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An insight into Inland Revenue’s thinking

An insight into Inland Revenue’s thinking

I’ll be the first to admit that a document with the word ‘compliance’ in its title is unlikely to make it to the top of my reading pile. Perhaps Inland Revenue’s Multinational Enterprises, Compliance Focus 2019 should have come with the tag line ‘Comes with pictures and we think you’ll find it an interesting read’, as this report is certainly worth making some time for.

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Kim Jarrett - KPMG NZ - Partner

Partner - Global Transfer Pricing Services

KPMG in New Zealand

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In a very digestible way (I wasn’t kidding about the pictures) this report outlines Inland Revenue’s priorities for Multinationals and provides some very clear guidance on Inland Revenue’s expectations of these taxpayers.

Transfer pricing, tax governance by the Board, the new Deemed Permanent Establishment and anti-hybrid rules, and the OECD’s ongoing digital economy work programme all get good coverage in the report.

So, spoiler alert, here are some of the highlights:

Inland Revenue has a lot more data than it used to

  • Inland Revenue received 1402 Country-by-Country reports in 2018 from overseas tax authorities during 2018;
  • Enterprises with turnover greater than $80m make up 45% of New Zealand’s Corporate tax base, and more than half of these are multinationals;
  • Significant Enterprises, being all enterprises with turnover greater than $80m, and all foreign-owned multinational groups with turnover greater than $30m, are subject to annual reviews and risk assessments by Inland Revenue. This is just under 1,000 taxpayers.

Prioritising areas of focus

  • Inland Revenue issued international questionnaires to 623 foreign owned entities last year, and out of these the Inland Revenue indicated in a recent presentation that almost 50% of these entities are either currently being reviewed, or of interest and likely to be reviewed in the near future.

Transfer pricing – phew, that was a good career choice!

In terms of transfer pricing risk assessment, Inland Revenue will be looking at taxpayers with two or more consecutive years of losses, high rates of royalties, high interest rates and debt levels, and low operating profits; 

  • Inland Revenue is now providing some high-risk indicators for operating profits with a focus on:

o Distributors with EBITE less than 3%
o Retailers with EBITE less than 5%; and
o Manufacturers with EBITE less than 7%.

 

Tempted and want to read more?

You can find Inland Revenue’s report here and for further commentary on the report, take a look at our taxmail here.

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