New Zealand is implementing the recommendations of the BEPS Project very keenly. Tax advisers and Inland Revenue Department (IRD) officials alike are dealing with an unprecedented level of reform as the country takes an active role in the BEPS programme. While this approach could be problematic for businesses and tax authorities in some jurisdictions, New Zealand has a track record of strong tax administration and good communication with taxpayers, leaving it well-placed to carry out the changes efficiently.
This is not to say the pace of change is not daunting, however. "Advisers have to devote more time than usual to understand the detail of the various reform proposals and their various practical implications," said Brendan Brown of Russell McVeagh. "Perhaps due to the volume of reforms, many advisers are observing that draft legislation is more complex, and more likely to contain drafting errors, than has previously been the case, which adds to the uncertainty associated with the current reform programme."
New Zealand is likely to adopt the majority of the BEPS proposals including issues related to hybrids, tax treaty abuse, transfer pricing and GST and the cross-border supply of services, intangibles and goods.
"Tax firms are seeking [for] clients to be aware of risks in transacting internationally as the information will now be shared with foreign governments and more information will be publicly disclosed," said Andrew Ryan, the tax team leader at Minter Ellison Rudd Watts. "Taxpayers and tax advisers are now more careful in managing tax fees."
Also notable as part of New Zealand's implementation of BEPS Action 1 is a new system for collecting cross-border GST due on a range of services, particularly those supplied online. The new system was confirmed this summer to be coming into effect on October 1 2016.
At the same time as running to keep up with BEPS, the government has embarked on its "Business Transformation" programme which could impose costly new reporting and remittance responsibilities on financial institutions and corporates. "This transformation is likely to see fundamental changes to the way taxpayers interact with IRD including the way taxpayers pay their tax liability with an increased focus on withholding tax as a method of collecting tax and the methods by which information passes between the taxpayer and IRD," said Bevan Miles, a special counsel at Chapman Tripp.
"We expect the modernisation of New Zealand's tax system to have an impact on businesses," he continued. "Taxpayers are already experiencing an increase in the Commissioner's use of investigative powers in recent years and the business transformation programme is likely to see IRD making more use of 'big data' and data matching in its risk review and audit activity."
Prompted by the public pressure from the Panama Papers, New Zealand is also looking at reviewing the taxation of foreign trusts by developing the quality and practicality of tax information through enhanced administrative and compliance procedures. The government is planning legislation in 2016, but effective from 2017, to: (a) require large corporates to file income tax returns earlier; (b) disclose additional information in a standard format so that it can be quickly analysed; and (c) introduce a voluntary code of practice for large corporates which would likely include having good tax governance, a transparent relationship with tax authorities and avoid aggressive tax planning.
"Investigations have been launched on the foreign trusts after the [revelations] of the Panama Papers. The trustees are required to provide more information to the New Zealand government due to limited information disclosed previously. It is now under review and the New Zealand government expect to receive more information," said Ryan.
In addition, the IRD has been active in tax disputes and litigation on a range of matters including a number of tax avoidance cases. "One significant area of dispute which has been notable in recent years has been disputes over the entry into mandatory convertible note (MCN) funding arrangements in the mid-2000s by a number of multinational companies, to fund New Zealand," said Mathew McKay of Bell Gully.
"The Commissioner of Inland Revenue has alleged that such arrangements are tax avoidance arrangement void for tax purposes, and has also sought to impose 100% tax penalties. The outcome of these disputes, some of which are before the courts, will be significant in terms of the development of New Zealand anti-avoidance provisions."
2 Takutai Square
Tel: +64 9 377 4790
New Zealand Tax Leader / Oceania Business Tax Services Leader
Tel: +64 4 499 4888
Law Leader, EY Law Ltd.
