Attention Wholesalers & Distributors – Are you part of the chosen few?

By Lucy Scanlon and Eleanor Yew

Did you receive an International Wholesaler / Distributor Questionnaire?  Inland Revenue has initiated a campaign recently whereby selected wholesalers/distributors operating in New Zealand are requested to complete an International Wholesaler / Distributor Questionnaire (the questionnaire) as part of a wider compliance approach for multinational enterprises.

The results of Inland Revenue’s 2018 International Questionnaire survey of 623 foreign-owned groups (excluding banks and insurers) identified that wholesalers and distributors were the largest industry in this group of respondents, accounting for 24%, or approximately 150 wholesalers/distributors with annual turnovers in excess of NZ$30m.

By way of background, Inland Revenue introduced a range of simplified measures which were aimed at serving the dual purposes of protecting the tax base whilst reducing compliance costs in instances where a low transfer pricing risk is present. One of these simplified measures is for foreign-owned wholesale distributors with an annual turnover of less than NZ$30m.  Inland Revenue currently considers a weighted average earnings-before-interest-tax-and-exceptional-items (EBITE) ratio of 3% or greater to be broadly indicative of an arm’s length rate. Our recent Tax Alert article explains the measures in more detail.

Inland Revenue’s questionnaire aims to ascertain if there is a need for simplification measures or adjustment of the threshold levels set for the existing measures. The data collected may also be used to inform Inland Revenue’s input into further anti-Base Erosion Profit Shifting (BEPS) measures being discussed in the Organisation for Economic Co-operation and Development (OECD) OECD Consultation Paper on its risk assessment processes.  With the responses collected from this taxpayer group, Inland Revenue will also have information to review whether more in-depth review work is required of a particular taxpayer’s transfer pricing practices.

In substance, the questionnaire asks relatively specific questions of taxpayers, requesting information pertaining to the following:

a.    basic worldwide group details;

b.    principal business activities;

c.    the New Zealand entity’s financial accounting information;

d.    cross-border associated party sale and purchase of goods; and

e.    disclosure of transactions with group entities with jurisdictions with perceived favourable tax regimes.

Our advice is that it is imperative to provide accurate responses that are representative of your entity’s transfer pricing position, as the information you provide to Inland Revenue will also be used to assess whether the entity is compliant in its transfer pricing practices. Contextual information, clarifying comments and/or explanation should be supplied to elaborate on any of the answers provided if necessary.  Our Transfer Pricing team is well placed to assist in the completion and/or review of the questionnaire and identify the responses that could potentially raise ‘red flags’ in the eyes of Inland Revenue and also any broader queries surrounding your transfer pricing needs.

Inland Revenue’s International Wholesaler/Distributor questionnaire is due by 22 November 2019.  

November 2019 Tax Alert contents

·  OECD proposes a “unified approach” to addressing the digitalization of the economy

·  New compulsory online BEPS disclosure forms now required!

·  Stop Press: Inland Revenue releases Multinational Compliance Focus

·  Thin capitalisation calculations in a BEPS world

·  Attention Wholesalers & Distributors – Are you part of the chosen few?

·  Provisional tax changes: Two years on

·  Uncertain tax positions – it’s now time to report these in your financial statements

·  Deducting holding costs for privately used land that is taxable on sale

·  Recent Developments