Inland Revenue’s major focus in respect of international tax matters remains foreign-owned multinationals operating in New Zealand. Each year we issue a questionnaire to all foreign-owned significant enterprises (i.e. groups with annual turnover in excess of NZ$30m), except for banks and insurers who are screened separately. The questionnaire covers key financial data as well as a mix of questions addressing new or emerging issues.

This year we issued the questionnaire to 663 foreign-owned groups and received a 100% response. The broad aim of the questionnaire is to enable us to identify patterns, trends and anomalies. The information collected informs our policies, both as to new legislative measures and general compliance follow-up actions.

We have carried out some preliminary analysis on the responses received, noting the following in particular:

• Groups with transactions involving associates in low/no tax jurisdictions – 9%. This is seen as a good result and demonstrates a low exposure for the New Zealand tax base to potential profit shifting.

• Groups with tax governance policies specifically for New Zealand business operations – 27%. This result is less than expected and will require follow-up activity. It is possible that many foreign-owned groups rely on global tax governance policies rather than taking the additional step of tailoring these policies to New Zealand.

• Groups with guarantee fees paid to non-resident associates – 4%. This is seen as reasonable and we have now established a baseline for future responses, given that there has been a concern that companies would use guarantee fees to possibly circumvent new measures put in place to limit interest deductions.

• Groups that have restructured in response to new anti-base erosion and profit shifting provisions – 19%. This reflects a positive change in behaviour by a significant number of companies, for example unwinding hybrid instruments or switching from debt to equity in financing their New Zealand operations.

• The largest sectors remain wholesale distributors and manufacturers. We have just completed a targeted campaign focused on specific transfer pricing risks of distributors. We intend to carry out a similar campaign on manufacturers in 2021, to ensure we are achieving the desired coverage of these two major sectors.

The annual international questionnaire is proving to be an invaluable tool in our efforts to become truly intelligence-led in all our compliance work.