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CS 16/01

OECD information sharing requirements for taxpayer rulings and determinations

CS 16/01 informs taxpayers of the new OECD requirements to exchange certain cross-border taxpayer rulings and determinations with other OECD countries.

The purpose of a Commissioner’s Statement is to inform taxpayers of the Commissioner’s position and the operational approach being adopted on a particular tax matter. The Statement is not a consultative document.

Following the release of the report Addressing Base Erosion and Profit Shifting in February 2013, OECD and G20 countries adopted a 15-point Action Plan to address Base Erosion and Profit Shifting (BEPS) activities. As a member of the OECD, New Zealand is involved in this process.

Action 5 of the BEPS Action Plan, titled Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, requires OECD and G20 countries, including New Zealand, to exchange information spontaneously about taxpayer-specific rulings issued on cross-border activities. This is a “minimum standard” that New Zealand, as a member of the OECD, and a party that has approved and endorsed the OECD Council of Ambassadors’ recommendations, is required to comply with.

The OECD has identified six categories of taxpayer-specific rulings that, in the absence of compulsory spontaneous exchange of information, could give rise to BEPS concerns:

  1. Taxpayer-specific rulings related to preferential regimes (although New Zealand does not have any preferential regimes).
  2. Cross-border unilateral advance pricing agreements (APAs) and any other cross-border unilateral tax rulings (such as ATRs) covering transfer pricing or the application of transfer pricing principles.
  3. Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial/commercial accounts.
  4. Permanent establishment rulings, ie rulings concerning the existence or absence of, and/or the attribution of profits to, a permanent establishment by the country giving the ruling.
  5. Related party conduit rulings.
  6. Any other type of ruling that, in the absence of spontaneous information exchange, gives rise to BEPS concerns.

The information exchange obligations will apply to:

  • past rulings (those issued on or after 1 January 2010 that were still in effect on or after 1 January 2014); and
  • future rulings (those issued on or after 1 April 2016).

The Commissioner’s information exchange obligations cover all private and product rulings, advance pricing agreements and financial arrangements determinations that come within the above criteria. The Commissioner will receive rulings information from other countries on a reciprocal basis, which will provide helpful intelligence.

The Commissioner is required to ensure that information regarding rulings considering the above issues is exchanged within three months of the ruling being issued. The Commissioner will decide whether a ruling falls into any of the above categories. If it does then the Commissioner will prepare a summary of the ruling to be shared. The summary must include the date of issue, the period covered by the ruling, the type of ruling and a short summary of the issues covered, along with some basic information on the applicant (ie, IRD number, name, address and business activity). This may be followed by an exchange of the ruling itself on request.

Each case will need to be determined on its specific facts and circumstances, as not all cross-border rulings will be subject to the new exchange requirements. Consistent with the Commissioner’s approach for sharing information under double tax agreements and the Convention on Mutual Administrative Assistance in Tax Matters, the Commissioner will not be notifying taxpayers when their rulings or information are shared.

The nature of the ruling will determine the countries the information has to be provided to. However, they will usually include the countries of residence of all the parties materially impacted by the transactions covered by the ruling, and the country of residence of the ultimate parent company, and immediate parent company, of the applicant. To protect the secrecy of taxpayer information, information will only be shared with countries where New Zealand has a double tax agreement in place, and with parties to the Convention on Mutual Administrative Assistance in Tax Matters.

Any queries on this item can be sent to [email protected].