Mutual benefits from convention
The multilateral Convention on Mutual Administrative Assistance in Tax Matters may sound boring, and probably it is to most people. But, it may have great significance for some New Zealand taxpayers.
The convention authorises tax authorities of the signatory countries (that is, the Inland Revenue Department ( IRD) and its equivalents elsewhere) to assist each other regarding the exchange of information, unpaid tax recovery and service of documents. New Zealand is one of 54 countries that have signed the convention, which comes into force today.
This convention significantly increases New Zealand's ability to detect and prevent tax evasion.
A key practical benefit of New Zealand signing up is a reduction in the future resources and administration costs of having to negotiate new bilateral treaties or update existing ones.
For example, at least 14 of the countries that have signed up to the convention do not currently have a tax treaty or information exchange agreement with New Zealand.
There are, however, provisions within the convention that allow a member country to avoid working with particular countries on certain grounds.
An example of this is a country can refuse to comply with information requests on human rights grounds or if a request is at odds with its own laws.
There is growing importance of exchange of information internationally, particularly with the backdrop of base erosion and profit shifting (BEPS) concerns.
In addition to specific requests by one country to another, it is becoming increasingly common for automatic exchanges to occur.
For example, this is where certain tax authorities have made arrangements to provide another country with certain generic information, for example, all non- resident withholding tax deducted from interest payments.
I understand that IRD already receives one million documents in bulk from the Australian Tax Office (ATO) each year in an automatic exchange arrangement.
You can be sure that New Zealand reciprocates by providing information to the ATO. In addition, IRD and the ATO co-operate on audit activities where appropriate.
This was disclosed when IRD raided premises in New Zealand as part of "Operation Wickerby" conducted by the ATO into the affairs of wealthy Australians, some of whom were using offshore structure to evade tax.
Exchanges of information are now occurring on a more routine basis. That is, a tax authority will pass on information uncovered during an investigation that it considers of interest to another tax authority.
It is also becoming now more common for tax authorities to conduct simultaneous tax examinations. For example, IRD and the ATO investigate the affairs of a multinational company at the same time and share information.
Signing this convention adds to IRD's ability to tackle international tax avoidance, evasion of tax through not declaring overseas income and those who seek to escape paying debts by absconding overseas.
* Murray McClennan is director of Tax Central Ltd, a specialist tax consulting firm. email@example.com for contact. The above comments are of a general nature and are not a substitute for specific advice.
The Southland Times