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New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends
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New Zealand tax update on Foreign Investment Funds & Residency, IRD audit trends

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Presentation by Terry Baucher to the South Auckland Practice Group of accountants on 27th February 2014 …

Presentation by Terry Baucher to the South Auckland Practice Group of accountants on 27th February 2014

New Zealand tax update on Foreign Investment Funds, Overseas Companies trading in New Zealand, Residency, IRD Audits

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  • 1. Tax Update South Auckland Practice Group February 2014 Terry Baucher, Baucher Consulting Ltd © Baucher Consulting Limited February 2014 All rights reserved.
  • 2. Today’s Topics 1. FIF update and foreign tax credits 2. Overseas companies trading in NZ 3. Residency – new developments 4. IRD’s current audit focus © Baucher Consulting Limited February 2014 All rights reserved.
  • 3. FIF update Foreign tax credits © Baucher Consulting Limited February 2014 All rights reserved.
  • 4. FIF Update  Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill received the Royal assent on 27th February  Late change allows any person who has “applied” to an overseas scheme by 31st March 2014 for a transfer to still use the 15% even if the transfer is not finalised until after 31st March 2014 © Baucher Consulting Limited February 2014 All rights reserved.
  • 5. FIF Update – Options for FSS holders Pre 1 April 2014 transfers: 1. Return 15% of amount transferred in 2014 or 2015 tax return; 2. Apply “ordinary rules” at time of transfer 3. Apply FIF rules But: Options 2 and 3 may mean UOMI payable; FIF rules may not be available © Baucher Consulting Limited February 2014 All rights reserved.
  • 6. FIF Update – Comparative Value (1) When is it compulsory to use the CV method when calculating FIF income? Typically applies to “stapled securities” where there is an equity element and a financial arrangement Anti-avoidance rule intended to prevent use of FDR in respect of high-yield assets Referred to as “non-ordinary shares” © Baucher Consulting Limited February 2014 All rights reserved.
  • 7. FIF Update – Comparative Value (2) “non-ordinary share” defined in section EX 46 (10) as:  a fixed-rate share;  a non-participating redeemable share  investments in which 80% of assets are hedged or fixed rate investments  share determined by Commissioner as not eligible for FDR Losses calculated when use of CV method is compulsory ARE deductible against other income (sections EX 51(7),(8)) © Baucher Consulting Limited February 2014 All rights reserved.
  • 8. FIF Update – Disclosure (1) Did you at any time during the income year hold rights in a foreign company, unit trust, superannuation scheme or life insurance policy for which disclosure is required? Applies where FIF is in country with which NZ does NOT have a double tax agreement If “yes” complete form IR 447 (FDR), or IR 448 (CV) © Baucher Consulting Limited February 2014 All rights reserved.
  • 9. FIF Update – Disclosure (2) © Baucher Consulting Limited February 2014 All rights reserved.
  • 10. FIF Update – Disclosure (3) Investments in OM-IP are being targeted by IRD OM-IP thought to be Australian but actually based in Cook Islands and therefore disclosure required NZ and Cook Islands have signed a Tax Information Exchange Agreement IRD knows there are 37,000 investors in the fund but has received only 3,000 disclosures IRD are also of view that held on revenue account and therefore taxable © Baucher Consulting Limited February 2014 All rights reserved.
  • 11. Foreign Tax Credits (1) Covered by subpart LJ of Income Tax Act 2007 Subpart LJ requires dividing of foreign sourced assessable income into segments and allows a tax credit in relation to each segment Although dividends are excluded income under the FIF regime, any foreign tax credits attached can be claimed (but not Australian franking credits and tax credits on dividends received from UK) Amount claimable limited to the New Zealand tax payable. © Baucher Consulting Limited February 2014 All rights reserved.
  • 12. Foreign Tax Credits (2) IRD reviewing foreign tax credit claims in conjunction with double tax agreements (“DTA”) UK pension included in NZ tax return and UK PAYE claimed as foreign tax credit. Under Article 19 of UK/NZ DTA pensions taxed in country of residence. Therefore no tax credit available re UK PAYE Client required to pay tax in respect of foreign tax credit incorrectly claimed and apply to the UK for refund of overpaid tax © Baucher Consulting Limited February 2014 All rights reserved.
  • 13. Overseas companies trading in New Zealand © Baucher Consulting Limited February 2014 All rights reserved.
  • 14. Overseas companies trading in New Zealand (1) Income derived from a business has a source in New Zealand to the extent it is wholly or partly carried on in New Zealand. (Section YD 4(2)) Income derived from a contract has a source in New Zealand if the contract is made in New Zealand or to the extent it is performed in New Zealand. (Section YD 4(3)) Section YD 5 apportions income where either business wholly or partly carried on in New Zealand or contract wholly or partly performed in New Zealand © Baucher Consulting Limited February 2014 All rights reserved.
  • 15. Overseas companies trading in New Zealand (2) Section YD 2: a company is resident in New Zealand if: a) It is incorporated in New Zealand: b) Its head office is in New Zealand: c) Its centre of management is in New Zealand: d) Its directors, in their capacity as directors, exercise control of the company in New Zealand, even if the directors’ decision-making also occurs outside New Zealand © Baucher Consulting Limited February 2014 All rights reserved.
  • 16. Overseas companies trading in New Zealand (3) If non-resident has a “permanent establishment” (“PE”) in New Zealand then under DTA business profit attributable to the PE is taxable in New Zealand PE generally means a fixed place of business through which the business in wholly or partly carried on PE includes a place of management, a branch, an office, a factory, a workshop, a mine, a quarry, an oil or gas well, and an agricultural, pastoral or forestry property © Baucher Consulting Limited February 2014 All rights reserved.
