Snapshot of recent developments
Tax Alert - November 2022
Tax Legislation and Policy Announcements
Farm-level split-gas pricing system on agricultural emission proposed
On 11 October 2022, the Government released its pricing agricultural emissions consultation document, including a world-first proposal to impose a farm-level split-gas pricing system on farmers’ agricultural emissions.
If the levy system is not implemented by 1 January 2025, the Climate Change Response Act 2002 requires that agricultural emissions be priced under the NZ Emissions Trading Scheme, however, the Government is considering (to be decided in 2023) introducing an interim, processor-level levy in 2025, where agricultural processors and importers and manufacturers of fertilisers pay for the emissions based on volumes they process, import or manufacture.
Submissions on the proposals close on 18 November 2022. The Government will then publish a further report by 31 December 2022, introduce an implementation bill into Parliament in 2023 and develop statutory regulations in 2024.
Inland Revenue statements and guidance
Case Summary: Veronica Anne Hoeberechts v Commissioner of Inland Revenue  NZHC 2200
On 3 October 2022, Inland Revenue released Case Summary 22/04. This summarises the outcome in a case involving the application of tax to backdated ACC weekly compensation payments. The decision in the case affirms that an individual who received backdated ACC weekly compensation is taxed on a cash basis (i.e. in the year of receipt) and should not be spread back across the years the compensation related to and taxed on an accrual basis.
IR Public Guidance Work Programme 2022-23
On 5 October 2022, the Inland Revenue published an updated Public Guidance Work Programme 2022-23. The work programme summarises all of Inland Revenue’s Public Guidance projects based on their current progress status, with a link to further information on each item.
Operational Statement: Charities and donee organisations
On 10 October 2022, Inland Revenue published OS22/04 – Charities and donee organisations (Part 1 and Part 2). This operational statement outlines the tax treatment and obligations that apply to charities and donee organisations and how the CIR will apply the relevant legislation. Part 1 covers charities and Part 2 donee organisations.
Technical Decision Summary: Deemed acceptance of shortfall penalties and liability to evasion shortfall penalty
On 12 October 2022, Inland Revenue published a technical decision summary TDS 22/17 on deemed acceptance of shortfall penalties and the evasion shortfall penalty. The taxpayer had been issued with several default assessments and imposed shortfall penalties. The taxpayer issued a Notice of Proposed adjustment and through the disputes process, it was agreed the taxpayer would no longer dispute the core tax that was in issue, but would dispute the application of shortfall penalties. The TDS summarises the reasons behind the decision for shortfall penalties being rightfully imposed.
Binding Ruling: ANZ Bank Zealand Limited
On 17 October, Inland Revenue released BR Prd 22/11 and BR Prd 22/12. Both rulings relate to an arrangement where Australia and New Zealand Banking Group Limited (ANZBGL) shareholders will exchange their ANZBGL ordinary shares for shares in a non-operating holding company, as part of a reorganisation of ANZBGL and its subsidiaries.
BR 22/11 applies only to certain ANZBGL shareholders who either hold their shares on capital account, or are portfolio investment entities, and BR 22/12 applies to New Zealand tax resident employees of ANZBGL and its subsidiaries as at the date of the reorganisation who are participants in the ANZBGL employee share schemes.
Determination: Foreign investment fund
On 18 October 2022, the Inland Revenue published FDR 2022/02 - A type of attributing interest in a foreign investment fund for which a person may not use the fair dividend rate method (iShares Green Bond Index Fund – NZD Share class).
Any investment by a New Zealand resident investor in shares in the iShares Green Bond Index Fund —NZD Share Class to which none of the exemptions in sections EX 29 to 43 of the Income Tax Act 2007 apply, is a type of attributing interest for which the investor may not use the FDR method to calculate FIF income for the interest. The policy intention is that the FDR method of calculating FIF income should not be applied to investments that provide an NZ resident investor with a return like a New Zealand dollar-denominated debt investment.
The determination applies for the 2022–2023 income year and subsequent income years. However, under section 91AAO(3B) of the Tax Administration Act 1994, this determination does not apply to a person and an income year beginning before the date of the determination unless the person chooses that the determination applies to the income year.
Technical Decision Summary: Whether weathertightness payments by the Crown are subject to GST
On 25 October 2022, the Inland Revenue released TDS 22/19. Inland Revenue determined that weathertightness payments received by the Taxpayer, a GST-registered body corporate, were payments in the nature of a grant or subsidy which are therefore deemed to be a consideration for a supply that was subject to GST.
