On February 2nd the Inland Revenue Department (IRD) released the briefing for the incoming Revenue Minister of New Zealand, outlining the current state of the national tax system, which it deemed as strong and stable, saying “…New Zealand’s tax system is in a good place. The tax bases are broad, robust and provide reliable sources of revenue to fund Government pro grammes. The broad tax bases and the relatively low tax rates make the tax system among the most coherent in the OECD.”

It was suggested to the Revenue Minister that the government needs to evaluate the overall effectiveness of the current tax system, and decide whether it would be beneficial pursue an extensive overhaul. The IRD explained that the entire tax system needs to remain well planned in order to ensure that any future tax policy changes are effective and in line with the country’s broader economic outlook.

Also, some improvement will be required to the national welfare system in order to reduce the number of taxpayers in New Zealand who rely on benefit payments. The IRD suggested that welfare payments should be changed in order to provide more incentive for beneficiaries to seek employment.

The IRD advised that it will also continue to make greater use of electronic contact with taxpayers, as a means of reducing the number of front line staff and loweing overall running costs while maintaining adequate levels of service and customer contact.

According to the IRD, in order for the Department to continue to function effectively it will need to upgrade its aging IT system, which was originally designed and implemented over two decades ago and was not intended to handle modern features in the tax system, such as Kiwisaver payments and the student loan repayment system. The IT upgrade is expected to cost up to NZD 1.5 billion, and take up to ten years.

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The Government and the Inland Revenue Department (IRD) are urging New Zealand taxpayers to give comment on planned changes to tax administration. On June 15th the Making Tax Easier proposal was introduced, along with a public consultation period lasting until July 23rd.

For individual taxpayers, the IRD has proposed creating a new digital portal, which would theoretically allow individuals to manage all their tax affairs. The idea is promised to be similar to internet banking in regards usability and security. New software standards have also been suggested, which will improve the reliability and timeliness of PAYE tax data.

For corporate clients, the IRD is suggesting the implementation of advanced internet-based information sharing which will allow accounting software to manage routine business related tax tasks. It is envisioned that the applications will share IRD-held information on a businesses employees and automatically adjust their PAYE requirements. Within the discussion, the IRD has also invited comment on the idea of mandating electronic filing for non-for-profit organizations.

Additionally, the IRD has proposed instating a new Government inter-department information sharing system, claiming it will reduce redundancy and data gathering. Concerns have already been raised about possible privacy implications for the idea. However, the initiative could reduce incidence of tax evasion or money laundering.

Comments on any of the proposals can be submitted via the Making Tax Easier website.

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Last week the IRD released a statement disclosing its intention to utilize New Zealand’s existing Tax Information Exchange Agreements (TIEA) to catch potential tax evaders. Martin Scott, Group Manager of Assurance, revealed that the IRD is particularly interested in discovering New Zealand tax residents undisclosed offshore bank accounts, overseas life-insurance policies and superannuation benefits.

Under current New Zealand tax legislation, taxpayers are required to disclose all of their incomes, including those from foreign sources. According to Martin Scott, governments worldwide are becoming increasingly cooperative with New Zealand authorities in sharing tax and bank account information for the purpose of audits and criminal investigations. New Zealand is currently engaged in 15 separate bi-lateral TIEA agreements. Martin Scott added that in the future he expects even greater levels of availability of information on financial transactions involving New Zealanders.

Taxpayers who hold undisclosed offshore assets have been advised consult with a professional tax advisers regarding their situation. New Zealanders who are knowingly evading their tax obligations through the use of offshore assets are advised to consider making a voluntary information disclosure to the IRD. Currently, failure to reveal appropriate financial information can attract severe punishment, including a 150 percent shortfall penalties and criminal prosecution. Martin Scott warned tax evaders to make appropriate use of any time left before their assets are discovered in an IRD investigation.

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On June 21st the New Zealand Inland Revenue Department (IRD) announced the launch of the GST Advisory Panel. According to Peter Dunne, New Zealand Revenue Minister, the panel was created to aid the GST-rate transition for the generation of businesses who have not have not yet faced a sales tax increase.

Peter Dunne explained that the Advisory Panel will act as an intermediary for the IRD and the national business community. The Panel will communicate in both directions by attempting to clarify ambiguities for the business community, while possibly suggesting legislative amendments to the IRD. The Panel will field queries via an online submission or telephones communication.

The GST Advisory Panel consist of five primary members, consisting of: the Chairman Frank Owen, a retired chartered accountant and ex-chairman of KPMG New Zealand; David McLay, a practising tax barrister; Craig Macalister, Tax Director of the New Zealand Institute of Chartered Accountants; Phil O’Reilly, Chief Executive of Business New Zealand; Karen Bradford, Director of the New Zealand Retailers’ Association.

The Panel has already held one meeting in which pre-emptive answers were discussed for expected business sector inquiries. The implementation of GST on services rendered throughout the implementation of the GST rate increase was discussed in particular.

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On May 6th British American Tobacco (New Zealand) Ltd (BAT) revealed that it is currently under investigation by the IRD for a set of financing transactions. Although both parties refused to disclose complete details on the investigation, industry analysts believe that the alleged discretion is similar to the tax evasion through structured financing charges laid against several New Zealand banks recently.

