Under the tax miroscope
The snowball of momentum that has been building around increased information disclosure and tax audits continued in the 2015 Budget delivered by the government. The recent headline focus has been on tax changes relating to property speculation and withholding tax on certain non-resident related party interest transactions.The government is also considering tax policy changes for GST on digital imports and the taxation of multinationals as part of the OECD BEPS (base erosion profit shifting) programme.
The announcement earlier this week of a new rule to tax gains on residential property bought and sold within 2 years, comes with additional funding of $29m for enforcement of the taxation of property. This funding initially commenced in the 2010 Budget as the government sought to target compliance with existing property tax rules.
An excellent return on investment to the government to date from this audit activity has seen an additional increase in funding for audit activity of $45m. Naturally, this increased funding comes with an expectation of an increased return. Taxpayers can expect a more regular knocking on the door by the tax inspector requesting a “please explain”. A visible example of the step up in audit activity is the announcement of targeting contractors in the Auckland housing market to ensure they are complying with their tax obligations, rather than undertaking “cash” jobs.
The introduction of the property speculation tax also includes detailed information requirements before any land transfer may occur. Everyone must provide an IRD number, with additional requirements for non-residents of their home country tax identification number and a New Zealand bank account (which encapsulates detailed identification requirements under anti money laundering rules).
These requirements buttress the growing international trend in the provision of information including:
- Detailed mandatory information disclosures for multinationals as part of the OECD BEPS programme
- Reinforcement of information sharing through the network of tax treaties with most of our trading partners, and
- Completion of 12 tax information exchange arrangements with a range of tax havens, with a further 9 signed but not yet in force, including Bahamas, Bermuda, Cayman Islands, Isle of Man and Netherland Antilles.
The Budget has buttressed collection of information to facilitate this information exchange, with a further $12.1m for the New Zealand Business Number, which provides a unique identifier for businesses to use in their interactions with government agencies.
The Inland Revenue Business Transformation project, the upgrade of the Inland Revenue computer system, will also embrace this quest for taxpayer information. While the initial consultation documents released earlier this year focus on better use of technology to enable a more efficient tax system, the overall theme was a more effective tax system through real time use of taxpayer information to identify and assess taxpayers. This information collection is naturally available for sharing with tax authorities in other countries, together with an expectation of information being made available to New Zealand from overseas.
Two of the principles of an effective tax system relate to equity and fairness. This means all taxpayers, whether they are carpenters or plumbers on an Auckland building site, or a large multinational, are seen to be paying their share of tax. The outrage which has engulfed the triad of “Google, Amazon and Starbucks” to pay more tax has seen momentum through the BEPS programme to obtain, share and audit information.
The reinforcement of this approach through Budget 2015 should therefore not come as a surprise, but as a warning for taxpayers that Big Brother really is watching you.