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Snapshot of recent developments

Tax Alert - August 2021

Tax legislation and policy announcements

Q&A on interest limitation rule and additional bright-line rules

Following on from the Design of the interest limitation rule and additional bright-line rules discussion document, on 26 July 2021, Inland Revenue released a Questions and Answers document which provides some answers to various questions they encountered through the consultation process, including scope of the exemptions, development exemption, new build exemption, rollover issues and interest allocation. A quick recap on the discussion documents’ details can be viewed in our June Tax Alert article.

Inland Revenue statements and guidance

Administration of imported mismatch rule

On 30 June 2021, Inland Revenue released finalised operational statement OS 21/02 - Administration of the imported mismatch rule - section FH 11. This Statement is intended to clarify the Commissioner’s expectations as to how taxpayers will meet their self-assessment obligations when applying the imported hybrid mismatch rule in s FH 11 of the Income Tax Act 2007 to payments to members of their control group, and how the rule will be administered by Inland Revenue in relation to such payments. The Commissioner’s view remains unchanged from the draft version, however emphasis has been added to clarify that this statement is not intended to provide a safe harbour, meaning that compliance with this statement does not guarantee that there will be no deductions disallowed under s FH 11, but will reduce the likelihood of lack of reasonable care penalties being imposed where an imported mismatch is later found to exist.

Depreciation rates for brake test rollers

On 1 July 2021, Inland Revenue published finalised determination DEP107 - General Tax Depreciation Rates for brake test roller. The estimated useful life and depreciation rates for brake test rollers remain unchanged from the draft version.

Inland Revenue exercises discretion for affected taxpayers in the West Coast, Tasman and Marlborough regions

On 18 July 2021, the Government declared a medium-scale adverse event for the West Coast, Tasman, and Marlborough regions. To assist farmers and growers, Inland Revenue is exercising discretion to allow early withdrawals from the income equalisation scheme.

Non-cash dividends

On 22 July 2021, Inland Revenue published Interpretation Statement IS 21/05 - Non-cash dividends. This statement considers when a transfer of company value from a company to a shareholder is treated as a dividend for tax purposes. It focuses on the types of non-cash transactions that are often entered into between small and medium-sized companies and their shareholders.

COVID-19

Wage subsidy reviews

When the Office of the Auditor General (OAG) reviewed the Wage Subsidy Scheme it recommended that the Ministry of Social Development (MSD) seek written confirmation of compliance with the eligibility criteria from wage subsidy applicants. The MSD has now started a project which is currently focusing on larger employers. A random sample of about 1,000 recipients who had applied for the Wage Subsidy between 4pm 27th March 2020 and 8th June 2020 have been contacted by email survey to confirm their business met the eligibility criteria and their compliance with obligations for the subsidy received.

Recipients who have made a full repayment and those whose eligibility is part of ongoing checks have been excluded from selection. Further details of the OAG review and the wage subsidy eligibility criteria can be found here.

OECD updates

The OECD published the following key publications during July:

  • On 21 July 2021, the OECD released Revenue Statistics in Asia and the Pacific 2021 which provides an overview of the main taxation trends from 1990 to 2019 in 24 economies, including New Zealand. The report also includes a special feature on the emerging challenges for the Asia-Pacific region in the COVID-19 era and ways to address them.
  • On 29 July 2021, the OECD released Corporate Tax Statistics: Third Edition. The data shows that statutory corporate income tax rates (CIT) have been decreasing in almost all countries over the last two decades. Across 111 jurisdictions, 94 had lower CIT rates in 2021 compared with 2000, while 13 jurisdictions had the same tax rate, and only 4 had higher tax rates. These declining rates highlight the importance of OECDs proposed “Pillar Two”, which will put a multilaterally agreed limit on corporate tax competition. The new statistics also suggest continuing misalignment between the location where profits are reported and the location where economic activities occur. This can be seen through differences in profitability, related-party revenues, and business activities of Multinational Entities (MNEs) in investment hubs and zero-tax jurisdictions compared to MNEs in other jurisdictions. It is noted that evidence of continuing BEPS behaviours as well as the persistent downward trend in statutory corporate tax rates reinforce the need to finalise agreement and begin implementation of the two-pillar approach to international tax reform.
  • On 29 July 2021, the OECD published Corporate Effective Tax Rates For Research and Development (R&D). This paper contributes a methodology to construct forward-looking effective tax rates for an R&D investment that reflect the value of expenditure-based R&D tax incentives. The new OECD estimates cover 48 countries (including New Zealand) and consider the case of large profitable firms, accounting for the bulk of R&D in most economies. The results provide new insights into the generosity of R&D tax incentives from the perspective of firms that decide on whether or where to invest in R&D and the level of R&D investment. The paper also highlights differences in countries’ strategies to support R&D through the tax system.

Deloitte Global News Focus

ATO offers help to new investors

Deloitte Australia has written a helpful article explaining New Investment Engagement Service (NIES) launched by the Australian Taxation Office (ATO). The NIES forms part of the Federal Budget 2021-22 initiatives to encourage global businesses to invest in and relocate to Australia.

Status of the Multilateral Convention

The impact of implementation of the anti-tax treaty abuse measures under the Organization for Economic Co-operation and Development (OECD) base erosion and profit shifting (BEPS) project have had far-reaching consequences. The implications of certain BEPS Actions are still being worked through, particularly in relation to the multilateral instrument (MLI or Convention). The MLI constitutes a major change to international taxation and will enable international tax authorities around the world to challenge transactions and structures on a new basis. While New Zealand was quick off the mark to have the MLI in force from 1 October 2018, other countries are going through the process of ratifying the MLI. Deloitte maintains a list of all status of the MLI across the globe, you can access the latest copy here.

Note: The items covered here include only those items not covered in other articles in this issue of Tax Alert.

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