New Zealand to Implement OECD’s Global Anti-Base Erosion Pillar Two Rules
The New Zealand Government has announced its plans to adopt the OECD’s Global Anti-Base Erosion (GloBE) Pillar Two Rules, referred to as the “Applied GloBE Rules,” by implementing legislation. These rules aim to ensure that large corporate groups are taxed at minimum agreed levels. The rules allow countries to assess the income and taxes reported in offshore entities and levy additional taxes if they fall below the agreed measurement norms. Although New Zealand expects minimal tax collection under the new rules, the government aims to align its regulations with other OECD members. The rules will be activated once a “critical mass” of countries adopts them, with different application dates for each rule, ranging from 2024 to 2025.
The Applied GloBE Rules consist of three components: the Multinational Income Inclusion Rule, the Under Taxed Profits Rule, and the Domestic Income Inclusion Rule for New Zealand-headquartered multinational entities. The rules will apply to multinational groups with consolidated accounting revenue of EUR750 million or more. Exemptions will be granted to investment funds, pension funds, government entities, international organizations, not-for-profit organizations, and income associated with international shipping.
To determine the tax liability under the rules, the Effective Tax Rate (ETR) of each jurisdiction in which the multinational group operates will be calculated. If the ETR falls below the 15% global minimum tax rate, the group will be subject to a top-up tax under the Domestic Income Inclusion Rule, Income Inclusion Rule, or Under Taxed Profits Rule.
In a departure from OECD norms, the Domestic Income Inclusion Rule will only apply to New Zealand-headquartered groups. The country will largely adopt the Applied GloBE Rules by directly referencing them in domestic tax legislation, with additional bespoke legislation to accommodate the rules into the existing tax code.
New Zealand plans to introduce a transitional safe harbor regime consisting of three tests: De Minimis Test, Simplified ETR Test, and Routine Profits Test. This regime will apply for the first three fiscal years beginning on or after January 1, 2024.
Affected multinational entities must register with the New Zealand Revenue Authority and submit a GloBE Information Return within specified timelines. The authority has also introduced penalties for late registration, incomplete/late filing of returns, and late payment of top-up taxes.
Multinational groups operating in New Zealand need to assess the impact of the Applied GloBE Rules, evaluate compliance readiness, and consider the need for system redesign and resource allocation. Financial accounting teams must address new public disclosure rules concerning the disclosure of Pillar Two information in financial accounts.