IRD eyes hybrid instruments, related party debt   2 Dec 2015

Article - BusinessDesk

IRD eyes hybrid instruments, related party debt in global tax avoidance clamp-down

By Paul McBeth

Dec. 2 (BusinessDesk) - The Inland Revenue Department is looking at the tax treatment of hybrid debt and equity instruments and the use of related party loans funding local subsidiaries as part of a global clamp-down on tax avoidance.

Acting deputy commissioner of policy and strategy David Carrigan told Parliament's finance and expenditure select committee that New Zealand's thin capitalisation and transfer pricing rules for foreign companies are "robust," but it is looking into two areas where it can tighten up for potential avoidance. One area is the use of hybrid instruments, where companies juggle debt and equity between jurisdictions to claim deductions in one country while not paying tax in another.

"Those are instruments where the clever tax planners essentially ensure the flow coming out of the country is deductible and when it reaches the other country it's non-assessible," Carrigan said. "They do that through the different rules that different countries have for debt and equity, and we we are thinking very seriously about whether we need to change our rules to combat that sort of situation."

IRD has successfully pursued companies using mandatory and optional convertible notes, which the courts ruled constituted tax avoidance, leading to a string of settlements with the tax department after a test case involving Australian firm, Alesco, settled on the eve of appeal hearings in February.

Carrigan said the other area IRD is looking at is related party debt, where a foreign company uses debt to capitalise a New Zealand subsidiary, meaning interest deductions paid to the parent are deductible.

"We have thin capitalisation rules that protect us to some extent but the question is do we need any more rules to protect against that," he said.

New Zealand's tax department has officials involved in the Organisation for Economic Cooperation's working group base erosion and profit shifting, which this year put up a number of proposals to Group of 20 finance ministers on how to plug gaps in international tax rules.

Carrigan said information sharing between international tax agencies is another route for action.

Revenue Minister Todd McClay is seeking feedback on how to make it easier for IRD to share information, not just internationally but also between government departments, with plans to loosen the country's tax secrecy provisions, which are broader that most other jurisdictions at a time of heightened expectations about cross-border sharing.

IRD commissioner Naomi Ferguson told the select committee the department's business transformation project's forecast cost had been whittled down to less than $1 billion due to the lack of extra work that would be needed to adapt the Fast software to New Zealand's processes, and that the new system would be agile enough to take on new tax types.

(BusinessDesk)

Add a comment

News

Hilary Timmins' Award-Winning UK Documentary Series To Inspire NZ Students

29 Jun 2020 Education
Dream Catchers, produced and directed by Hilary Timmins, celebrates the success stories of more than thirty inspirational New... more

New Zealand reaffirms support for Flight MH17 judicial process

7 Mar 2020 News By Rt HON WINSTON PETERS
Ahead of the start of the criminal trial in the Netherlands on 9 March, Foreign Minister Winston Peters has reaffirmed the need to... more

Business

NZ Government's Economic package to fight COVID-19

17 Mar 2020 Business News By RT HON JACINDA ARDERN
The Coalition Government has launched the most significant peace-time economic plan in modern New Zealand history to cushion the... more

NZ Government announces aviation relief package

19 Mar 2020 Business News By Hon Phil Twyford
Transport Minister Phil Twyford today outlined the first tranche of the $600 million aviation sector relief package announced earlier... more

Living

Diversity was Key at New Zealand Trade Tasting in London

6 Jun 2022 Food & Wine
New Zealand Winegrowers Annual Trade Tasting was recently held in London, on Wednesday 4 May, in Lindley Hall. It was the first... more

Kiwi author stuns Behind the Butterfly Gate

12 Jan 2022 Arts By Charlotte Everett
Hidden behind the Butterfly Gate is where the secret has been kept for 76 years...  New Zealand writer Merryn Corcoran’s... more

Property

Fairer rules for tenants and landlords

17 Nov 2019 Property By Minister Kris Faafoi
17 NOVEMBER 2019 The Government has delivered on its promise to the over one million New Zealanders who now rent to make it fairer... more

New Zealand Government will not implement a Capital Gains Tax

17 Apr 2019 Property By RT HON JACINDA ARDERN
The Coalition Government will not proceed with the Tax Working Group’s recommendation for a capital gains tax, Jacinda Ardern... more

Migration

Boosting border security with electronic travel authority – now over 500,000 issued

19 Nov 2019 Migration By Hon Iain Lees-Galloway
19 NOVEMBER 2019 We’ve improved border security with the NZeTA, New Zealand Electronic Travel Authority, which helps us to... more

Christchurch reinstated as refugee settlement location

18 Aug 2018 Migration
18 AUGUST 2018 HON IAIN LEES-GALLOWAY The announcement that Christchurch can once again be a settlement location for refugees... more

Travel

Gallipoli Anzac Day services cancelled

19 Mar 2020 Travel & Tourism By RT HON JACINDA ARDERN
The New Zealand and Australian Governments have announced this year’s joint Anzac Day services at Gallipoli will be cancelled... more

New Zealanders advised not to travel overseas

19 Mar 2020 Travel & Tourism
New Zealanders advised not to travel overseas more

Sport

The Skipper's Diary: Sir Richard Hadlee honouring his father and NZ's Forty-Niners

27 Oct 2019 Cricket By Charlotte Everett
NZNewsUK London Editor Charlotte Everett spoke to Sir Richard Hadlee about why he’s chosen to publish his father’s... more

PREVIEW: All Blacks v England semi-final

26 Oct 2019 Rugby
The two most convincing quarterfinals winners are set to square off in a semifinal showdown for the ages when the All Blacks meet old... more

Columns

Gordon Campbell on the Gareth Morgan crusade

11 Nov 2016 Opinion
Gordon Campbell on the Gareth Morgan crusade First published on Werewolf The ghastly likes of Marine Le Pen in France and Geert ... more

Gordon Campbell on the US election outcome

10 Nov 2016 Opinion
Column - Gordon Campbell   Gordon Campbell on the US election outcome Well um.. on the bright side, there (probably)... more

Kiwi Success

Congratulations to Loder Cup winner

26 Sep 2018 People By Hon Eugenie Sage
25 SEPTEMBER 2018 The Loder Cup, one of New Zealand’s oldest conservation awards, has been awarded to Robert McGowan for 2018... more

Appointments to New Zealand National Commission for UNESCO

16 Aug 2018 Appointments
16 AUGUST 2018Appointments to New Zealand National Commission for UNESCO HON JENNY SALESA Associate Education Minister Jenny Salesa is... more

Recruitment

Historic pay equity settlement for education support workers

14 Aug 2018 Recruitment By RT HON JACINDA ARDERN
14 AUGUST 2018Historic pay equity settlement for education support workers RT HON JACINDA ARDERN HON CHRIS HIPKINS Prime Minister The... more

Historic pay equity settlement for education support workers

22 Aug 2018 Recruitment By RT HON JACINDA ARDERN
14 AUGUST 2018Historic pay equity settlement for education support workers RT HON JACINDA ARDERN HON CHRIS HIPKINS Prime Minister The... more