Snapshot of recent developments
Tax Alert - April 2022
Tax Legislation and Policy Announcements
Russia Sanctions Act 2022 now law
On 18 March 2022, the Russia Sanctions Act 2022 came into force. This law allows for sanctions to be imposed and enforced on individuals or entities that are responsible for, associated with, or involved in actions that undermine the sovereignty or territorial integrity of Ukraine or are economically or strategically relevant to Russia. The Russia Sanctions Act 2022 includes an amendment to the Tax Administration Act 1994 to allow the Commissioner of Inland Revenue to share information.
Regulations issued for ACC levies
Regulations have been issued for ACC levies for 2022/23, 2023/24, and 2024/25 tax years. Key aspects include:
- Average Work Account levies paid by employers and self-employed people will decrease from 67 cents to 63 cents per $100 of liable earnings in April 2022 and remain at this rate until 2025.
- Earners’ levies paid through PAYE (or invoiced directly through ACC for self-employed people) will increase from $1.39 per $100 of earnings (GST inclusive) (a maximum of $1,819.66) to $1.46 (a maximum of $1,993.54) from 1 April 2022, $1.53 (a maximum of $2,132.57) from 1 April 2023, and $1.60 (a maximum of $2,276.52) from 1 April 2024.
The Accident Compensation Regulations notified under the Legislation Act 2019 are as follows:
- Accident Compensation (Earners’ Levy) Regulations 2022 (SL 2022/30)
- Accident Compensation (Work Account Levies) Regulations 2022 (SL 2022/31)
- Accident Compensation (Experience Rating) Regulations 2022 (SL 2022/32), and
- Accident Compensation (Experience Rating) Amendment Regulations 2022 (SL 2022/33).
Inland Revenue statements and guidance
National Standard costs for specified livestock determination
On 28 February 2022, the Inland Revenue published the National standard cost for specified livestock 2022. This shall apply to any specified livestock on hand at the end of the 2021-2022 income year where the taxpayer has elected to value that livestock under the national standard cost scheme for that income year.
Cash Basis Persons under the Financial Arrangement (FA) Rules
On 3 March 2022, Inland Revenue released Cash basis persons under the financial arrangements rules for public consultation. This draft interpretation statement revisits the meaning of the cash basis person and covers the required calculations with examples.
Under the FA rules, a cash basis person accounts for income when it is received and for expenditure when it is paid during the life of the arrangement, with a wash-up calculation (base price adjustment – BPA) at the end. To be a cash basis person, a person must hold financial arrangements that have a value under certain legislative thresholds:
- the income and expenditure threshold (section EW 57(1)); or
- the financial arrangement threshold (section EW 57(2)); and
- the deferral threshold (section EW 57(3))
If both the income and expenditure threshold and financial arrangement thresholds are exceeded, a person cannot be a cash basis person. If neither threshold or only one is exceeded, whether a person can be a cash basis person depends on whether the deferral threshold is exceeded. Determining if a threshold is exceeded by adding the absolute values of income and expenditure and the value of the FA. A person must meet the thresholds each year to remain a cash basis person. A cash basis adjustment (CBA) is required when a person elects to use a spreading method, becomes a cash basis person, or ceases to be a cash basis person. Submissions close on 14 April 2022.
Available subscribed capital recordkeeping requirements
On 11 March 2022, the Inland Revenue published OS 22/11 - Available Subscribed Capital (ASC) recordkeeping requirements. The Commissioner of Inland Revenue may, in cases where the taxpayer has been unable to provide sufficient evidence to support their ASC calculation, dispute the taxpayer’s tax position on the basis that the distribution is a dividend under section CD 4 of the Income Tax Act 2007. This is consistent with the onus of proof in s 149A(2)(b) of the Tax Administration Act 1994 resting with the taxpayer. The statement applies from 11 March 2022.
GST – Importers and input tax deductions
On 29 March 2022, Inland Revenue published PUB00438 – Goods and Services Tax – Importers and input tax deductions for public consultation. This explains when an importer who accounts for GST on an invoice basis can claim an input tax deduction on GST collected by the New Zealand Customs Service and what documentation importers can use as an invoice to support input tax deductions. The following documents are invoices when issued by Customs to support a GST input tax deduction:
- an electronic import entry once the entry has been passed; or
- a Deferred Payment Statements issued to an importer;
- cash statement; or
- a manual invoice/statement.
A registered person who accounts for GST on an invoice basis can claim an input tax deduction when an invoice is issued to them on when payment is made to Customs, whichever is earlier. One of the above types of invoices must be kept as part of record-keeping obligations, including evidence of the imported goods if this is not detailed on the invoice. The deadline for comment is on 10 May 2022.
Customs brokers and GST levied by customs
On 29 March 2022, Inland Revenue published PUB00439 - GST – Customs brokers and GST levied by Customs for public consultation. The Inland Revenue explained that the GST a customs broker pays to Customs on behalf of an importer client relates to the importer's taxable activity, not the customs broker’s taxable activity. Hence, the customs broker cannot claim an input tax deduction for such GST paid on behalf of the client. The customs broker also cannot issue any documentation (for example a tax invoice) claiming to charge GST when they ask the importer to reimburse them for the GST they have paid to Customs, this request for reimbursement is not a request for payment for a taxable supply the customs broker has made. The deadline for comment is on 10 May 2022.
