EY Tax Monthly News Update – September 2022

EY Tax Monthly News Update – September 2022

Welcome to EY’s monthly tax news for September 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.

September in brief

Inland Revenue updates

• New draft consultation item released regarding:
  • The GST treatment of specified agents possessing land or property of a mortgagor on behalf of an incapacitated person or a mortgagee, and
  • The application of the bright-line test to certain family and close relationship land transfer transactions.
• New finalised guidance regarding:
  • The deductibility of overseas travel expenditure; and
  • The FBT implications of accessing fleet vehicles booked through the “Zilch” portal.
• Supreme Court decision in Frucor released – win for the Commissioner.
• Latest Inland Revenue compliance campaigns focus on common FBT errors and review of COVID-19 support claims.

Government and political updates

• Latest Omnibus Tax Bill – covering various GST and income tax rules, progresses through first reading, FEC submissions close 2 November.
• Order in Council extends filing deadline for R&D Tax Incentive material changes disclosure.
• Commissioner’s COVID-19 variation powers extended for a further year.

International updates

• United Kingdom releases mini-Budget including several tax announcements.
• Trend to curtail use of plastic through taxes and bans continues with latest changes introduced in Columbia and Wales.
• European Commission targets companies in the energy sector with additional regulations and taxes

EY Webcasts

• EY Global Webcast – How to bring your people on the sustainability journey
• EY Global Webcast – How to bring your people on the sustainability journey

EY Insights

• Tax Guides – various matters covering 150 jurisdictions.
• Global Tax Policy and Controversy Watch, September edition.
• The latest on BEPS and Beyond, September edition
• PE Watch: Latest developments and trends, September edition.
• EY Global Controversy Flash newsletter – Updates to MAP processes may increase taxpayer participation

New finalised guidance:

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

• QWBA 22/06 – Income tax: Deductibility of overseas travel expenses – This Question We’ve been Asked considers whether income tax deductions can be claimed for overseas travel costs (other than meal costs), and details how to apportion the costs when only part of the total amount incurred is deductible. The QWBA is available is available on the Inland Revenue website here and replaces the previous statement on overseas travel expense claims (published in TIB Vol 7, No 2 (August 1995): 13.
  
  
• Binding Ruling (BR Prd 22/04) – Rental car arrangement with business and their employees (“Zilch”) – BR 22/04 considers the potential application of fringe benefit taxes to an arrangement involving “Zilch” a business that provides access to a range of vehicles to business customers via a bespoke booking portal in return for a monthly subscription fee. Broadly the ruling concludes that private bookings made and paid for by Zilch’s business customer employees do not give rise to a “benefit” for FBT purposes. The ruling applies from 1 July 2022 to 30 June 2025 and is available on the Inland Revenue website here.

Supreme Court decision in Frucor released – win for the Commissioner

The long-awaited Supreme Court decision in the case of Frucor Suntory New Zealand Limited v Commissioner of Inland Revenue was released on 30th September noting a win for the Commissioner.

The three matters considered in the case were whether the arrangement at issue constituted a tax avoidance arrangement under s BG 1, whether the Commissioner’s reconstruction under s GB 1(1) was correct, and finally what (if any) shortfall penalties ought to be imposed.

The outcomes of the case were as follows:

• In a 4-1 majority the Court dismissed Frucor’s appeal on the tax avoidance and reconstruction issues, concluding that the taxpayer’s use of the relevant provisions lay outside of the parliamentary contemplation and therefore finding the arrangement at issue to be a tax avoidance arrangement.
• Glazebrook J dissented, considering that the majority erred in jumping to the conclusion that the economic substance of the transaction should be taxed without carefully analysing parliamentary contemplation. Among other things, the dissent focussed on the fact that Frucor could have achieved the exact same tax effect through other similar arrangements.
• As to penalties the Court allowed the Commissioner’s cross-appeal finding that the criteria were satisfied for the abusive tax penalty to apply.

For further comment on the decision and the broader implications for tax avoidance jurisprudence in New Zealand, refer to EY Law Partner and New Zealand Tax Controversy Leader Tori Sullivan’s - opinion piece available on LinkedIn here.