QWBA: Payments to private schools and donation tax credits
On 27 October 2022, Inland Revenue published two QWBAs (accompanied by a Fact Sheet) to assist with clarifying when a parent’s payment to their child’s private school qualifies for donation tax credit, and the corresponding GST treatment of such payments. These QWBAs complement earlier published QWBAs for parents with children attending state schools (QB 18/10) and state-integrated schools (QB 18/11).
Interpretation Statement: Loss carry-forward – continuity of business activities
On 28 October 2022, the Inland Revenue published IS 22/06 - Loss carry-forward – continuity of business activities. This statement explains how the main aspects of the business continuity test in s IB 3 of the ITA 2007 apply. The main rule in s IB 3 provides that a tax loss may be carried forward despite an ownership continuity breach if no major change in the nature of the business activities carried on by the company occurs during the business continuity period, other than a permitted change.
Interpretation Statement: Company losses – ownership continuity, sharing and measurement
On 28 October 2022, the Inland Revenue published IS 22/07 - Company losses – ownership continuity, sharing and measurement. This statement considers the rules applying to company losses, including carrying forward losses, sharing losses and the measurement of ownership interests.
Tax challenges of digitalisation: OECD invites public input on latest progress report
As part of the ongoing work to implement the Two-Pillar Solution to address the tax challenges arising from the digitalisation and globalisation of the economy, the OECD are seeking public input on the Progress Report of the Administration and Tax Certainty Aspects of Amount A of Pillar One.
Interested parties are invited to send written comments on this document by 11 November 2022.
Consultation on the Progress Report on the Administration and Tax Certainty Aspects of Amount A of Pillar One
On 6 October 2022, the OECD released a new report, Progress Report on the Administration and Tax Certainty Aspects of Amount A of Pillar One, for public consultation. The report includes the rules on the administration of the new taxing right under Pillar One, including the tax-certainty related provisions and follows the release of the first progress report in July. Interested parties are invited to send their comments on this discussion draft no later than Friday, 11 November 2022.
Tax Incentives and the Global Minimum Corporate Tax
On 6 October 2022 the OECD published Tax Incentives and Global Minimum Corporate Tax: Reconsidering Tax Incentives after the GLoBE Rules. Pillar Two establishes a global minimum effective tax rate of 15% for large MNEs which has important implications for the use of tax incentives around the world. This report provides a number of concrete considerations for countries to take into account as they prepare for the implementation of Pillar Two.
Guidance on the Implementation of Country-by-Country Reporting: BEPS Action 13
The Inclusive Framework on BEPS has delivered several items of guidance and handbooks to assist and give greater certainty to tax administrations and MNE groups alike on the implementation and operation of country-by-country reporting under BEPS Action 13. This recently updated guidance will assist tax administrations and taxpayers on questions of interpretation to ensure consistent implementation of the standard.
Country-by-Country Reporting – Compilation of 2022 peer review reports
Under the Action 13 Minimum Standard, jurisdictions have committed to foster tax transparency by requesting the largest MNE Groups to provide the global allocation of their income, taxes and other indicators of the location of economic activity. The fifth annual peer review report reflects the outcome of the review which considered all aspects of implementation. It contains the review of 134 jurisdictions that provided legislation or information pertaining to the implementation of CbC reporting.
Tax Report to G20 Finance Ministers and Central Bank Governors
On 6/7 October 2022, delegates to the Inclusive Framework met to take stock of progress made in international tax reform to date. This report sets out the latest developments in international tax reform, including on the Two-Pillar Solution and major developments in tax transparency efforts, together with a new roadmap on tax and development, and updates on other important work including the implementation of the BEPS minimum standards and on tackling tax and crime.
Tax Report to G20 on Inclusive Forum on Carbon Mitigation Approaches
In prior years, there have been discussions on the possibility of coordinating on climate mitigation measures. This is because G20 countries account for around 80% of greenhouse gas emissions and, without coordination, the diversity of mitigation policies adopted by countries based on their individual level of development and circumstances may result in negative spill overs. This report, presented to G20 Finance Ministers and Central Bank Governors at their meeting, provides an update on the establishment of the Inclusive Forum on Carbon Mitigation Approaches.
Note: The items covered here include only those items not covered in other articles in this issue of Tax Alert.