Importers and Recalculated GST
On 29 March 2022, Inland Revenue published PUB00440 – Importers and recalculated GST. This document clarifies when importers can claim input tax deductions where they have overpaid GST to the New Zealand Customs Service (Customs). Customs is not allowed to refund overpaid GST where the importer is a registered person who can claim an input tax deduction. Therefore, for an importer that is a registered person to get a refund of overpaid GST, the proper mechanism to use is to claim an input tax deduction for the whole of the GST they paid to Customs. The deadline for comment is on 10 May 2022.
OECD releases detailed technical guidance - Pillar Two model rules
On 14 March 2022, the OECD/G20 Inclusive Framework on BEPS released further technical guidance on the 15% global minimum tax agreed in October 2021 as part of the two-pillar solution to address the tax challenges arising from the digitisation of the economy. The Commentary elaborates on the application and operation of the Global Anti-Base Erosions (GloBE) Rules agreed and released in December 2021. Multinational enterprises (MNE) and tax administrations now have detailed and comprehensive technical guidance on the operation and intended outcomes under the rules and clarification of the meaning of certain terms. It also illustrates the application of the rules to various fact patterns. The Commentary is intended to promote a consistent and common interpretation of the GloBE Rules that will facilitate coordinated outcomes for both tax administrations and MNE Groups.
OECD releases Taxation of Part-Time Work in the OECD working paper
The share of part-time employment in total employment has risen in most OECD countries over the past decades. While this is often associated with increased female labour force participation and the desire of many workers to achieve an improved work-life balance, there has been a significant decline in the average earnings of part-time workers relative to full-time workers, as well as an increase in involuntary part-time employment in several countries. This paper presents a summary of the taxation of part-time work in OECD countries.
OECD releases VAT Digital Toolkit for Asia-Pacific
The VAT Digital Toolkit for Asia-Pacific (APAC) aims to assist tax authorities in the APAC region with the design and implementation of reform to ensure the effective collection of value-added taxes (VAT) on e-commerce activities.
APAC is the largest e-commerce region in the world. VAT is a crucial source of tax revenue for the region. The challenges to collect VAT on the continuously growing e-commerce sales create increasingly important pressures for VAT regimes worldwide. These challenges relate to VAT collection on the booming sales of online services and digital products to private consumers (“apps”, streaming, gaming, ride-hailing, etc.) and online sales of low-value imported goods, often by foreign merchants. VAT is often not levied effectively on these sales under existing rules.
Deloitte Global News and Resources
Status of the Multilateral Convention
In February 2022, Deloitte published the latest version of the OECD Multilateral Instrument status tracker. This tracker consolidates general information on the application of the MLI. As of 9 February 2022, 99 jurisdictions have committed to participate in the MLI. The list of signatories can be found on the OECD website. Out of the 99 jurisdictions, 68 have ratified the MLI and deposited their instruments of ratification with the OECD. The MLI articles are generally effective for withholding taxes in 2022 for the 64 jurisdictions found in the chart here. Note however, that for some countries, the MLI is enforceable once internal procedures are completed and various MLI articles (withholding taxes, other taxes, dispute resolution) will have different effective dates.
Technology in Focus
On 30 March 2022, Deloitte released Technology in Focus, the third report in our Tax Transformation series. The report taps into insights of 300+ tax and finance leaders globally and examines how technology has ushered in an entirely new age of transparency for the tax function.
The key findings are:
- 70% of the surveyed tax and finance leaders predict revenue authorities will have more direct access to their systems within three years. Businesses will increasingly feel like they are operating in glass houses.
- 86% are implementing a next-generation cloud-based ERP system such as S/4 Hana or Oracle Cloud.
- Tax leaders rank strengthening operational transfer pricing (48%), improving tax data management and governance (46%), and preparing for future digital tax administration requirements for direct tax (45%) as three of the biggest drivers of tax technology investment over the medium term.
- 80% say their function is evolving toward blended operating models which combine outsourcing, in-sourcing, and co-sourcing tax operations, with the precise contours determined by the specific process and geographic location.
Australian Federal Budget 2022-2023 – Deloitte Analysis
On 29 March 2022, Treasurer Josh Frydenberg handed down a "good news" Federal Budget within an environment of global and domestic economic uncertainty; a war in Europe, a global surge in inflation and a new omicron variant spreading around the country. A full analysis of the Federal Budget by Deloitte Australia is available here.
A strategy of stimulus has been pursued alongside major spending in infrastructure, health, and defence. Differing levels of structural reform are progressing across education, digital transformation, climate and immigration. Borders are open, and Australia is getting back to business.
