Te wiki o te take; Multinational companies, cryptos and transparency

Earlier this week a scoop from Rebecca Stevenson revealed that Inland Revenue had collected an additional $33 million from multinational companies as part of a campaign to keep New Zealand’s COVID-19 wage subsidy payments.

In 2020, a total of 376 multinationals (those with annual sales over $30 million) received a total of $830 million in wage subsidies. The Inland Revenue’s transfer pricing unit saw the possibility that, although the wage subsidy was intended to secure employment in New Zealand, multinationals could take the opportunity to transfer those funds abroad.

He therefore met with advisers from the Big Four accounting firms to brief them on his views on the matter, then wrote to 436 multinationals, “outlining the expectation that all government wage subsidy aid should remain in the New Zealand economy”. Subsequently, some $33 million in wage subsidies were voluntarily repaid by the multinationals.

Each year, Inland Revenue Transfer Pricing Unit sends an annual survey to approximately 750 international companies. These are updated annually and this year’s survey included two new COVID 19 questions relating to the impact of the pandemic on multinationals. These are in addition to more typical transfer pricing type questions about the “intensity and effect” of related party transactions which the Inland Revenue wishes to undertake so that it can “refine its risk profile on companies with cross-border agreements”.

According to John Nash, director of international revenue for the Inland Revenue, which is also part of the OECD’s BEPS (Base Erosion and Profit Shifting) initiative, the Inland Revenue also liaised with the Australian Tax Office and the OECD Secretariat to ensure that its approach to transfer pricing in this matter was consistent with international transfer pricing regulations. And the word that came back it was.

Apparently not all multinationals are happy with Inland Revenue’s interpretation of transfer pricing rules. And therefore, when it comes to looking at 2021 and 2022, Inland Revenue can expect experience and hindsight accordingly. It’s not surprising, but it’s interesting how proactive the tax authorities have been on this issue.

However, as noted by former member of the Tax Task Force, Professor Craig Elliffe, there is quite a significant potential for dispute given that the amount at issue is $830 million. As Craig commented, “This is an extremely sensitive issue. As a New Zealander, you feel there is no moral justification for multinational corporations to take a tough approach here. This is shaping up to be a classic example of the clash between the technically correct approach and the morality of the multinational approach. We will follow with interest.

Transparency for declaring crypto transactions?

Last week I have discussed the OECD proposal Crypto Asset Reporting Framework, and thank you for all the comments generated. This week is the launch of the Asia initiative, a proposed idea in 2021 by Indonesian Finance Minister Sri Mulyani Indrawati and Asian Development Bank (ADB) President Masatsugu Asakawa.

The Asia Initiative will be “focused on delivering tailor-made solutions to ensure the implementation of tax transparency standards across Asia”.

So far, 13 countries have signed up to the initiative, but these include all major economies in the region, India, China, Japan, Indonesia, Malaysia and Pakistan. The initiative is just the latest example of the previously discussed program for international cooperation on information sharing and thus best exemplified by the Common Reporting Standard and proposed Crypot-Asset Reporting Framework.

As it happens, OECD Secretary-General Mathias Cormann also reported last week on the 14th plenary meeting of the OECD/G20 Inclusive Framework on BEPS. He gave them an update on progress on the international two-pillar tax reform. In short, some progress, but a lot of hard work ahead. The intention is to finalize a new multilateral convention for the implementation of the first pillar by mid-2023, and this should come into force in 2024.

And again, as I said before, politics will get in the way here. It will be interesting to see what happens, especially in the wake of the upcoming US midterm elections.

Just a note that during this plenary meeting, Mongolia became the 100th jurisdiction to join the current multilateral BEPS treaty, which now covers approximately 1850 bilateral tax treaties worldwide. This level of international cooperation will continue to grow. There were over 500 delegates from over 135 countries and jurisdictions at this plenary meeting.

Stuck with a questionable decision

Following the recent Supreme Court decision in Frucor, Tax Guru and former podcast guest John Cantin made a deep dive on the decision.

As you’d expect from John, it’s measured and insightful. He rightly points out that the criticisms of the Majority Judgment are irrelevant – the case is now law. He sees little chance of that being changed either by a future Supreme Court decision or by a legislative amendment to the anti-avoidance provisions, which he says would be difficult legislation to draft.

In summary, his point of view is

“In practice, taxpayers must examine and prove the business, tax and economic effects of what they do to counter an allegation of tax avoidance. They must be able to explain what they have done to persuade the court that the desired tax effects are achieved. Findings of fact are important and likely to be persuasive for future arrangements.

John’s full memo on the case is well worth a read. As I said, we can expect to see more analysis of the case, but while I expect the decision to be criticized, as John said, for now it’s is the law.

Others tackle the budgetary brake

I have often discussed here and in other media the effect of the tax drag due to the non-indexing of thresholds, not only for income tax but also for Working for Families and reimbursement thresholds student loans. So I had a little wry smile when I read that the United States Internal Revenue Service inflation adjusted over 60 tax provisions, including tax rate schedules and other tax changes in preparation for the 2023 U.S. tax year.

As Shamubeel Eaqub told Newshub, not indexing thresholds on a regular basis is really quite a cynical policy of both major parties. It is a point of view that I share and that I discussed with Sharon Brettkelly as part of The Detail podcast last week.

Don’t Mess With Tax Simplification

Finally, a quick note on the amazing happenings in the UK. One of the measures announced in former Chancellor Kwasi Kwarteng’s mini-budget was the abolition of the Tax Simplification Office. Following his resignation and now that of Prime Minister Liz Truss, British tax guru Dan Niedle of Tax Policy Associates tweeted

“Let this serve as a lesson to future politicians so that they do not abolish the Office of Tax Simplification”

And on that note, that’s it for this week. Next week I’ll be taking a close look at the annual domestic revenue report meanwhile I’m Terry Baucher and you can find this podcast on my website www.baucher.tax or wherever you get your podcasts. Thanks for listening and please send me your feedback and tell your friends and customers.

Until next time kia pai te wiki, have a great week!

*Terry Baucher is an Auckland-based tax practitioner with 25 years’ experience. He works with individuals and entities that have complex tax issues. Before starting his own business, he spent six years with one of the ‘big four’ accounting firms, including a period advising Australian businesses on how to do business in New Zealand. You can contact him here.

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