Tel: + 64 9 300 7073
Private Client Services
Tel: +64 9 300 8140
Global Compliance and Reporting
Tel: +64 9 300 8008
Tax Policy and Controversy
Tel: +64 9 300 7073
Tel: +64 9 377 4790
International Tax Services
Tel: +64 9 377 4790
Tel: +64 9 377 4790
Tel: +64 9 377 4790
People Advisory Services
Tel: +64 9 300 7058
|Corporate Income Tax||28%|
|Capital Gains Tax||0%|
|Net Operating Losses (years)|
|Payments to non-resident contractors||15%|
|Royalties from, for example, patents, know-how||15%||C|
|Branch Remittance Tax||0%|
A The 30% rate is for non-residents and the 30% is for residents. This is a final tax. If dividends are fully imputed, the rate is reduced to 15% (for cash dividends) or to 0% (for all non-cash dividends and for cash dividends if non-resident recipients have direct voting interests of at least 10% or if a tax treaty reduces the New Zealand tax rate below 15%). The rate is also reduced to 15% to the extent that the dividends are fully credited under the dividend withholding payment system (which is being phased out) or to the extent that imputation credits are passed on to foreign investors through the payment of supplementary dividends under the foreign investor tax credit regime.
B The rate for non-residents is 15% and 33% for residents. This is a final tax if the recipient is not associated with the payer. For an associated person, this is a minimum tax (the recipient must report the income on its annual tax return, but it may not obtain a refund if the tax withheld exceeds the tax that would otherwise be payable on its taxable income). Under the Income Tax Act, associated persons include the following:
• Any two companies in which the same persons have a voting interest of at least 50% and, in certain circumstances, a market value interest of at least 50% in each of the companies
• Two companies that are under the control of the same persons
• Any company and any other person (other than a company) that has a voting interest of at least 25% and, in certain circumstances, a market value interest of at least 25% in the company Interest paid by an approved issuer on a registered security to a non-associated person is subject only to an approved issuer levy (AIL) of 2% of the interest payable. An AIL rate of 0% applies to interest paid on or after May 7 2012 to non-residents on certain widely offered and widely held corporate bonds that are denominated in New Zealand currency.
C This is a final tax on royalties relating to literary, dramatic, musical or artistic works. For other royalties, this is a minimum tax.
D The 33% rate is a default rate if recipients’ tax file numbers are not supplied. Individuals may elect rates of 10.5% (if their expected annual income does not exceed NZD14,000), 17.5%, 30% or 33%. The basic rate for interest paid to companies is 28%, but companies may elect a 33% rate. This rate is for residents.
Partner Mathew McKay leads Bell Gully's tax department and specialises in tax disputes and litigation. McKay is praised by peers for his skills in tax and focuses on New Zealand corporate law including tax matters related to M&A, capital restructuring, financing arrangements, cross border transactions and more. The tax practice consists of three partners and nine professionals, plus one legal assistant.
The team had a busy year, undertaking tax works on a large number of transactions in addition to continuous involvement in major tax disputes and other areas like indirect tax and customs and excise. The firm worked on a range of corporate, M&A, banking, finance and property transactions requiring tax advice.
In one deal, McKay advised Fletcher Building on the acquisition of New Zealand road construction and maintenance business Higgins Group Holdings and other related assets, together with Higgins' Fiji contracting business, for a total consideration of about $213 million.
One client said: "Bell Gully is one of our preferred income tax advisers in New Zealand. They have assisted in relation to general income tax advice, to tax controversy and in relation M&A. They have a good depth of talent, matching experience (Mathew McKay) with some of the best of the next generation of tax advisers (Graham Murray). Their advice provides both the technical clarity we require and an ability to discuss the application of tax law in the context of commercial reality."
Buddle Findlay's tax practice is headed by Neil Russ, who specialises in corporate and international tax as well as structured transactions. The practice comprises two partners and five other fee earners. The firm hired Alexandra Tunnicliffe from the IRD in the last year.
Russ has a multi-jurisdictional background in banking and capital markets transactions. He advises a number of New Zealand and offshore clients with the tax aspects of investment transactions and asset disposals, and is at the same time involved in tax policy, dealing with tax authorities in New Zealand on law changes.
The firm specialises in industries such as financial services, energy and utilities manufacturing, TMT and online and digital services.