The full judgement of the Court (Frucor Suntory New Zealand Limited v Commissioner of Inland Revenue [2022] NZSC 113) is available from the Courts of New Zealand website here.

Latest Inland Revenue compliance campaigns focus on common FBT errors and review of COVID-19 support claims

Inland Revenue has launched two new compliance campaigns focussing on:

• Common FBT errors – During October Inland Revenue will run ads and campaign letters targeted at assisting taxpayers to ensure they do not make some of the common FBT compliance errors seen which include errors in:
  
  • Calculating the taxable value for a fringe benefit;
  • Applying the correct exemptions for motor vehicles including the treatment of utes and other work-related vehicles;
  • Applying the GST rules correctly to certain fringe benefits provided;
  • Correctly accounting for employee contributions to fringe benefits; and
  • Applying the FBT rules to benefits provided to shareholder-employees, which may have a different treatment.
     
• Post payment verification of COVID-19 assistance provided including RSP, CSP and SBCS review – Inland Revenue has recently launched further focussed review work checking that customers who claimed support through the Resurgence Support Payment, the COVID-19 Support Payment or Small business Cashflow Loan Scheme, had done so correctly. Between 4-7 October letters will be issues asking for post-claim verification.

Further information on the FBT campaign is available on the Inland Revenue website here and here; and on the COVID-19 campaign here and here.
 

Latest Omnibus Tax Bill – covering various GST and income tax rules, progresses through first reading, FEC submissions close 2 November

The Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill had its first reading on 21st September and has now been referred to the Finance and Expenditure Select Committee. Submissions on the text of the Bill will be accepted until 5pm 2 November 2022.

The Bill contains many proposed and varied amendments including:

• Applying GST to certain listed services provided through digital platforms, including short-stay accommodation and transport, and adopting the OECD information reporting requirements applicable to digital platforms from 2024;
  
  
• Compliance simplifications for cross border employees and non-resident contractors, including a new safe harbour providing relief for certain non-resident employers who have incorrectly determined that they do not have New Zealand PAYE, FBT and ESCT obligations;
  
  
• Further tweaks to the rules denying interest deductions relating to residential land, including the recently announced exemption for build-to-rent developers, and further brightline rollover relief; and
  
  
• Changes to provide relief for companies considered dual tax resident, including those caught under the Australian “centre of management and control” tax residence tests, by allowing the continued access to loss grouping, imputation and the consolidated group regime.
  
  
• The Bill also makes several important GST amendments including changes to simplify the GST apportionment rules.
  
  
• Finally, the Bill also includes an amendment to narrow the application of FBT to certain employer subsidised public transport for employees’ travel between home and their place of work.

Following any amendments made as a result of Select Committee recommendations, this Bill is expected to progress through to enactment before 31 March 2023.

For further information on the reforms contained in this Bill refer to EY Global Tax Alerts on EY.com here and here, and the Inland Revenue policy website here.

Order in Council extends filing deadline for R&D Tax Incentive material changes disclosure

An Order in Council has been made which extends the date by which a business enrolled in the R&D Tax Incentive with a general approval of their activities covering multiple years, must notify Inland Revenue that there have been no material changes for their business for the 2021–22 income year. The Tax Administration (Extension of Notification Deadline for Research and Development Tax Credits) Order 2022 came into force on 1 September 2022 and extends the deadline for these notifications to 30 April 2023.

The Order in Council is available on the New Zealand legislation website here.

Commissioner’s COVID-19 variation powers extended for a further year

An Order to extend the application of section 6I of the Tax Administration Act 1994 until 30 September 2023 has been notified in the New Zealand Gazette on 1 September 2022. Section 6I gives the Commissioner of Inland Revenue the discretion to vary due dates, or other requirements, when compliance with those requirements becomes impossible, impractical, or unreasonable in the circumstances arising from either COVID-19 response measures or as a consequence of COVID-19. The Order extends the Commissioner’s ability to exercise this discretion for further year.

The Tax Administration (COVID-19 Response Variations) Order 2022 (SL 2022/245) comes into force on 30 September 2022. The Order is revoked on 1 October 2023. The text of the Order is available on the New Zealand legislation website here.
 

United Kingdom releases mini-Budget including several tax announcements

On 23rd September the United Kingdom Chancellor, Kwasi Kwarteng delivered a mini-Budget as part of his presentation of the Government's Growth Plan.

