves to streamline the GST at the border for business importers
- a more flexible disputes regime
- ability to declare a provisional value for imported goods in specified cases
- ability to obtain rulings on more matters, including valuation, and
- more clarity on administrative penalties.
Double tax agreements (DTAs)
New Zealand is currently negotiating new and updating DTAs with a number of countries, including China, Luxembourg, and the United Kingdom.
The OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) was signed by New Zealand on 7 June 2017. The signing of the MLI will enable signatory countries to quickly update existing DTAs to include articles on PE avoidance, treaty abuse, dispute resolution, and hybrid mismatches. As of 1 January 2019, the MLI had the effect of updating New Zealand’s DTAs with Australia, France, Japan, Poland, Sweden, and the United Kingdom.
An update to the existing DTA between New Zealand and Hong Kong was signed in June 2017. The new protocol allows automatic and spontaneous exchanges of tax information, with the first automatic exchange of information occurring from 30 September 2018.
Employee share schemes
In March 2018, the government enacted the Taxation (Annual Rates for 2017/18, Employment and Investment Income, and Remedial Matters) Act 2018. The Act introduced new rules for the taxation of employee share schemes to align the tax treatment of employee share schemes with cash-based remuneration.
The new rules:
- include a new definition of employee share scheme that means the rules apply to share benefits provided to employees (past, present, and future) and shareholder-employees
- determine a new taxing point for certain kinds of employee share schemes
- provide a new deduction rule for employers providing employee share scheme benefits, and
- simplify the rules for certain exempt employee share schemes, as well as provide a greater level of exempt benefits and more flexibility in the design of these schemes.
With some exceptions, the rules came into effect from 29 September 2018.
Tax Working Group
In November 2017, the current government convened the Tax Working Group (the Group), with a broad mandate to consider options to improve the structure, fairness, and balance of the tax system. In September 2018, the Group released its Interim Report setting out its interim conclusions, including:
- a relatively detailed design for extending the taxation of capital income (i.e. a capital gains tax), but without going as far as a recommendation that such a tax should be implemented
- ruling out the introduction of a land tax or wealth taxes
- the current GST regime should be retained, and no further exemptions would be introduced, and
- the current framework for taxing businesses should largely be maintained.
The Group’s final report is expected to be released to the public on 21 February 2019.