1 LARGE ENTERPRISES UPDATE. Inland Revenue's corporate update Issue No 42 February 2018 IR785. Welcome to Large Enterprises Update If you have any suggestions for topics you'd like covered in this newsletter, email us at REMINDERS. 23 March Last day to apply for D status if you're unable to file your 2017 return by 23 March. Applications can be sent to 3 April Last day to file all 2017 returns if you have a valid extension of time. 7 April Last day to pay residual income tax for 2017 year if you have a valid extension of time. Note: If a due date falls on a weekend, public holiday or provincial anniversary day, we can receive your return and payment on the next working day without a penalty being applied. Briefs IR451s can be filed in March Certificates of exemption from resident withholding tax (IR451s) for the year ended 31st March 2019 can be applied for in March 2018 but will not be processed until after the 3rd of April 2018.
2 Imputation credit accounts must be cleared to avoid further charges If your company's imputation credit account is in debit after 31 March, you're required to pay further income tax equal to the debit balance. You'll also be charged imputation penalty tax. This penalty tax can be avoided by paying enough income tax by 31 March to clear any imputation account debit. If the account is in debit, the due date for payment of any penalty for 2018 further income tax and imputation penalty tax is 20 June 2018. Transfer pricing of low value-adding intra-group services IR to adopt OECD approach In 2015 the OECD released its Final Report for reform of international tax rules. One of the report's aims is to ensure that Transfer pricing outcomes are aligned with value creation (Actions 8-10 of the Base Erosion and Profit Shifting (BEPS) Action Plan).
3 The report introduced an elective and simpler approach for pricing low value-adding intra-group services (LVAIGS). This approach is both wider and simpler than how IR currently does it, so we will be adopting it with effect from 1 July 2018. There are also considerable benefits for taxpayers in aligning our practice with other jurisdictions and enhancing international consistency. The current threshold of NZ$1 million will be maintained, but will be reviewed on a regular basis. Proposed law changes relating to BEPS measures A tax bill was introduced to Parliament in December 2017 covering proposed law changes relating to BEPS. measures. Inland Revenue will be revising the Transfer pricing practice information on our website in light of any law changes in 2018.
4 We will also provide guidance to taxpayers on LVAIGS. Transfer pricing practice issues on our website 1. Topical issues in New Zealand Transfer pricing practice Guaranteed returns The issue Where a New Zealand subsidiary's Transfer pricing policy guarantees the subsidiary a specific return, the New Zealand subsidiary is by default a no or minimal risk entity, irrespective of any other facts and circumstances. Our view We do not accept this argument. At the heart of Transfer pricing is the requirement to test whether or not intercompany prices are arm's length. Relying solely on the very intercompany price that is being tested is circular. For this reason, the functional analysis and risk profile of an enterprise should be determined by an appropriate analysis of the facts and circumstances in each case.
5 We fully endorse the OECD's comments on this point that "The form of remuneration cannot dictate inappropriate risk allocations". Refer to the OECD Transfer pricing Guidelines, paragraph Synergistic benefits The issue Identification and treatment of synergistic benefits within a multinational enterprise, particularly with respect to business restructures and process improvement projects. Our view Synergies can arise from a number of scenarios including: combined and integrated computer and communication systems integrated management combined purchasing power or economies of scale. In each case, it is important to clearly identify: 1. the synergy 2. how it has arisen 3. which entities have contributed 4. what impact, if any, it has on intercompany pricing .
6 Things to watch out for Synergistic benefits are not intangible property. The consequence of this misclassification can lead to an inappropriate attempt to charge a New Zealand entity for a synergistic benefit. This is of particular concern in relation to synergies arising from integrated computer and business systems. Synergistic benefits are sometimes inappropriately allocated to one part of the multinational business (for example a centralised manufacturer in the case of volume-based savings) without considering all associated parties who have contributed to the savings (for example, the purchasing entities who have contributed to the manufacturer's volume). Comparability adjustments may be necessary where material synergistic benefits are a feature in the tested party's business.
7 Refer to OECD Transfer pricing Guidelines, paragraphs to We're here to help We appreciate that these issues may be complex in practice. You can contact one of our Transfer pricing specialists for more information. Note: It is the responsibility of local New Zealand management to review Transfer pricing practices to ensure compliance with our rules. LARGE ENTERPRISES UPDATE Issue No 42 February 2018 2. Interest calculation error on non-resident companies All non-resident contractor companies, non-resident entertainer companies and agents for foreign insurers with balance dates between October and February will have incorrect use-of-money interest (UOMI) calculations. This is caused by a system miscalculation at our end. End of year tax for a company that doesn't have a fixed establishment in New Zealand and isn't considered to be resident in New Zealand is due and payable on: 7 Feb in next income year 7 April if company linked to tax agent with valid extension of time.
8 If you're affected, please call Large Enterprises on 0800 443 773 and we'll put a hold on the account and arrange a correction. Unfortunately this may take several weeks we thank you for your patience. This is the last issue of the LEU. This is the last issue of the Large Enterprises Update. Topics of interest to large enterprises will be covered in the Business Tax Update. Read the latest issue and sign up on our website. Large Enterprises Update comments generally on topical tax issues relevant Email: to large enterprises. Every attempt is made to ensure the law is correctly interpreted, but articles are intended as a brief overview only. The examples provided are not intended to cover every possible factual situation. LARGE ENTERPRISES UPDATE Issue No 42 February 2018 3.