Section 4: Impact Analysis Option 1 (interest rate cap) Option 2 (restricted transfer pricing) Option 3 Option 4 Status quo (administrative rule) guidance) 0 + Efficiency and + ++ 0 neutrality Option 1 will provide a strong limit on Option 2 will provide a reasonably Option 3 will Some related-party interest rates, reducing strong limit on related-party debt provide an taxpayers the ability for some firms to profit shift. interest rates, reducing the ability for effective limit would benefit This would level the playing field for some firms to profit shift. This would on all interest from the firms, providing efficiency gains. level the playing field for firms, expenses certainty providing efficiency gains. (including provided by the However, for some firms the interest related-party administrative rate allowed under the cap may be too interest safe harbour. low, which lowers the efficiency expenses). benefits. However, for However, it taxpayers also willing to increases the exceed the safe uncertainty of harbour, this returns on option is no New Zealand different than investment, the status quo since whether excessive – or not interest interest on is deductible related-party turns on a debt would still taxpayer’s be possible. EBITDA, which can be very variable.
Section 4: Impact Analysis Option 1 (interest rate cap) Option 2 (restricted transfer pricing) Option 3 rule) Option 4 (administrative guidance) Status quo Efficiency and neutrality + Option 1 will provide a strong limit on related-party interest rates, reducing the ability for some firms to profit shift. This would level the playing field for firms, providing efficiency gains. However, for some firms the interest rate allowed under the cap may be too low, which lowers the efficiency benefits. ++ Option 2 will provide a reasonably strong limit on related-party debt interest rates, reducing the ability for some firms to profit shift. This would level the playing field for firms, providing efficiency gains. 0 Option 3 will provide an effective limit on all interest expenses (including related-party interest expenses). However, it also increases the uncertainty of returns on New Zealand investment, since whether or not interest is deductible turns on a taxpayer’s EBITDA, which can be very variable. + Some taxpayers would benefit from the certainty provided by the administrative safe harbour. However, for taxpayers willing to exceed the safe harbour, this option is no different than the status quo – excessive interest on related-party debt would still be possible. 0
2017-other-beps-16-ria-interest-july-2017.docx