In June 2016, the firm completed a NZ$785 million ($572 million) commercial transaction for Chevron Corporation. Partner Tony Wilkinson and a senior associate Carrie Lui (who has since left the firm), advised on the disposition of Chevron New Zealand, which operates the business of the Caltex in New Zealand to Z Energy. Due to the extensive scope of the operations of Chevron New Zealand, the tax team worked over a range of sophisticated tax matters while ensuring that Chevron was able to achieve a "clean break" from the transaction after completing it.
Graeme Olding is the head of Chapman Tripp's tax practice and guides clients on a wide spectrum of New Zealand tax matters such as business structuring, reorganisations, M&A and tax disputes. Besides tax, he is also an expert in energy and natural resources, Maori law, restructuring and insolvency. The practice consists of two partners and 10 other professionals focusing on indirect tax, corporate tax and tax disputes.
Another tax partner, David Patterson, has more than 25 years of expertise in commercial and tax structuring and financing various commercial arrangements and specialises in international corporate taxation.
The firm advised Sumitomo Forestry, a substantial listed Japanese company, on its acquisition of an approximately 30,000 hectare forest estate in Nelson, NZ. This was a strategic transaction for the client, securing wood supply for its existing medium-density fibreboard and laminated veneer lumber plant in Nelson. The transaction was complex, partly because of the vendor's desire for a clean exit to enable a fund wind-up, necessitated by the fact that the transaction is subject to Overseas Investment Act approval as the acquisition included sensitive land and exceeded the NZ$100 million ($72 million) threshold.
Deloitte New Zealand's tax practice is headed by the national leader Peter Felstead, an expert in corporate tax including tax planning, compliance, due diligence, reorganisation and implementation of tax efficient group structures as well as income tax investigation support. The team comprises 25 partners and more than 130 professionals. The firm hired two senior consultants and three managers for the tax team in the past year.
Another key contact is partner Allan Bullot, the firm's national indirect tax leader. He has decades of experience in GST in New Zealand and Canada, solving GST issues in a wide range of industries. He is particularly strong in consumer and industrial products, retail and distribution and telecommunications.
The team provides tax services in all areas including global employer services, indirect tax, international tax, national tax, transactional tax, tax controversy, tax policy, transfer pricing, and financial services. The firm enables clients to be assisted with seamless services in both local and global approach. The clients are remain active and efficient to respond to marketplace changes with the firm.
"Deloitte have assisted us in relation to general income tax advice, transfer pricing, tax audits and tax controversy issues in both New Zealand and globally," said one of the firm's clients. "Deloitte are the preeminent tax advisory firm in New Zealand amongst the accounting firms. They have an incredible depth of talent."
Geoff Blaikie is the leader of EY's tax practice and has decades of experience in advising multinationals and corporations on a broad spectrum of taxation issues including restructuring, divestments and dealing with Inland Revenue.
EY provides services in all aspects of taxation including corporate tax, cross border tax, global trace, global compliance and reporting, law, advisory, private client services, tax accounting, tax performance advisory, transaction tax, transfer pricing and indirect taxes.
Grant Thornton's tax and transfer pricing practice is led by partner and national director of tax Greg Thompson. He has more than 25 years of experience in tax, covering domestic and international taxation with broad understanding of different regimes and industry sectors, such as manufacturing, distribution, utilities, primary sector and film.
The firm advises all kinds of clients, from individuals to public listed corporations, in areas such as tax planning, personal tax, corporate tax, international tax, transfer pricing, acquisitions and divestments, due diligence, trust and estates, family businesses, real estate, GST and indirect taxes, Inland Revenue investigations and rulings and tax risk audits.
The team is made up of four partners and 10 other tax professionals.
Ross McKinley is KPMG's national managing partner for tax, leading a team of 13 partners and 80 tax professionals. McKinley has more than 28 years of experience in taxation advising large New Zealand property, forestry and manufacturing companies on a wide spectrum of tax issues. A new hire is partner Bruce Bernacchi, who joined the team in February 2016 from GE Capital. He specialises in financial services and M&A transactions.
The team advises a significant number of NZX (New Zealand's stock exchange) and private individual clients on an extensive range of taxation issues, mainly international corporate tax, global indirect tax and GST, global tax outsourcing, M&A, superannuation, transfer pricing, customs and taxation of international executives.
