Country Correspondent: John Nash

A range of fiscal measures have been introduced in New Zealand to support businesses through the pandemic. A wage subsidy was a very early measure taken, and was subsequently followed by the wage subsidy extension and the resurgence wage subsidy.

These New Zealand wage subsidies were intended to be temporary support payments only available where an entity had suffered a required decline in actual or predicted revenue after having taken active steps to mitigate the impact of COVID-19 (for example, engaging with their bankers, or drawing on cash reserves as appropriate, or making an insurance claim). The subsidies must be repaid in a range of circumstances, including if the eligibility criteria have been breached; the funds were not used to pay the wages and salaries of the named employees; or insurance proceeds were received for the costs covered by the subsidies.  Therefore, the subsidies supported the payment of wages and salaries but provided no competitive or market advantage.  Further, the wage subsidies were specifically linked to the employment-related risks borne by the New Zealand recipient entity.  A distressed business in these circumstances would not have been expected to amend its arrangements with independent suppliers or customers upon receipt of the subsidies.

Eligible businesses have included not only small and medium enterprises but also large multinationals (MNEs) operating in New Zealand. As at the end of 2020, 376 foreign-owned MNE groups with an annual turnover in excess of $30m had received NZ$830m in wage subsidies. It is generally expected that the benefits of such subsidies will be retained in New Zealand. However, we identified a risk that MNEs entering into cross-border transactions with non-resident related parties, might inappropriately pass these benefits offshore through the pricing of such transactions.

Embracing a ‘right from the start’ approach wherever possible, Inland Revenue has actively participated in OECD transfer pricing discussions to shape appropriate international consensus-based guidance on government assistance. Simultaneously, we have supplemented this international guidance with specific information on our website on the correct treatment of the New Zealand wage subsidy. We then followed up with key stakeholder engagement, including a series of meetings held with major advisory firms, supporting this messaging and providing an opportunity to discuss concepts widely, ensuring our position is well understood and compliance expectations are clear. 

Intelligence work, including a comprehensive review of customers in our advance pricing agreement programme and our significant foreign-owned multinational population, identified specific customers who could be potentially impacted. Consequently, we have sent letters providing further information to approximately 430 MNEs, setting out the expectation that all of the government’s wage subsidy assistance should remain within the New Zealand economy. The letter provided specific examples and links to guidance, as well as a cautionary message to all MNEs that the next phase of our compliance work will include gathering further information from them to verify the treatment of the wage subsidy payments, including their transfer pricing practices in this regard. We are confident that this early detection, followed by specific education and close liaison with impacted advisers and taxpayers, will result in very few cases requiring audit enforcement resources being applied in due course.