NZ Spells Out Expected Clawback From Corporate Tax Avoiders

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By Murray Griffin

The New Zealand government estimates its efforts to prevent tax avoidance by large companies will bring in NZ$250 million ($176 million) over three years.

Finance Minister Steven Joyce outlined the government’s expectations in the 2017-18 budget released May 25.

The budget anticipates additional tax revenue of NZ$250 million between 2018-19 and 2020-21 “from the government’s work to halt multinational tax avoidance,” Joyce said in his budget speech.

Budget papers specify that the predicted increased tax revenue from multinationals due to anti-avoidance measures could be revised upwards, once proposed reforms—drawing on the Organization for Economic Cooperation and Development’s Action Plan on Base Erosion and Profit Shifting—are finalized.

‘Ambitious’ Expectation

EY’s Wellington-based executive director of tax, David Snell, told Bloomberg BNA the revenue expectation was “quite an ambitious amount,” if the government expects it to be delivered by the proposals it has put on the table so far.

The country’s corporate tax take is about NZ$12 billion of which just over half is raised from multinationals, he noted.

Unless the government has an as-yet unannounced measure up its sleeve the figure could prove to be an over-estimate, Snell said by phone.

KPMG national director of tax Darshana Elwela said the NZ$250 million estimate over three years suggests that the BEPS measures currently under consultation will take effect some time in 2018-19.

“The forecast indicates a very tight implementation timetable (legislation by mid-2018) with little time to react,” he said in a May 25 blog post.

“For those potentially affected, assessing the potential impact and planning your response should not be delayed,” Elwela said.

Tax Treatment of Feasibility Expenditure

Snell added that a budget announcement on the tax treatment of feasibility expenditure—the money spent determining the practicability of a new proposal—would be welcomed by many large businesses.

Since the Supreme Court’s 2016 Trustpower ruling, feasibility expenditure has had to be written off as neither deductible nor depreciable, Snell noted.

However, that is set to change.

In association with the budget, the government issued a consultation paper on proposed changes that would mean money spent investigating a project’s feasibility would no longer have to be written off as black hole expenditure.

The paper details a proposal to introduce a new definition of feasibility expenditure that could be used to determine whether it is immediately deductible or must be capitalized.

The consultation paper also proposes allowing taxpayers a deduction for expenditure that would have been deducted over time if the expenditure had been successful, but didn’t result in a successful asset.

The budget proposes no changes to corporate tax rates.

To contact the reporter on this story: Murray Griffin in Melbourne at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

For More Information

Budget papers are available at https://www.budget.govt.nz.

"Black hole and feasibility expenditure: A government discussion document" is available at https://taxpolicy.ird.govt.nz/publications/2017-dd-black-hole-feasibility/overview.

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