EY Tax Monthly News Update – June 2022

EY Tax Monthly News Update – June 2022

Welcome to EY’s monthly tax news for June 2022. Here you can stay on top of key tax developments for the month. You can also find details of upcoming events, along with links to EY insights.

June in brief

EY Webcasts

• EY Global – Taxing crypto and other digital assets
• EY Global – Financing the energy transition: How US tax equity arrangements work
• EY Global – What’s next for the Corporate Sustainability Reporting Directive
• EY Global – Why there is a growing demand for tax governance in companies.

EY Insights

• Tax Guides – various matters covering 150 jurisdictions.
• The CEO Imperative: How will the shifting world order affect your global strategy?
• The CIO Imperative: Is your technology moving fast enough to realise your ambitions?
• Australia’s Top 1000 Combined Assurance Program: the evolving need for strong governance in tax.
• EY Global Controversy Flash newsletter – Cross-border tax controversy on the rise.
• Latest on BEPS and Beyond June newsletter.

Inland Revenue updates

• New consultation items released regarding:
  • Cash basis persons under the financial arrangement rules
  • The taxation of employee allowances for additional transport costs
  • Close companies taking deductions for interest on certain shareholder advances
  • The deductibility of overseas travel expenses
  • The tax treatment of Government payments to business (incl. grants and subsidies)
  • The GST treatment of Director’s fees.
    
    
• New finalised guidance regarding: 
  • The meaning of “disposal” for the land tax rules in the context of co-ownership changes 
  • FBT exclusion for charitable and donee organisations
  • GST input tax for importers
  • GST and customs brokers
  • Importers and recalculated customs GST
  • GST zero-rating rules and airport operators.
    
    
• The Commissioner has set several new rates this month including:
  • Foreign investment fund deemed rate of return
  • FBT interest rate for employment-related loans
  • Kilometre rates for business use of vehicles
  • National average market value of specified livestock.
    
    
• COVID-19 Variation issued extending certain R&D filing deadlines.
  
  
• Inland Revenue released a new compliance focus targeting individuals’ international tax obligations.

Government and political updates

• Charities Act changes to benefit New Zealand communities.

International updates

• ATO released refreshed corporate tax residence guidance.
• OECD Tax conference held – focus on Pillar 1 and 2, global labour mobility and climate change.
• European Parliament adopts carbon legislation package.
• United Kingdom Chancellor announces 25% energy profits levy to apply to oil and gas profits.

21 July 2022 EY Global webcast – Taxing crypto and other digital assets: Using practical scenarios to explore key tax concepts for individuals and businesses – Register on EY.com here.

29 July 2022 EY Global Webcast – Financing the energy transition: How US tax equity arrangements work register on EY.com here.

On demand EY Global Webcast – What’s next for the Corporate Sustainability Reporting Directive register on EY.com here to watch on demand.

On demand EY Global Webcast – Why there is a growing demand for tax governance in companies register on EY.com here to watch on demand.

Refer to the below thought leadership articles and regular newsletters available on EY.com:

• Tax Guides – browse our in-depth guides covering corporate tax, indirect tax, personal taxes, transfer pricing and other tax matters in more than 150 jurisdictions.
  
  
• The CEO Imperative: How will the shifting world order affect your global strategy?
  
  
• The CIO Imperative: Is your technology moving fast enough to realize your ambitions?
  
  
• Australia’s Top 1,000 Combined Assurance Program: the evolving need for strong governance in tax
  
  
• EY Global Tax Controversy Flash Newsletter (Issue 47) – Cross-border tax controversy on the rise: transfer pricing trends in the life sciences sector
  
  
• The Latest on BEPS and Beyond, June 2022

New draft consultation items

This month Inland Revenue has released the following new draft item for public consultation:

New finalised guidance:

Numerous Inland Revenue guidance items have been finalised this month, these are detailed below:

• Interpretation Statement Income tax: – Meaning of “disposal” and the application of the land sale rules to co-ownership changes and changes of trustees – Interpretation statement 22/03 considers whether the land sale rules apply to changes to co-ownership of land and changes of trustees of a trust. IS 22/03 can be found on the Inland Revenue website here. This statement is also accompanied by a fact sheet which can be found on the Inland Revenue website here.
  
  
• Binding Ruling 22/06 – FBT exclusion for charitable and donee organisations – Inland Revenue has finalised binding ruling 22/06 discussing the circumstances in which a benefit provided by a charitable organisation to their employees will fall within the FBT exclusion. Inland Revenue has also issued a useful factsheet to accompany the ruling. The ruling is available on the Inland Revenue website here and the factsheet here.
  
  
• Binding ruling 22/07 Importers and GST input tax – The Commissioner has issued a binding ruling outlining when invoice-based importers can claim an input tax deduction on GST levied by the New Zealand Customs Service. The ruling also explains what documentation importers can use to support their claim for an input tax deduction. While this ruling is in part a reissue of BR Pub 06/03 (available here), it also covers new ground particularly record-keeping requirements and use of manual invoices. The ruling is available on the Inland Revenue website here.
  
  
• QWBA 22/03 – Customs brokers and GST levied by Customs – This QWBA clarifies that customs brokers should not treat the GST they pay to the New Zealand Customs Service on behalf of their importer clients, as part of their taxable activity and therefore they cannot claim an input tax deduction for these amounts. The QWBA is available on the Inland Revenue website here.
  
  
• QWBA 22/04 – Importers and recalculated GST – This QWBA clarifies that the proper mechanism for obtaining a refund of overpaid customs GST, where the importer is a registered person, is to claim an input-tax deduction for the whole of the GST paid to the New Zealand Customs Service. The QWBA is available on the Inland Revenue website here.
  
