New Zealand’s Tax Arm Ready to Support Multinationals’ Compliance

New Zealand’s government stands ready to help multinational enterprises get their tax filings right. Those operating in the country should note Inland Revenue’s intent to help them prevent base erosion and profit shifting.

The department’s September update states the importance of “acting in real time and up-front.” Inland Revenue does this by encouraging multinationals to apply for rulings and unilateral/bilateral advance pricing agreements.

Multinationals are often surprised by Inland Revenue’s collaborative approach and see value in engaging to gain certainty on their New Zealand arrangements.

Alongside Inland Revenue’s traditional information-gathering, the strategy highlights its growing use of data analytics to help identify and allocate its resources to compliance campaigns and “tailored interventions.”

New Zealand has been an early adopter of most of the OECD’s BEPS recommendations that apply alongside an already comprehensive set of cross-border tax rules. The September update sets out several key insights from previous campaigns and top 10 BEPS risks.

“High-risk” arrangements. Inland Revenue identifies the provision of intangible property, specialized services, complex financing structures, and market support payments as “high-risk” arrangements.

These should be supported appropriately, including with intercompany agreements and comprehensive transfer pricing documentation. This should include documents that discuss the facts in detail (including functions, risks, and assets), industry analysis, and explanations of any abnormal events or changes in performance or business operating models for the year in question.

Bundled intangible property. Inland Revenue identifies that the highest risk category of intangibles transactions is where a single payment covers multiple types of rights, because of challenges in accurately identifying and pricing each individual component.

It’s essential to accurately delineate the intangibles in cross-border intellectual property restructuring, including for example global restructures where intellectual property is transferred out of New Zealand and then licensed back to there.

Adapting transfer pricing to local conditions. Inland Revenue reiterated that it’s inappropriate to apply global transfer pricing policy and associated target rates of return without localization. It expects to see higher operating margins when compared with most other markets because of New Zealand’s geographic isolation and “lack of competitive pressures.”

Comparables should be drawn from similar markets, specifically Australasia, because of the similarity of key factors. Data from other large Asian economies—such as China, India, Japan, and South Korea—provide weak support and are generally considered non-comparable to the New Zealand market.

BEPS risks aren’t unique to New Zealand, but multinationals should note that the country has taken some unconventional approaches to addressing them.

Avoidance of permanent establishment status. Where a tax treaty doesn’t include a permanent establishment anti-avoidance rule New Zealand may apply a domestic anti-avoidance rule to large multinationals in certain circumstances.

Circumvention of withholding taxes, including treaty shopping. New Zealand is a signatory to the Organization for Economic Cooperation and Development BEPS multilateral instrument and has sought to include the principal purpose test in its covered agreements. Numerous integrity measures have been in force for years to counter withholding tax avoidance.

Excessive interest deductions through thin capitalization. New Zealand hasn’t adopted OECD recommendations to employ an earnings before interest, taxes, depreciation, and amortization-based interest limitation rule, continuing to rely on its balance sheet thin capitalization approach. The calculation can be complex.

Hybrid mismatch arrangements (including imported mismatches). Inland Revenue has broad powers to collect information on these arrangements and may expect to see information from the offshore group tax function. Failing to provide adequate and timely information when requested can result in the preemptive denial of deductions.

Misuse of low- or no-tax jurisdictions. New Zealand has implemented the OECD Pillar Two Global Anti-Base Erosion, or GloBE, rules, with the income inclusion rule and the under-taxed profits rule coming into force on Jan. 1. The country intends to apply a domestic income inclusion rule starting Jan. 1, 2026.

Mispricing of debt instruments. New Zealand applies “restricted” transfer pricing rules in relation to certain debt instruments that can result in a different arm’s-length price than under the OECD norm. The restricted transfer pricing rules are particularly relevant to multinationals, which in our experience typically fund their New Zealand subsidiaries through a mixture of equity and debt funding.

Profit stripping arising from tax-driven supply chain restructures. Business restructuring remains a critical transfer pricing risk—Inland Revenue expects to see significant transfer pricing support for a multinational’s plan to reduce its New Zealand profile. The broader arrangements must make commercial sense, which the revenue will consider from the perspective of a general anti-avoidance rule analysis.

Other risks. These include non-commercial arrangements driven by aggressive tax planning, non-arm’s-length transfer pricing of tangible and intangible goods and services, and the inappropriate apportionment of branch profits.

Inland Revenue will use various proxies to seek to identify such arrangements—for example, if a New Zealand subsidiary of a multinational has negative earnings before interest and tax over multiple years, Inland Revenue will consider this a risk factor and is likely to request additional information from the taxpayer.

The future. The document provides an overview of the BEPS 2.0 program—including New Zealand’s implementation of the GloBE rules under Pillar Two. While it discusses the delay with Pillar One, there is little reference to digital services taxes other than as an alternative measure in the abstract.

New Zealand draft legislation on implementation of its own digital services tax has been pending for a while, and it isn’t clear how this bill will progress. Multinationals providing digital services in New Zealand should monitor the bill’s progress; it’s yet to have its first reading but is on the order paper for Parliament—meaning this could happen at any time.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Simon Akozu is partner with MinterEllisonRuddWatts, focused on mergers and acquisitions, infrastructure projects, financing arrangements, and crypto assets.

Steven Liu is a senior associate with MinterEllisonRuddWatts, with broad experience advising on New Zealand tax matters, with a particular focus on cross-border tax issues.

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