Waikato Business News January/February 2017

WAIKATO BUSINESS NEWS January/February 2017 17
Addressing global tax avoidance
With the world becoming increasingly
globalised, perceived tax avoidance by
international enterprises through multicountry
business structures has been
attracting increased media and public
attention.
There is widespread concern
that multinational
corporations have the
ability to structure their businesses
across different countries
to minimise their overall
tax cost, as a result of different
tax regimes in individual
countries.
The Organisation for
Economic Cooperation and
Development (the OECD) has
released a series of recommendations
designed to close
tax loopholes and make tax
more equitable across the
globe. Improvements to the
world’s tax systems mainly
focus on removing these deficits
and increasing confidence
in global markets. Estimates
place the annual tax loss to
governments across the world
at between $100-$240 billion
The New Zealand Government
intends to adopt the full range
of OECD recommendations
to combat hybrid mismatch
arrangements
US dollars.
Data released by the IRD
shows that approximately half
the entities registered in New
Zealand with turnovers greater
than $80 million are foreign
owned, with a further 25 percent
involved in international
business operations.
Due to the significance of
these entities on our tax base,
the New Zealand Government
issued a discussion document
earlier this year, seeking
to adopt the majority of
the OECD recommendations.
The Government tax policy
work programme for 2016/17
includes a list of measures
focused on ‘International Tax
and Base Erosion and Profit
Shifting (BEPS)’ of which one
of the most complex issues is
addressing ‘hybrid mismatch
arrangements’.
The ‘hybrid
mismatch’ problem
arises when
multinational entities
structure their
business affairs to
take advantage of
different tax rules
in different countries.
A common
example of this for
businesses operating
in both New
Zealand and Australia is the
use of loans structured as convertible
notes.
Under New Zealand tax
law they are treated as debt
instruments, with interest payments
being tax deductible.
Under Australian rules
they are treated as an equity
instrument – so the ‘interest’
payments are treated as
dividends with the benefit of
tax credits, which results in
no tax to pay on the income.
This can result in a mismatch:
the NZ Company receives a
tax deduction in New Zealand
with no corresponding taxable
income in the Australian
Company.
A further example is the
situation where a US parent
company has a 100 percent
owned NZ subsidiary. Under
New Zealand tax rules, any
payments made to the US
parent can be tax deductible,
however under US domestic
law the receipt of this income
can be treated as non-taxable.
Again, this results in a mismatch:
there is a tax deduction
in New Zealand with no
corresponding taxable income
in the US.
The New Zealand
Government intends to adopt
the full range of OECD recommendations
to combat
hybrid mismatch arrangements.
The proposed changes
are complex, however
they aren’t just relevant for
global giants; the rules will
need to be understood by all
New Zealand businesses that
engage in cross-border transactions,
even relatively small
NZ companies doing business
New vet practice reflects
Pokeno’s growth
Pokeno’s fast-growing population
now has another
reason to call the area
home – the recent opening of the
town’s first veterinary surgery.
CareVets Pokeno Ltd opened
for business little more than a
month ago, and newly-installed
veterinarian Emma Hill says the
response from the community
so far has been “really positive”.
“We’ve been out and about
letting people know that we are
open for business … everyone
seems really pleased to have a
vet right here. It’s seen as a real
plus for an area that is growing
this fast,” she said a week before
Christmas.
Heading the move to open
the Pokeno clinic was CareVets
director Keith Houston, a veterinarian
with more than three
decades’ experience and the
man who started and funded the
national CareVets group more
than 15 years ago, principally to
make high quality pet care more
accessible to communities.
Dr Houston said the new
surgery staff would work closely
with veterinarians at The
Vet Centre Pukekohe, The Vet
Centre Waiuku, and Byerley
Park horse centre near Karaka,
allowing Pokeno’s animal-owners
to tap into an impressive network
of knowledge and skills.
“The new clinic has been
established to act as an extension
of our services to the entire
area,” he explained. “The housing
growth in Pokeno has been
the impetus to provide a local
pet service, as well as our rural
veterinary servicing of dairy,
equine and small block holders.
Our team members enjoy sharing
their knowledge and supporting
each other.”
The Waikato District Council
has developed a structure plan to
help manage Pokeno’s unprecedented
growth, and to support
its increasing population
through the provision of appropriate
amenities and services.
Council statistics already show
a rapid increase in the number
of registered dogs in the area,
with some 360 more dogs registered
during 2016 than in 2013.
Similar increases are likely in
number of other pets and lifestyle
animals.
Having local veterinary skills
close to hand is being viewed as
an important step in providing
for that growing population.
CareVets Pokeno veterinarian
Dr Hill brings six years of
widespread experience to the
role, working most recently
out of the Waiuku Veterinary
Surgery.
“Much of the work I did in
my first three years as a vet was
with small animals,” she said.
“Since then, I have added in a
mix of equine and farm animals,
in Australia.
