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Nov. 18 — Revenue minister Michael Woodhouse told a tax conference in Auckland Nov. 17 that the government is “closely watching” the implementation of diverted profits taxes in the U.K. and Australia.
“Officials have provided some advice to the government and we will look to say more on this in the near future,” Woodhouse told the annual conference of Chartered Accountants Australia and New Zealand.
But tax specialists aren’t convinced that talk of a Google Tax in New Zealand will turn into action, and are wary of government plans on hybrid mismatches and thin capitalization.
Wellington-based KPMG tax partner John Cantin told Bloomberg BNA Nov. 18 that the minister’s somewhat opaque remarks on a diverted profits tax shouldn’t be interpreted as indicating it is a certainty.
“If I am venturing a guess on the diverted profits tax, I think that is probably less likely,” said Cantin, who attended the conference. Nevertheless, it’s a possibility, he said. “It’s in the toolbox.”
Bevan Miles, Auckland-based tax special counsel with law firm Chapman Tripp, holds a similar view.
“I didn’t get a sense that we are definitely going to be heading that way,” said Miles, who also attended the conference. “But certainly we will have a look at what others are doing.”
Miles added that if New Zealand does go down that path, it’s likely to be a “politically motivated” move.
“My personal take is that I am not sure that there are that many instances in New Zealand where something similar to the Google Tax actually would have any real practical application here,” he said.
“I don’t think we see the same instances of large multinationals paying low tax in New Zealand as perhaps in some of the other countries,” he said.
“But if the public starts calling for it a bit louder, then I guess it might be the case that the government needs to be doing something.”
Woodhouse ran through the government’s tax reform agenda in his wide-ranging speech, stating that the government will carefully consider submissions on its recent consultation paper on hybrid mismatches.
Miles predicts there will be more discussion, “maybe another round of consultation,” before any legislation emerges, adding that many taxpayers in New Zealand hold the view that much of what the government has proposed isn’t required.
Cantin also considers there was some over-reach in the recent paper.
“The hybrids document is very, very broad and it has a potential to go much wider and affect more things than one would have anticipated,” he said.
“To me, it makes sense to focus on the things that New Zealand knows and accepts are a problem and deal with those so that you know what the outcome is rather than going with very generic rules that might have unintended consequences,” Cantin said.
On thin capitalization, Woodhouse told the conference the existing rules “are serving us well. However, a small number of foreign-owned firms appear able to take excessively high interest deductions.”
“For example, the interest rates on some related-party loans appear to be unreasonably high,” he said. “We are therefore considering measures that would bolster our rules, to ensure that foreign-owned firms cannot shift excessive profits out of New Zealand using debt.”
“I expect to release proposals on these matters early in the New Year,” Woodhouse said.
Miles told Bloomberg BNA the government had yet to give any clear signals of what it had planned, adding that he wasn’t convinced changes are necessary. “We’ve got really robust thin capitalization rules already, and transfer pricing rules, and so I am not sure why we need something else,” he said.
Meanwhile, Miles was enthusiastic about one unexpected commitment by the minister—to change rules applying to demergers.
“Demergers, which do not involve the distribution of income to shareholders, should not in principle give rise to a dividend for tax purposes,” Woodhouse said. “Although the current dividend tax treatment raises issues for all demergers, in practice, problems mainly arise with demergers by Australian-listed companies.”
Woodhouse said the government will fast-track a tax bill, for introduction to Parliament early in 2017, to exclude certain demergers by Australian-listed companies from the dividend taxation rules.
Miles welcomed the move, describing it as “taxpayer-friendly.”
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