In 2016, KPMG has engaged with senior tax authority administrators and worked with clients to anticipate future developments and opportunities to distribute additional shareholder value.
Sectors the tax practice advises on include financial services, technology, media, and telecommunications (TMT) and digital, software, online and computer services.
The tax team advised Stride Property on procuring a binding ruling from IRD on a 'stapled' security structure which involved the 'stapling' of two equity instruments on the NZX for the first time. Ross and national tax director Darshana Elwela guided their client through several complex tax issues including the application of anti-avoidance provisions.
Minter Ellison Rudd Watts' five-strong tax practice is led by sole partner Andrew Ryan. The firm hired Mark Ainsworth from Kauri Asset management in the last year.
The team's technical and business knowledge contributes to its expertise advising in different sectors, primarily financial services, fast-moving consumer goods, food, agriculture, healthcare, energy and utilities.
The firm advises on cross-border transactions and an increasing amount of work in the warranty insurance market, which is an area of taxation law in New Zealand that applies a firm's experience and understanding of tax disputes and risks in commercial transactions. The firm acts for New Zealand banks in advising sizeable lending transactions and fund platforms.
Ryan and solicitor Zoe Barnes advised Z Energy on its NZ$785 million acquisition of Chevron New Zealand through strategic assistance with New Zealand and Australian legal and regulatory requirements as well as on the sale and purchase agreement. The transaction is expected to yield substantial synergies to Z Energy's leading position in the New Zealand fuels industry and the deal is to be completed by mid-2016.
PwC's tax practice is headed by tax and private business leader Geof Nightingale, who has extensive tax experience in property, energy, forestry, retail and services and Maori business sectors. He was a member of the New Zealand Institute of Chartered Accountants (NZICA) National Tax Committee for 11 years and has a wealth of experience working with the government and tax authorities. Other notable key contacts are Peter Boyce, a tax markets leader focusing on international corporate tax issues including restructuring and M&A, and the firm's two managing partners: Brent Goldsack and Richard McKnight.
Russell McVeagh's tax team provides an array of advice on all sorts of direct and indirect tax matters. The team is adept in advising on tax issues related to M&A, business establishment and reorganisations, fund management, retail investment products, insolvency and workouts, financing and capital raisings, real estate and cross-border transactions.
Brendan Brown, who is held in high regard in New Zealand, leads both tax and transfer pricing teams. He has strong expertise in corporate and international tax including capital markets, structured finance and securitisation and tax disputes.
In December 2015, Brown and Tim Stewart advised Bank of New Zealand (BNZ) on its issue of $380 million subordinated notes to institutional investors and New Zealand retail investors. The transaction was the first public issue by BNZ of regulatory capital instruments under the revised Basel III capital standards. The Reserve Bank of New Zealand specifically requires aspects of the tax treatment of certain regulatory capital instruments to be confirmed by a ruling from the Inland Revenue, meaning that the prudential regulatory and tax requirements are intertwined.
One client said: "Always, Russell McVeagh are consistently excellent."
Stuart Hutchinson heads the tax group at Simpson Grierson. He has extensive experience advising inbound and outbound investments, structured financing proposals, M&A and divestments, tax disputes, GST, and accident compensation. Partner Barney Cumberland has considerable experience in domestic and international tax law including investment and finance transactions, as well as assisting in tax disputes and litigation.
The practice has expertise in corporate and commercial taxation across all industries, particularly specialising in the not-for-profit sector. The team is strong at advising clients such as banks and financial institutions on corporate M&A and capital raising.
Staples Rodway provides tailored tax solutions to fit clients' business and personal needs. The firm's tax expertise includes structuring, tax compliance, governance and tax risk management, Inland Revenue reviews, audit and disputes support, M&A and research and development. Maree Kempthorne is a partner who specialises in all areas of tax and is especially strong in corporate, private clients and trust-related tax matters.
The tax team focuses on the construction and engineering, infrastructure, tourism, export, food processing, forestry and property development industries, among others.