Tax loopholes

Last week the government announced its “final decisions on proposals to address base erosion and profit shifting” – in other words, closing loopholes on international tax dodgers.

The announcement was made without a lot of fanfare, which is not surprising given when the matter was first raised the “problem” was downplayed as not a problem by then Prime Minister, John Key. It now seems there was, and is, a problem with New Zealand being a treated as a tax haven by multinationals and foreign trusts.
The announcement says, the new measures will:

• Stop foreign parents charging their New Zealand subsidiaries high interest rates to reduce their taxable profits in New Zealand.
• Stop multinationals using artificial arrangements to avoid having a taxable presence in New Zealand.
• Ensure multinationals are taxed in accordance with the economic substance of their activities in New Zealand.
• Make it easier for Inland Revenue to investigate uncooperative multinational companies.
• Counter strategies that multinationals have used to exploit gaps and mismatches in different countries’ domestic tax rules to avoid paying tax anywhere in the world.

The last of these measures will drill down into the tax status of a foreign trust and require those trusts that are not paying tax in any overseas jurisdiction to pay New Zealand tax on their foreign income. That will close the door on the loop-hole that exists at the moment and put an end to the international tax avoiders and their high priced lawyers and accountants exploiting a hole in the New Zealand tax net.

It is expected that the measures will be included in a tax bill to be introduced by the end of the year, for enactment by July 2018.

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