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Govt considers dumping reduced reporting for multi-nationals

Friday 25th October 2013

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The government is looking at ditching a rule change that would hide the financial statements of multi-national companies' operating in New Zealand from public eyes.

At present, foreign-owned companies operating in New Zealand are required to lodge financial statements with the Companies Office, where they are publicly available, but the Financial Reporting Bill before Parliament now would axe that requirement for all but the largest multi-nationals operating here.

In an August paper to Ministers on efforts to crack down on avoidance by multi-national companies, the Inland Revenue Department criticises the proposed rule change to relax some of the public reporting rules relating to New Zealand subsidiaries of multi-nationals.

"This would appear to move in a contrary direction to the Australian proposal (to require multi-nationals with annual revenue above A$100 million to report their tax liabilities) by reducing the public availability of some information."

But IRD indicates the government may be reconsidering that change, saying "we understand the matter is under consideration."

"The issue is one of appropriate trade-offs: on the one hand, the compliance the current rules impose on businesses, and on the other, the benefits of public transparency."

Commenting to BusinessDesk, Revenue Minister Todd McClay said he was "not of a mind to make any easier for multi-national companies who may or may not be meeting their obligations to the New Zealand taxpayer."

The bill remains before a select committee.

The paper discusses the government's range of possible responses to an initiative involving the rich countries club, the Organisation for Economic Cooperation and Development, to crack down on cross-border tax avoidance by multi-national companies.

Among the biggest issues identified is the need for countries to move together or risk less strict tax regimes becoming attractive investment venues for companies with multi-national operations.

It proposes, as an early move, following countries, such as the UK, South Africa and Spain to introduce voluntary codes of conduct for good taxpayer behaviour, while the Australian proposal to would "put consumer or shareholder pressure on large taxpayers to refrain from aggressive tax planning."

McClay released the Aug. 15 IRD report today, saying he "strongly endorsed" measures outlined in the OECD action plan, but noted its two and a half year timetable for multi-country action was both "dynamic and ambitious."

McClay also said the government would release a discussion paper in November on the contentious issue of whether and how to charge GST on low-value goods imported from offshore by individuals, often from internet sales portals.

A wider paper will also be released in November covering a workplan for the IRD on so-called BEPS (base erosion and profit shifting) issues, in the context of the OECD initiative to try and stem increasing evidence of multi-national companies exploiting different countries' tax rules to pay little or no tax in any jurisdiction.

Early initiatives that New Zealand could take unilaterally are proposed, including improving information disclosure from large corporates, requiring large corporates to file tax returns earlier, and aligning information disclosure for approved issuer levies with non-resident withholding tax disclosure requirements.

Specific areas of tax law change identified by the IRD paper include:

* reviewing thin capitalisation and transfer pricing rules to prevent non-residents funding New Zealand assets using related-party debt that makes interest payments to be tax-deductible;

* exploring whether to restrict interest deductions on hybrid instruments, which fudge the distinction between debt and equity across borders, where interest payments are not taxed in the foreign jurisdiction;

* addressing problems with applying NRWT on related-party debt;

* exploring anti-arbitrage rules for offshore entities which allow double non-taxation of income and double deduction of expenditure in two jurisdictions;

* dealing with "incoherence relating to different tax treatment of 'look-through' vehicles";

* design the active income exemption for offshore branches to ensure it doesn't allow profit-shifting by allowing repatriation of losses, and;

* reviewing the tax treatment of foreign trusts.

"Ultimately, the approach we take in dealing with the problem will have to be tempered by the careful balancing of all the factors involved, including any compliance costs," said McClay, who promised business community consultation before any changes were made.

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