NEW ZEALAND Law and Practice Contributed by: Greg Neill, Fred Ward and Callum Burnett, Russell McVeagh
• the review of a particular transaction or return; • a focus by Inland Revenue on an industry or activ - ity; or • random selection and initiation of an audit. However, large enterprises in New Zealand are subject to periodic and ongoing risk assessments by Inland Revenue, which may give rise to an audit. In recent years, Inland Revenue had taken a nota - bly reduced approach to audit investigations due to resourcing being deployed elsewhere to administer COVID-19 measures and Inland Revenue’s own busi - ness transformation. However, Inland Revenue has since increased its audit and investigation activity, and the government has increased funding for Inland Revenue to expand its audit capability. 9. BEPS 9.1 Adoption of BEPS Recommendations New Zealand’s Inland Revenue is responsible for the development of the BEPS action plan in New Zealand and has generally supported the OECD’s initiative of a co-ordinated, global solution to the BEPS problem, the Two-Pillar Solution and the recommended BEPS package of 15 actions. In terms of BEPS recommended changes that have already been implemented in New Zealand, many were enacted in June 2018 as part of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018, as follows: • Interest limitation: Rules were introduced regarding certain related-party loans between a non-resident lender and a New Zealand resident borrower. A restricted transfer pricing approach may be required, which looks to credit ratings of borrowers at high risk of BEPS and the typical characteristics of third-party debt. • Hybrids: Comprehensive hybrid mismatch rules were introduced to neutralise the effects of hybrid mismatch arrangements. These rules are based on OECD recommendations, with appropriate modi - fications to accommodate the New Zealand tax environment.
• Transfer pricing: New Zealand’s transfer pricing legislation was amended to align with the 2017 OECD transfer pricing guidelines and to strengthen Inland Revenue’s ability to monitor and enforce the new transfer pricing rules. • Permanent establishment: New Zealand introduced an anti-avoidance rule for large multinationals (with over EUR750 million of consolidated global turno - ver) using a corporate structure intended to avoid having a permanent establishment (PE) in New Zealand. This rule operates on a complementary basis to the OECD’s widened “PE” definition under the MLI. • Other measures: Rules were also introduced in relation to certain administrative matters, such as additional powers for Inland Revenue to request information from large multinational groups for the purposes of a tax investigation of that group. In addition, country-by-country reporting has been implemented in accordance with OECD recommen - dations. This applies only to a select number of cor - porate groups headquartered in New Zealand, and each year Inland Revenue provides those groups with the relevant templates and guidance notes from the OECD. As discussed in 4.2 Key Tax Treaty Jurisdictions for Inbound Investment , New Zealand has signed and ratified the MLI in an effort to prospectively modify its existing DTAs. More recently, the OECD Pillar Two Global Anti-Base Erosion (GloBE) tax rules have been implemented in New Zealand. The Pillar Two rules are incorporated into New Zealand law by reference to the OECD Mod - el Rules, commentary and published administrative guidance. Both the “Income Inclusion Rule” (applying when a New Zealand-based multinational has undertaxed income in another country) and the “Undertaxed Prof - its Rule” (UTPR – the back-up rule where multination - als operate in countries that do not implement the GloBE rules) took effect in New Zealand from 1 Janu - ary 2025. The “Domestic Income Inclusion Rule” (DIIR) for in-scope New Zealand-headquartered groups (applying when a New Zealand-based multinational
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