The key announcements were:
- A $78 billion underlying cash deficit forecast for 2022-23, $20.9 billion better than forecast in the December 2021 Mid-Year Economic Fiscal Outlook
- A package to address cost of living pressures includes a temporary fuel excise cut, one off payments of $250 to eligible recipients and an increase of $420 to the Low-to-Middle-Income Tax Offset
- 120% tax deduction for small businesses to upskill employees and encourage digital adoption
- Expansion of the Patent box regime to the low emissions technology and agricultural sectors
- Extra funding announced for COVID-19 ($6 billion), mental health (further $547 million over 5 years), aged care (further $468.3 million over 5 years) and $39.6 billion to continue the NDIS program
- Responses to climate and natural disaster impacts, alongside continued focus on low emissions technology and energy security
- Significant funding allocated to build resilience into Australia’s infrastructure networks
- Significant investment in readiness of the workforce for the digital economy
- Parents in charge; more flexibility in Paid Parental Leave.
US Budget Plan for Fiscal Year 2023 focus on corporate, high wealth taxes
On 28 March 2022, the White House released a fiscal year 2023 budget blueprint which echoes President Joe Biden’s longstanding calls for significant tax increases targeting large corporations and high-income individuals but also amplifies them. Notable changes in the proposal include:
- increasing the top income tax rate to 28 percent for corporations;
- repealing the current-law base erosion and anti-abuse tax (BEAT) and replacing it with an undertaxed profits rule consistent with one described in the OECD’s Pillar Two Model Rules;
- renewing its call for a top rate of 39.6 percent for individual taxpayers but also adding a so-called “minimum tax on billionaires” of 20 percent on total income for all taxpayers with wealth of an amount greater than $100 million; and
- tightening certain current-law tax rules related to estates, gifts, and trusts.
This special edition of Tax News & Views looks at the projected debt and deficit picture under the president’s proposed budget and the assumptions underlying the plan, highlights the key details of Biden’s tax proposals (with an emphasis on those provisions that are new for this year), and discusses some of the political obstacles he may need to overcome to get his plan enacted into law.
International Tax Review Leaders 2022
In March the International Tax Review published its 2022 ITR Leaders Guide, an annual guide to worldwide specialist tax advice. This year the guide features five Deloitte New Zealand tax experts in the areas of Indirect Tax, Tax Controversy and Women in Tax.
With over 20 years of experience in economics and transfer pricing, both in public and private sector roles, Melanie leads Deloitte New Zealand’s transfer pricing offerings. Melanie’s goal is to provide and implement pragmatic solutions to address opportunities and risk in cross-border activities. With the current heightened global awareness surrounding international profit shifting, Melanie is passionate about using transfer pricing as a mechanism to assist businesses, particularly SMEs, to reach and expand their cross-border potential.
Campbell has over 25 years of experience in transaction services, the financial services industry and tax disputes/rulings at Deloitte and large law firms in New Zealand and overseas. He works alongside clients to execute transactions smoothly, achieve valuable certainty through binding rulings and resolve tax disputes using his technical and strategic expertise. This involves helping clients manage risk, so he draws from his significant legal experience and broad industry exposure to achieve this by providing pragmatic, commercial and outcome-orientated advice. Campbell enjoys delivering lasting solutions for his clients’ tax issues, so they can focus on what they are passionate about – running a successful business.
Patrick has over 29 years of New Zealand tax experience, including leading the tax function for two of New Zealand’s largest banks. This mix of corporate and professional services experience allows Patrick to bring a pragmatic, balanced perspective to the management of tax. Patrick has extensive experience in acquisitions and divestments, including the associated due diligence and enjoys working with clients in the interaction of tax in transaction design and implementation. Patrick’s practice focuses on corporate tax, mergers and acquisitions and tax policy work. His corporate tax practice includes clients in FSI, Infrastructure and Energy. Work in this area covers a broad spectrum from tax advisory and dispute work, to tax governance and compliance. Patrick is also heavily involved in tax policy matters and regularly engages with the Inland Revenue and Treasury officials for these matters.
Allan heads Deloitte’s New Zealand GST practice, which is the largest GST practice in New Zealand. He has over 20 years of experience in advising all aspects of GST, both in New Zealand and Canada. Allan advises on all aspects of GST in New Zealand for a broad range of clients, solving GST issues and problems practically and pragmatically. Allan is a frequent presenter on GST issues at conferences in New Zealand and internationally. In addition, he is a joint presenter of the GST course at the University of Auckland Master of Taxation program.
Jeanne is an indirect tax specialist with a passion for helping clients manage their GST, VAT and customs obligations so that they can stay focused on their business. With over 20 years of indirect tax experience in both local and multinational companies and New Zealand and across the world, Jeanne has advised several multinational companies and been involved in tax and customs consultancy and planning services. Jeanne enjoys every aspect of his role, whether it be a big due diligence job, a complex restructure or playing the role of adviser and advocate for a client and leads several national indirect tax initiatives and co-leads the national indirect tax team.
April 2022 Tax Alerts
- Research and Development Tax Incentive – Guidance on claiming software development R&D and upcoming due dates