  
• QWBA 22/05 – Does GST zero-rating apply to certain services that airport operators supply to international airline operators? This QWBA discusses the GST treatment of garbage disposal, lighting and security, aircraft parking and terminal services that airport operators supply to international airline operators. It is available on the Inland Revenue website here.

Commissioner sets several new rates for 2022

Several new rates have been set for 2022 including:

• Foreign investment fund deemed rate of return – The deemed rate of return used for taxing foreign investment fund interests is set at 6.01% for the 2021-2022 income year, up from the previous year’s rate of 4.43%. More information on the rate change is available on the Inland Revenue website here.
  
  
• FBT interest rate for employment-related loans – The rate used to calculate interest on employment-related loans for fringe benefit tax purposes is set to 4.78%, increases from 4.50%. More information on the rate change is available in Inland Revenue’s Special Report available here.
  
  
• Kilometre rates for the business use of vehicles for the 2022 income year – Inland Revenue has set the kilometre rates for the 2022 income year as follows:

For more information on the sue of these rates refer to the Inland Revenue website here.

• National Average Market Values of Specified Livestock Determination – The Commissioner has issued a determination setting the national average market value of specified livestock for 2022. The Determination (NAMV 2022) can be found here.

COVID Variation determination issued extending statement filing deadlines for R&D tax credits

The Commissioner has issued a new COVID-19 variation providing extra time to file the statements required by section 70C of the Tax Administration Act 1994, in relation to R&D loss tax credits. The variation applies when the statements were unable to be filed on-time due to COVID-19 response measures or as a consequence of COVID.

It is available on the Inland Revenue website here.

Inland Revenue releases new compliance focus targeting individuals’ international tax obligations

Inland Revenue has released its compliance focus on offshore tax transparency and international tax obligations applicable to individuals. The guidance is a plain-English approach to explaining the international tax obligations that New Zealand taxpayers have. The document also highlights the active collaboration between revenue agencies across the globe, with increased information sharing and disclosure aimed at tackling tax minimisation through offshore arrangements.

Key themes identified for Inland Revenue’s compliance action include:

• Meeting international obligations through comprehensive exchange of information,
• Effective use of information and intelligence, with a specific focus on New Zealanders with offshore investments and ensuring correct analysis of tax residency status,
• Efficient administration of the New Zealand foreign trust regime; and
• Supporting taxpayers facing compliance issues as a result of the COVID-19 pandemic.

In focus issues and income sources include:

• Application of transitional residence,
• Foreign dividend income and the application of the foreign investment and controlled company rules,
• Foreign interest and the application of the financial arrangement rules,
• Foreign social security and pension schemes as well as the taxation of foreign superannuation withdrawals,
• Foreign rental income and property gains; and
• Beneficiary income and other taxable distributions from foreign trusts.

The document also mentions the impact of COVID-19 and the consequences for New Zealand based individuals working remotely for offshore employers, highlighting the need for PAYE compliance and the risk of double taxation.

For more information see Inland Revenue website here.

Charities Act changes to benefit New Zealand Communities

The Government intends to modernise charities legislation before the end of the year. The changes will include reduced reporting requirements for very small charities, increased transparency on accumulated funds and a more accessible tribunal for charities that want to appeal decisions.

For more information, including a full list of expected changes, see the full Beehive release here.

ATO releases refreshed corporate tax residence guidance

The Australian Taxation Office (ATO) has released refreshed guidance on corporate tax residency for businesses in Australia. While the updates will not impact the majority of New Zealand resident businesses, the ATO has clarified that businesses may need to seek an amendment if they filed for the 2020-21 year in anticipation of legislative changes announced by the previous Government (noting the announcements never lead to legislated proposals).

For more details refer to the ATO website here.

OECD Tax Conference held – focus on Pillar 1 and 2, global labour mobility and climate change

The OECD held its annual tax conference in Washington DC, on 27-28 June 2022. The bulk of the discussion focused on developments with respect to Pillars One and Two of the ongoing project on addressing the tax challenges of the digitalisation of the economy. In addition, there were sessions on the OECD’s work on global mobility of workers, tax and climate change, and tax certainty.

For more details on the conference discussions see the EY Global Tax Alert on EY.com here.

European Parliament adopts carbon legislation package

On 22 June 2022, the European Parliament adopted the awaited package of carbon legislation, with a significant majority of votes. The package includes the revision of the European Union Emission Trading System, the new Carbon Border Adjustment Mechanism and the Social Climate Fund. The next step before implementation will be negotiation with the EU Member State representatives. Media reports indicate that the French Presidency will likely drive the process quickly.

This prompt new agreement reflects a strong commitment to implement the European Green Deal measures. The carbon package aims to transform the EU economy to zero-emissions by 2050, and notably some EU Member States have greater national goals. The goals of the EU energy and emission policies are clear, reflecting the urgent need to reduce emissions and meet overall climate goals.

For more details on the package see the EY Global Tax Alert on EY.com here.

UK Chancellor announces 25% energy profits levy to apply to oil and gas profits

The UK Chancellor announced a new 25% energy profits levy that will apply from 26 May 2022. They levy targets what are described as “the extraordinary profits” that oil and gas companies are currently making. The tax will be temporary, once oil and gas prices return to historically normal levels the tax will be phased out. The levy is charged as if it were an amount of corporation tax. The legislation will also include a sunset clause, which will remove the levy after 31 December 2025. The levy is expected to raise £5 billion this year.

On 21 June 2022, the Government published draft legislation to bring in the new levy. The consultation period was very short with comments due by 28 June 2022.

For more information see the EY Global Tax Alerts on EY.com here and here.