  • 17. Overseas companies trading in New Zealand (4) DTA with Australia has more expansive PE definition so even if no fixed place of business, a PE includes: a) services performed by an individual present in a contracting state for more than 183 days in a 12month period; b) mineral exploration activities carried on for more than 90 days in a 12-month period; c) the operation of substantial equipment for more than 183 days in a 12-month period. © Baucher Consulting Limited February 2014 All rights reserved.
  • 18. Overseas companies trading in New Zealand (5) IRD are tightening procedures around companies with no director with an IRD number © Baucher Consulting Limited February 2014 All rights reserved.
  • 19. Overseas companies trading in New Zealand (6) Companies Office has also tightened its procedures for incorporating companies with overseas shareholders and directors Now require certified copies of director and shareholder consent forms together with certified copies of passports and of proof of residential address (dated within three months of application) If shareholder overseas entity must supply a copy of the Certificate of Incorporation and a certified copy of the resolution to become a shareholder © Baucher Consulting Limited February 2014 All rights reserved.
  • 20. Residency update © Baucher Consulting Limited February 2014 All rights reserved.
  • 21. Residency update (1) Section YD 1(2) Income Tax Act 2007 “Despite anything else in this section, a person is a New Zealand resident if they have a permanent place of abode in New Zealand, even if they also have a permanent place of abode elsewhere”. © Baucher Consulting Limited February 2014 All rights reserved.
  • 22. Residency update (2) What is a “Permanent Place of Abode”? IRD draft interpretation statement INS 0117 – Income Tax Residence to replace PIB 180 from 1989 Draft interpretation statement now regards availability of dwelling as a prerequisite An available dwelling includes a property which is let but not on a fixed term basis Contrary to OECD model convention which refers to “at all times continuously” © Baucher Consulting Limited February 2014 All rights reserved.
  • 23. Residency update (3) Previously thought per PIB 180 and a QWBA item from 1999 that three year absence sufficient The interpretation statement changes these previous examples “so conclusion is consistent with case law” Redrafted examples give no guidance as to how long an absence before PPOA lost A fixed term contract to work overseas may therefore not result in a loss of PPOA Interpretation statement to be finalised shortly © Baucher Consulting Limited February 2014 All rights reserved.
  • 24. Residency – TRA Case 43/11 (1) [2013] NZTRA 10 (judgement 5 December 2013)  Related to 2004 to 2007 income years  Former soldier who on leaving NZ Army in July 2003, went first to PNG, before going to Iraq in October 2004 to work as a security consultant. Finally left Iraq in April 2012 and moved to Australia  Spent an average of 42 days per tax year in NZ © Baucher Consulting Limited February 2014 All rights reserved.
  • 25. Residency – TRA Case 43/11 (2)  Soldier and wife separated in 1994 but didn’t actually divorce until March 2009 and had good relationship.  In 2000 soldier and wife formed a partnership to own rental properties (transferred in 2006 to LAQC)  Soldier’s relationship with four children deteriorated over time because of absence abroad  Accepted that had been out of NZ for more than 325 days as required under OE 1(3) [YD 1(5)] © Baucher Consulting Limited February 2014 All rights reserved.
  • 26. Residency – TRA Case 43/11 (3) Held that soldier had a permanent place of abode for following reasons:  Investment property purchased in 1998 (in which he never lived) was an available dwelling;  No contemporaneous documentation that intention in 2003 was to leave NZ permanently;  Continuing relationship with wife and children including financial support “significant factor” © Baucher Consulting Limited February 2014 All rights reserved.
  • 27. Residency – Conclusions  TRA Case 43/11 likely to reinforce harder line of Inland Revenue  Doubtful if Interpretation Statement will change substantially when it is finalised shortly  Result will be very difficult to break residency  Most at risk are those moving to countries without a double tax agreement with New Zealand © Baucher Consulting Limited February 2014 All rights reserved.
  • 28. IRD audits - current trends © Baucher Consulting Limited February 2014 All rights reserved.
  • 29. IRD audits - current trends (1) Property Compliance Programme (“PCP”) Credit cards issued by foreign banks ICA and loss reviews Foreign tax credits review Foreign Account Tax Compliance Act (“FATCA”) Base erosion and profit shifting (“BEPS”) © Baucher Consulting Limited February 2014 All rights reserved.
  • 30. IRD audits - current trends (2) PCP very targeted especially in Auckland, Christchurch and Queenstown Credit card review typically involves preparation of IR 110 statement of assets and liabilities No time bar for ICA review resulting in $300,000 adjustment for shareholding change in March 2000 Foreign tax credits: co-operating with HMRC IRD already exchanging information with IRS and FATCA may accelerate this trend © Baucher Consulting Limited February 2014 All rights reserved.
  • 31. IRD audits - current trends (3) “My client received a letter from his bank advising that they had been requested to provide bank statements for his account using S17 of the Act (the Tax Administration Act 1994). The letter came from the Community Compliance team.” The IRD supervisor reiterates what her staff member is saying which is that this is a compliance check of the engineering industry – it is just a study!!!!!!!!!! IR are quite frequently using the compliance teams to prepare low level investigations of taxpayers using S17(1) and circumnavigating tax agents. © Baucher Consulting Limited February 2014 All rights reserved.
  • 32. IRD audits - current trends (4) “Just as a heads up, IRD are accessing all my emails with regard to XXXX to about May 2013, they will be going through them all. They have determined that as I am not a CA I cannot claim any form of privilege over them, unless there is advice relating to me personally they are claiming they can do what they want. “ © Baucher Consulting Limited February 2014 All rights reserved.
  • 33. For further information please contact Terry Baucher 09 486 6200 terry@baucherconsulting.co.nz www.baucherconsulting.co.nz © Baucher Consulting Limited February 2014 All rights reserved.

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