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Inland Revenue

Tax Policy

Appendix 2 - New Zealand's policy for taxing multinationals

This appendix sets out New Zealand’s policy for taxing multinationals, some recent tax measures aimed at multinationals, and our economic framework for international tax.

Policy for taxing multinationals

New Zealand’s policy for taxing multinationals has been guided by two main considerations:

  • New Zealand is a small open economy and we compete for capital with the rest of the world. This means we want New Zealand to be an attractive place for non-residents to invest and do business. However, we also want our fair share of tax. Our rules for taxing multinationals attempt to balance these competing objectives.
  • New Zealand’s tax policy is constrained by the international tax framework – we cannot unilaterally adopt tax measures which conflict with that framework.

Recent measures to tax multinationals

New Zealand has enacted several measures in recent years to improve our ability to tax multinationals. Many of these are in response to the OECD’s BEPS project.

The OECD’s BEPS project arose out of significant global media and political concern about evidence suggesting that some multinationals paid little or no tax anywhere in the world. This problem is referred to as base erosion and profit shifting or BEPS. BEPS tax planning strategies exploit gaps and mismatches in countries’ domestic tax rules to avoid tax.

The OECD/G20 BEPS Action Plan was finalised in October 2015. The Action Plan consists of 15 reports that contain recommendations to counter BEPS activities in three key areas:

  • more robust tax laws;
  • international agreements and co-operation; and
  • improving transparency and exchange of information.

The recently enacted Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 is dedicated to countering multinational’s BEPS activities in New Zealand. The measures in the Act prevent multinationals from using:

  • artificially high interest rates on loans from related parties to shift profits out of New Zealand;
  • hybrid mismatch arrangements that exploit differences between countries’ tax rules to achieve an advantageous tax position;
  • artificial arrangements to avoid having a taxable presence (a permanent establishment) in New Zealand;
  • related-party transactions (transfer pricing) to shift profits into offshore group members in a manner that does not reflect the actual economic activities undertaken in New Zealand and offshore; and
  • certain tactics to stymie an Inland Revenue investigation, such as withholding relevant information that is held by an offshore group member.

In addition, New Zealand signed the OECD’s Multilateral Instrument on 7 June 2017, which amends most of New Zealand’s bilateral DTAs to prevent them from being used to facilitate BEPS activities. These measures (together with our existing law) address all of the BEPS issues identified by the OECD. New Zealand’s response to BEPS is also generally aligned with Australia’s. The only significant differences are that Australia has adopted a separate diverted profits tax, while we have gone further than Australia in limiting high-priced debt (which was identified as our number one BEPS issue).

These measures are only the latest in a series New Zealand has undertaken to strengthen our laws for taxing multinationals. Other measures include:

  • applying GST to cross border services – including e-books, music, videos and software purchased from overseas websites;
  • introducing legislation to apply GST to the cross-border supply of low value goods to New Zealand customers;
  • strengthening non-resident withholding tax rules (to ensure non-residents cannot claim interest deductions without also being required to withhold tax on that interest within a reasonable period);
  • limiting the use of look-through companies as conduit vehicles for investment by non-residents (to prevent them from being used to arbitrage New Zealand and foreign tax laws);
  • clarifying that New Zealand’s general anti-avoidance rule overrides DTAs; and
  • improving exchange of information between tax authorities, in particular by implementing the OECD’s exchange of cross-border rulings and Country-by-Country reporting initiatives under which tax authorities exchange certain information on large multinationals.

New Zealand’s economic framework for international tax

The measures set out in this discussion document are consistent with New Zealand’s economic framework for international tax.

New Zealand has a general broad-base low rate (BBLR) tax framework, which aims to minimise distortions and promote economic efficiency. A robust company tax rate is an important component of this framework. The company tax rate should apply to both residents and non-residents who derive income from New Zealand sources.[66] It should not favour some taxpayers or some types of economic activity.

The current inability to fully tax the value generated in the digital economy that is paid to non-residents implies that this source of income is often taxed at a lower rate than other sources. This distortion can lead to unfairness and the substitution of low-taxed businesses for tax-paying businesses – specifically favouring foreign investors who can benefit from the current issues with the international tax framework.

As the income generated from the digital economy is in part specific to the market location and the value generated by the users of that product, the overall reduction in investment or national income from the taxation of this source of income may be limited.

For government spending initiatives, the tax revenue that is lost from an inability to tax the digital economy appropriately needs to be made up from other sources. As a result, the higher tax burden on other sectors of the economy will come with real economic costs.

The proposed measures protect New Zealand’s BBLR tax base from these distortions and should ensure a more appropriate level of tax is paid by all taxpayers on their economic activities in New Zealand. They are consistent with New Zealand’s general approach to taxing inbound investment.

Further information on New Zealand’s international tax framework and the economic impact of such base maintenance measures is set out in New Zealand’s taxation framework for inbound investment.[67]


[66] There are a number of reasons for applying the company tax rate to non-residents, such as ensuring that location-specific economic rents are taxed, maintaining current taxation of sunk investments and land, ensuring an equal playing field for local and non-resident competitors, and the availability of tax credits for New Zealand tax in the non-resident’s country (which effectively reimburses the non-resident for the New Zealand tax charged).

[67] Available at