Tax Alert

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Snapshot of recent developments

Tax Alert - August 2018

BEPS update

The Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 had its third reading and received royal assent on 27 June 2018, with the Act mainly coming into force on 1 July 2018.

It has been confirmed that New Zealand has become one of the latest jurisdictions to ratify the multilateral instrument (MLI) and deposit their ratification instruments with the OECD. This means a total of 80 jurisdictions have now signed the MLI and nine jurisdictions have deposited their instruments for ratification. The MLI will enter into force on 1 October 2018. For further information on the status of the MLI, read more on Deloitte tax@hand here.

Hong Kong DTA Amendment Order

The Double Tax Agreements (Hong Kong) Amendment Order (LI 2018/118) was notified in the New Zealand Gazette on 12 July 2018 and comes into force on 9 August 2018.

This Order gives effect to the Second Protocol to amend the Agreement between the New Zealand Government and the Hong Kong Government for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. The purpose of the Second Protocol is to amend the double tax agreement to facilitate automatic exchanges of information between New Zealand and Hong Kong by removing a clause prohibiting automatic exchanges of information. Further information can be found in the International Treaty Examination document prepared by the Finance and Expenditure Select Committee in February 2018.  It will allow New Zealand and Hong Kong to meet their international commitments under the G20/OECD Automatic Exchange of Financial Account Information in Tax Matters initiative.

After the constitutional and legal procedures have taken place to enable the agreement to come into force, the date on which the protocol comes into force will be publicised here.

OECD releases BEPS discussion draft on the transfer pricing aspects of financial transactions

On 3 July 2018 the OECD released a discussion draft on financial transactions, dealing with follow-up work in relation to Actions 8-10 of the BEPS Action Plan (which is to “Assure that transfer pricing outcomes are in line with value creation”). The aim of the discussion draft is to clarify the application of the principles included in the 2017 edition of the OECD Transfer Pricing Guidelines, particularly the accurate delineation analysis under Chapter 1, to financial transactions. Other specific issues in relation to the pricing of financial transactions are also included, such as treasury function, intra-group loans, cash pooling, hedging, guarantees and captive insurance.

Tax Working Group’s latest release of Secretariat papers

On 2 July 2018 the Tax Working Group (TWG) released another tranche of papers that it has received from its secretariat (made up of Officials primarily from Treasury and Inland Revenue). These have been published in the ‘key document’ section on the TWG website. The advice represents the preliminary advice of the Secretariat and doesn’t necessarily represent the views of the Group or the Government. The following papers have been released and are now on the TWG website:

  • Business tax – summary
  • Types of business entities in New Zealand and how they are taxed
  • Company tax rate issues
  • New Zealand’s imputation system
  • Closely-held companies
  • Dividend avoidance
  • Measures to approve efficiency
  • Lower tax rates for small companies
  • Maori authorities
  • Effective company tax rates

More papers will be released as they are considered by the TWG.

Finalised items

OS 18/02: “Non-disclosure right for tax advice documents” was released on 2 July 2018. This statement sets out the process that the Commissioner will follow when issuing a notice to a taxpayer / tax adviser / third party requiring the disclosure of documents, which may contain tax advice and may be subject to the right to claim non-disclosure under sections 20B to 20G of the Tax Administration Act 1994. The Statement incorporates amendments to the legislation (in particular the extension of the non-disclosure right in 2009 to apply to discovery and similar processes that occur during litigation), and incorporates principles established in cases since SPS 05/07 was published in 2005.

Determination FDR 2018/02 – A type of attributing interest in a foreign investment fund for which a person may use the fair dividend rate method (Units in the Two Trees Global Macro Fund) – Any investment by a New Zealand resident investor in units in the Two Trees Global Macro Fund is a type of attributing interest for which the investor may use the Fair Dividend Rate method to calculate Foreign Investment Fund income from the interest.

BR Pub 18/06: Goods and services tax - payments made by parents to state and state integrated schools concludes that GST is not chargeable on payments made by parents to the board of trustees of a state or state integrated school where the payments are made to assist the school with the cost of delivering education services which the student has a statutory entitlement to receive free of charge. GST is chargeable on payments made for supplies of other goods or services that are not integral to the supply of education to which the student has a statutory entitlement, where that supply is conditional on the payment being made. 

QB 18/10: Income tax – state schools and donation tax credits and QB 18/11: Income tax – state integrated schools and donation tax credits explain when a parent’s payment to a school will be a gift, so that the school can issue a donation tax receipt to the parent. A payment will be a gift when it is voluntary, does good for the school, and the parent obtains no material benefit or advantage in return for making the payment.

IS 18/01: Taxation of trusts – income tax – This statement summarises the income tax law as it applies to trusts, and replaces and updates the Commissioner’s original statement on the trust rules in a 1989 Tax Information Bulletin (TIB) which was based on the Income Tax Act 1976. The Interpretation Statement sets out the Commissioner’s view on the application of the trust rules for income tax purposes having regard to the changes made since the 1989 TIB item and the current Income Tax Act 2007.

Withdrawn item

SPS 08/03 Income Tax Act 2007 – Penalties and interest arising from unintended legislative changes has been withdrawn effective from 1 July 2018, and is now provided for historical purposes only. This statement sets out the treatment of shortfall penalties and use of money interest when a confirmed unintentional legislative change gives rise to a tax shortfall. The statement was issued because of concern about shortfall penalties and use of money interest arising from unintended legislative changes made during the Income Tax Act rewrite process.

Best Start tax credit

The Best Start tax credit (BSTC) is a new component of the Working for Families Tax Credits and is a payment to help families with the costs in a child’s first three years. It is available to all qualifying families with children due or born on or after 1 July 2018. This tax credit replaces the Parental Tax Credit. A person cannot get the BSTC and paid parental leave for the same child, at the same time – the BSTC will start once the paid parental leave has finished.

Disclosure of information relating to other taxpayers prohibited

The Taxation Review Authority has dismissed an application by the disputants for the disclosure of information relating to the terms of any settlement between the Commissioner and taxpayers involved in other proceedings. In particular, the disputant wanted to know what (if any) concessions had been agreed between the Commissioner and the taxpayers, what arrangements had been made and what monetary payments had been agreed.

 

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