An evaluation of the New Zealand Advance Pricing Agreement process
Degree GrantorUniversity of Canterbury
Degree NameMaster of Commerce
Transfer pricing (the pricing of cross border transactions between controlled or related parties) is an important tax issue faced by multinational enterprises (MNEs). The Inland Revenue Department (IRD) initiated the Advance Pricing Agreement (APA) program in 1999/2000 as a more co-operative approach for MNEs to addressing transfer pricing compliance. An APA is an agreement negotiated in advance between a taxpayer and a tax authority that sets the price of cross border intra-firm transactions between related parties over a fixed period of time. This study evaluates the New Zealand APA process with a main focus of gaining an insight of how the program operates. Eight interviews comprising three participants from the IRD and five tax practitioners from the ‘Big 4’ accounting firms were conducted, in order to gain an insight into the New Zealand APA process. This was supplemented beforehand by documentary analysis of the New Zealand APA process and other sources of data. Further, the study reviews the APA processes of other tax jurisdictions, namely Australia, the United Kingdom, and the United States. A comparative case study analysis approach is utilised to see how these tax jurisdictions’ APA processes compare to New Zealand’s APA process.
The findings of this research reveal that New Zealand has maintained an informal APA process, where all MNE applicants are welcome to apply regardless of complexity, size or degree of risk involved in any of their transactions proposed to be covered under the APA. This was also seen as a key difference in the approach the IRD maintains towards APAs compared to the APA processes of other comparative tax jurisdictions’ considered in this study. All interviewees perceived the New Zealand APA process well in terms of how it works and what it achieves. It was believed to be an attractive solution for all MNEs operating in New Zealand wanting to gain certainty around their transfer pricing tax affairs. An opportunity for New Zealand Customs to incorporate APAs as an acceptable valuation method for MNEs to price their imports is also identified in this study. However, many obstacles are identified as to why this may prove to be a challenge for New Zealand Customs to implement.
All information mentioned in this thesis is up-to-date as at August 2016.