The BTA has announced that NZD 39.6 million has been set aside as a reserve for any back taxes that might need to be paid. The BTA commented further that the IRD has not yet filed an official complaint or issued all appropriate documents. When all official procedures and investigations are completed by the IRD, BTA will make a full comment on its position. An official statement issued by the BTA claims that recent court rulings against structured financing indicate that the New Zealand Government is taking a conservative jurisprudence approach and the BTA will have similar results to previous cases.

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In a media statement released March 10th, the IRD revealed that it has received multiple customer-reports of a suspicious email being circulated to its clients. The email allegedly bears the IRD logo and informs recipients that they are entitled to a tax refund. It later directs readers to visit a website which requests an array personal details, including usernames and IRD numbers. Heather Daly, IRD’S Customer Operations Group Manager, has laid assurances that the department is already trying to track and shut down the website, which is believed to be US-based.

As a reminder to IRD customers, Heather Daly warned that the they will never be asked to reveal personal details or IRD numbers through an email, and any communications making such request should be regarded as fraudulent and deleted. Anyone who received the email and divulged any information should contact the IRD on 0800 227 774.

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James Talaga Toala, received sentencing at the Wellington District Court on February 26th, after pleading guilty to six charges of using documents to defraud or receive monetary gain. It was alleged by the IRD that in the period between April 2002 and March 2008 James Toala claimed to make a series of donations to a Wellington church, in order to receive an undue tax credit. The court heard that a total of 79 rebate forms filed with the IRD, totaling NZD 163 110, though none of them were ever actually paid. Further, each claim was accompanied by a false receipt. James Toala received NZD 41 491 worth of rebates for his claims.

No reparation is being sought from Mr. Toala, as the court was told that he is not in a financial position to pay. Patrick Goggin, Inland Revenue Investigations Manager, commented on the sentencing, saying that the ruling was a message to anyone else considering committing similar actions. As a warning, he continued on to say “As with other areas where taxpayers can claim rebates, we’re always watching closely for any fraudulent activity involving donations.”

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The New Zealand Government has begun to incorporate the DTA into the country’s law system through a signing of an Order in Council on February 17th, according to Peter Dunne, New Zealand Revenue Minister. Once the legal incorporation is complete for both nations the DTA will come into full effect. Australia is yet to commence their respective ratification process. Changes within the DTA are expected to begin in late 2010, two months after the expected conclusion of both countries’ ratification process.

The DTA which was a product of more than a year’s worth of negotiations was signed on June 29th 2009. The main features of the agreement are superannuation portability and several lowered withholding tax rates. On royalties the withholding rate levy will be cut by half to a level of 5 percent. The rate on interest will be lowered to 0 percent for all financial institutions, and remain at 10 percent for all other firms. Dividend payments will be categorized into one of three rates, ranging from 0 percent to the current 15 percent, differentiated by shareholding levels. Further, tax-exempt pension payments from either country will be regarded as tax-free in the corresponding nation.

At the Order of Council announcement, Peter Dunne described the DTA as a recognition and update of the already close business relationship between New Zealand and Australia. He continued on and said, “I expect the new DTA to bring significant benefits to New Zealand and improve certainty for trans-Tasman business.”

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The multi-billion dollar agreement between the IRD and four Australian-owned banks, the Bank of New Zealand (BNZ), ANZ National (ANZ), Westpac and ASB Bank ,was announced in a settlement by Peter Dunne, New Zealand Minister of Revenue on December 23rd. The settlement, believed to be the largest in the country’s history, revolves around alleged tax evasion by the banks through a series of “structured financing” transactions.

Under the conditions of the settlement banks agreed to pay 80 percent of their disputed tax amount. Westpac will pay the highest amount among the banks at NZD865 million, BNZ will follow at NZD658 million. ANZ National and ASB will pay NZD400 million and NZD250 million, respectively. No penalties or interest charges will be levied by the IRD on the owed amounts.

Though the agreement has been heralded as a victory for the IRD and a beneficial compromise for the banks, taxation experts are dismayed with the settlement saying that a Supreme Court ruling would have given valuable clarification to the New Zealand taxation system. Thomas Pippos, Deloitte tax expert, commenting on the settlement, said, “There was hope that as cases were appealed it would provide greater clarity to the avoidance boundaries”.

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The New Zealand High Court made a decision to dismiss Westpac’s challenge to IRD’s decision that the bank owes $586 million in taxes for a series of structured finance transactions. The IRD claimed that between 1998 and 2002 the bank undertook a series of offshore transactions whose sole purpose was tax evasion. The court proceedings centered around nine such transactions, ranging between $390 million to $1.5 billion. Westpac has stated they may appeal the decision upon review of the judgment.

Westpac is currently liable for $918 million, $332 million of which consists of interest charged by the IRD on taxes unpaid. This sum could increase if the IRD decided to impose further penalties, though no official decision has been given on this.

Moody’s Investor Services stated that the outcome will not have an effect on Westpac Banking Corp’s credit rating, which currently stands Aa1. Although, the price of Westpac stocks did fall by 0.6% upon release of the news.