Minister of Revenue, Todd McClay today welcomed the release of an officials’ issues paper that seeks feedback on suggestions for helping to ensure that non-resident investors pay an appropriate amount of tax.
The focus of the issues paper is the current non-resident withholding tax rules on interest earned in New Zealand by non-residents.
“The issues paper raises questions around potential weaknesses in the tax treatment of interest earned by non-residents,” Mr McClay says. “The issues paper tests what changes are appropriate.”
“Non-resident withholding tax has not been significantly reformed since it was introduced in 1964. It was originally designed when financial transactions were much less complex than today.”
Mr McClay says that without changes to the rules, there is an incentive and ability for non-residents to shift profits out of New Zealand with no or minimal New Zealand tax paid. He says that Inland Revenue’s audit activity had uncovered instances where large multinationals were using sophisticated techniques to defeat the tax rules.
“This matter is a domestic law issue and is consistent with the aims of the OECD’s action plan to tackle base erosion and profit shifting. Acting to remedy this deficiency in our tax laws is part of New Zealand’s response to the issue of multinational tax avoidance” Mr McClay says.
“The Government has already taken steps to tighten the thin capitalisation rules to stop foreign firms from artificially loading debt onto their New Zealand operations in order to minimise their New Zealand tax. New Zealand has also signed and ratified the OECD multilateral tax assistance convention which, together with a growing network of bilateral tax treaties, allows information sharing with other countries to limit tax avoidance opportunities.”
“We’ll continue to support the OECD work to eliminate opportunities for companies to avoid paying tax” says Mr McClay.
The issues paper, NRWT: related party and branch lending can be found at www.taxpolicy.ird.govt.nz