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Final BEPS reports released
Tax Alert - October 2015
BEPS (base erosion and profit shifting) will fundamentally change the tax landscape globally as it aims to create a single set of consensus-based international tax rules to address BEPS and to protect countries’ tax bases by ensuring that profits are taxed where economic activities take place and value is created.
On 5 October 2015, the OECD published the final reports on the 15 BEPS Actions. The papers published comprise one overall explanatory statement and thirteen detailed papers covering the fifteen Actions set out in the BEPS plan. Overnight, Deloitte has published a Tax Alert which provides an overall perspective, explains which actions are likely to take effect first and what we can expect from here on in. Given the quantity of material released (almost 2,000 pages) we are still working through the finer detail and implications of each report. We suggest you stay tuned to tax@hand to read more on each of the action plans as we publish analysis and opinion.
The New Zealand Government has signalled that BEPS policy work is a priority and it is a certainty that changes will be made to our domestic laws in some areas. We have already seen the release of a discussion paper covering GST on cross-border services, intangibles and goods as well as proposals to broaden the application of non-resident withholding tax on related party debt.
Officials have been waiting for these final OECD recommendations to be published before releasing further discussion documents (expected in the first half of 2016) that put forward domestic proposals on the following issues:
- Hybrid mismatch arrangements – exploring whether New Zealand should amend its rules to further prevent non-taxation of income or double deductions of expenditure through the use of hybrid instruments or entities
- Interest limitation rules – proposals to stop profit shifting by limiting the interest expenses that are deductible to a percentage of EBITDA or a group wide ratio
In comparison to other countries, New Zealand is able to get legislative changes through parliament reasonably quickly. In our view, New Zealand needs to be careful not to get out of step with the rest of the world by implementing changes too quickly as some countries are not as enthusiastic about some of the proposed changes. If we move too fast, we risk other countries not following which will affect our international competitiveness. It is clear from the reports that consensus has not yet been obtained in all areas, including the above areas that New Zealand tax policy officials are intending to explore early next year.
Some of the BEPS Actions deal with issues covered by double tax treaties (for example, the definition of a permanent establishment and measures to prevent treaty abuse). The adoption of these changes will depend on whether countries sign up to a multilateral agreement that is to be negotiated in 2016 to give effect to the changes (albeit there is expected to be flexibility in what changes countries sign up for) or whether the changes are picked up in various forms over time as the treaties are individually renegotiated.
If BEPS is still a bit of a mystery to you, then this BEPS summary FAQ is a great place to start to understand more about it. For more information, please contact your Deloitte tax advisor.
October 2015 Tax Alert
Best practice in corporate tax governance – from the finance team to the Board
New IRD number application process for offshore persons
GST - Current issues - Our take on the developments
Update on debt remission proposals
The interaction of loss grouping and imputation credits – discussion document released