The Artificial Avoidance of Permanent Establishment Status: New Zealand's Response
27 Pages Posted: 13 Oct 2020
Date Written: September 16, 2020
The aim of this article is to point to a flaw in one of the measures recently enacted by the New Zealand Government to prevent tax avoidance by large multinational enterprises (MNEs). That measure is section GB 54 of the Income Tax Act 2007, which was added to the Act in July 2018 and which is aimed at what is referred to as “the artificial avoidance of permanent establishment status”. The problem with section GB 54 is that it seems to be a nullity, in the sense that it does not catch anything that would not in any event be caught by section BG 1, the general anti-avoidance rule or GAAR. But it is also possible that the courts, in order to salvage section GB 54 from complete redundancy, will read down the scope of the GAAR. Perversely, therefore, the enactment of s GB 54, intended to prevent one particular form of tax avoidance, might make it easier to get away with others.
Keywords: Tax, international tax, permanent establishment, avoidance, New Zealand, general anti-avoidance rule (GAAR), specific anti-avoidance rule (SAAR), BEPS, OECD, residence, source, double tax treaty, multinational enterprise, multilateral instrument, treaty override, arm’s length principle
JEL Classification: K10, K20, K34
Suggested Citation: Suggested Citation