Some of the key changes
proposed to be implemented
in New Zealand include:
• Denial of a tax deduction
for a payment to an overseas
related entity, where
the payment is not treated
as taxable income.
• Where foreign dividends
received by a New Zealand
company would normally
be non-taxable, they will
become taxable if there has
been a tax deduction in the
overseas company.
On a practical level, this is
most likely to affect:
• New Zealand businesses
with loan or share arrangements
with businesses in
other countries;
• New Zealand branches of
foreign companies, or NZ
companies with overseas
branches;
• New Zealand companies,
partnerships and trusts
with overseas owners or
investors, or with foreign
investments.
Due to the global nature of
these arrangements, the New
Zealand Government recognises
that our domestic policies
can only be effective if
the OECD recommendations
which means I am very familiar
with animals of all sizes – pretty
much ready for anything.
“The local clinic is equipped
to handle standard veterinary
TAXATION AND THE LAW
> BY HAYDEN FARROW
Hayden Farrow is a PwC Executive Director based in the
Waikato office. Email: hayden.d.farrow@nz.pwc.com
are implemented worldwide.
The Government is therefore
closely following the changes
adopted by the UK, EU
and Australia before the new
rules are passed into legislation
here. However the US
and some Asian countries are
currently reluctant to adopt
the OECD recommendations,
so it will be interesting to see
how the international markets
react.
In addition to addressing
hybrid mismatch arrangements,
other measures aimed
at improving global tax standards
include an increased
focus on transfer pricing and
the robustness of double tax
agreements.
Transfer pricing rules have
been on the agenda for many
years; they seek to ensure that
where goods and services are
sold between related parties of
a larger enterprise, those sales
take place at a fair value, so
that an appropriate amount
of revenue is recorded in the
correct entity. Although these
rules have been in place for
some time, the increased focus
on international arrangements
means that IRD is likely to
monitor such arrangements
closely, so it is important
CareVets Pokeno veterinarian Emma Hill, left, with
vet nurse and clinic receptionist, Jacqui Langley.
consultations and minor surgery
such as de-sexing and the like.
Anything more complicated
than minor surgery would be
done in Pukekohe, which is just
that New Zealand businesses
ensure their transfer pricing
arrangements are fit for purpose.
The Government is also
working closely with the
OECD and current treaty
partners to ensure international
agreements remain fit for
purpose. The double tax treaties
with China and Korea are
currently being re-negotiated;
as key trade partners any New
Zealand businesses operating
in these countries will need
to keep a close eye on resulting
changes that could impact
existing contracts.
The proposed changes are
not simple. Recommendations
that result in legislative
change will need to be comprehensively
understood by
affected entities. Compliance
with these intricate changes
will have the potential to
cause major headaches for
New Zealand business looking
to overcome the technical
and practical difficulties of
business on the international
stage.
The comments in this article
of a general nature and
should not be relied on for
specific cases. Taxpayers
should seek specific advice.
15 minutes away.”
Dr Hill will be supported at
CareVets Pokeno by a veterinary
nurse Jacqui Langley, who will
also take care of front of office.
New appointment to oversee TGH and Tainui relationship
Tainui Group Holdings
(TGH) has announced
the appointment of
Pierre Tohe to the role of general
manager engagement.
TGH chief executive Chris
Joblin says Mr Tohe, who is
of Waikato-Tainui descent, is
a proven leader in Maori business.
“Pierre’s tribal affiliations,
years of experience as head
of Maori business at BNZ and
his legal background, will help
us stay joined at the hip with
Waikato-Tainui and will open
up the opportunity to explore
investment partnerships at the
hapu, marae and incorporation
level,” Mr Joblin says.
“Pierre’s appointment
is in line with our strategy
to appoint and develop tribal
members within key roles
in TGH where they have the
skills and qualifications to
advance the commercial, cultural
and social outcomes of
the wider tribe. His knowledge
of tikanga will ensure we
continue to work in culturally
appropriate ways in line with
the values and aspirations of
Waikato-Tainui,” Mr Joblin
says.
Pierre was born in Huntly
and is currently a trustee
at Taniwha marae with
family links to Waahi and
Kaitumutumu marae.
He has been the Aucklandbased
head of Maori business
for BNZ since August
2011, following earlier roles
as in-house legal counsel
and senior solicitor for the
BNZ since 2003. Earlier in
his career Pierre also worked
at leading law firm Buddle
Findlay as a solicitor for five
years after graduating from the
University of Auckland with
a Masters of Laws (LLM) in
1998.
Pierre says he is excited
about the prospect of putting
his experience to work for his
own iwi.
“Over the past five years, I
have seen the difference made
by effective iwi investment
strategies. Waikato-Tainui
and TGH have made a great
start as pioneers of economic
development since the 1995
settlement, and I’m excited to
put my shoulder to the wheel.
I have always had a vision to
return and work for Waikato-
Tainui and believe we will
unlock great things by working
as one across the tribe,”
he says.
Pierre will start with TGH
in early February.
Tainui Group Holdings
new general manager
engagement Pierre Tohe.