The mini-Budget included the following tax announcements:

• Corporate tax – the planned increase in the corporation tax rate from 19% to 25% from 1 April 2023 was cancelled, and as a flow on the current bank corporation tax surcharge was held steady at 8% with effect from April 2023.
  
  
• Employment and personal taxes – the proposed cut in the basic rate of income tax to 19% was brought forward by one year to April 2023 (an announced abolition of the 45% additional rate of income tax, to apply from April 2023 on annual taxable income above £150,000, was subsequently reversed).
  
  
• Stamp taxes – the SDLT on residential purchases was reduced with immediate effect.
  
  
• Indirect taxes – The Government announced an intention to introduce a modern, digital, value-added tax (VAT)-free shopping regime for non-UK visitors with the aim of providing a boost to the high street and creating jobs in the retail and tourism sectors. That proposal will be subject to further consultation.

For further information on these announcements refer to the EY Global Tax Alert available on EY.com here.

For comment on the 45% rate reversal refer to the EY Global Tax Alert available on EY.com here.

Trend to curtail use of plastic through taxes and bans continues with latest changes introduced in Columbia and Wales

We are seeing a proliferation of taxes and additional regulations (including bans and limitations on use) of plastics globally. The latest announcements include:

• Introduction of a plastic tax in Columbia – The Columbian Government is proposing to create a national tax on single-use plastic products used to wrap, pack or package goods, except those used to wrap, pack or package medicines, and hazardous waste. This tax would be levied on the sale, withdrawal for own consumption and importation for own consumption of the goods in question. The taxpayer would be the producer or importer, and the proposed rate is 0.00005 UVT (Tax Value Unit) for each (1) gram of the container, packaging or packing, i.e., approximately 1.9 pesos per gram or 0.00043 US$ per gram.
  
  The same Bill sets out proposals for a tax on certain crude oil and coal exports, as well as an extension of the current national carbon tax to certain coal products. For further information on this proposal refer to the EY Global Tax Alert available on EY.com here.
  
  
• Ban on certain single-use plastics in Wales announced – The Welsh Government is set to become the first part of the UK to legislate against a comprehensive list of single-use plastics, making it an offence to supply or offer to supply littered and unnecessary disposable single-use plastic products to consumers in Wales. For further information on this proposal refer to the Welsh Government media release available on the Welsh Government website here.

European Commission targets companies in the energy sector with additional regulations and taxes

On 14th September, the European Commission proposed the introduction of two tax-related emergency measures, targeting companies in the energy sector that the EU considers have benefited disproportionately from the current high energy prices. These measures are part of a wider package of regulatory reforms designed to mitigate high energy prices.

The tax changes would introduce:

• A revenue cap to a maximum of €180 per MWh on low-cost electricity generating companies (i.e., those whose production costs are unrelated to the currently high gas prices, such as wind, solar and nuclear producers).
  
  
• An EU-wide temporary "solidarity contribution" (effectively a windfall tax) which will be levied at a rate of at least 33% over the "surplus taxable profits" of companies in the oil, gas, coal and refinery sectors.

EU Member States have expressed their intention to swiftly work on the Commission's proposals. If adopted, the Regulation will enter into force on the day following that of its publication in the Official Journal of the EU. It will be directly applicable in the Member States for a period of one year from its entry into force. Note that on 30th September Ministers reached a provisional agreement on this regulation, for further information refer to the EY Global Tax Alert on EY.com here.

For further details on these announcements refer to the EY Global Tax Alert available on EY.com here.
 

EY Global Webcast – How to bring your people on the sustainability journey register here on EY.com to watch on-demand the session which will be held on 20th October at 11pm NZ time.

EY Global Webcast – How to bring your people on the sustainability journey register here on EY.com to watch
on-demand the session which will be held on 28th October at 9pm NZ time.
 

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.
  
  
• Global Tax Policy and Controversy Watch | September 2022 edition
  
  
• The latest on BEPS and Beyond, September 2022 edition
  
  
• PE Watch | Latest developments and trends, September 2022
  
  
• EY Global Tax Controversy Flash Newsletter (Issue 50) | Updates to MAP processes may increase taxpayer participation
   

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