Multinational Enterprises – Inland Revenue’s Compliance Focus for 2024

Inland Revenue (IR) has published its updated Compliance Focus for Multinational Enterprises, an update since 2019. This document reflects the growing global momentum around tax reform and outlines how IR is adapting its compliance and enforcement approach in 2024.

While most taxpayers comply voluntarily, IR is sharpening its focus on those who don’t with enhanced digital capabilities, deeper data insights, and more targeted strategies. 

A Renewed Compliance Strategy

Since 2019, IR has completed a major business transformation programme, digitising and automating key aspects of the tax system. The goal remains the same: helping MNEs pay the right amount of tax at the right time through the right channels with minimal administrative burden.

However, this transformation also equips IR to take a more assertive stance against non-compliance. With improved analytics and enhanced international data sharing agreements, IR is using intelligence-led methods to identify high-risk areas, focus on specific sectors, and tailor interventions accordingly. Between 2020 and 2024, IR completed 68 audits of multinationals, reflecting a more proactive approach.

The Four P’s

IR’s compliance strategy continues to rest on the “Four P’s”:

1. Prioritisation: focusing resources on areas with significant tax risk and materiality
2. Prevention: embedding anti-BEPS rules in legislation to promote compliant behaviour
3. Pragmatism: favouring practical, commercially sensible solutions
4. Proportionality: ensuring enforcement efforts are balanced and avoid excessive burdens or double taxation

BEPS 2.0

New Zealand has committed to all of the international minimum standards from the OECD’s BEPS Action Plan, including:

• Action 5: exchanging summaries of cross-border tax rulings
• Action 6: preventing tax treaty abuse
• Action 13: country-by-country (CBC) reporting
• Action 14: making dispute resolution mechanisms more effective

A key development is the implementation of Pillar Two, part of the OECD’s BEPS 2.0 framework. This global minimum tax regime applied in New Zealand from 1 January 2025, with around 90% of in-scope multinationals expected to be affected globally.

New Zealand has opted not to adopt Amount B under Pillar One, which aimed to simplify transfer pricing for baseline marketing and distribution activities. However, Amount A, which reallocates taxing rights based on customer location, is still under global negotiation.

Tax Governance in the Spotlight

Tax governance is increasingly important and plays a growing role in IR’s risk assessments. A well-established, localised governance framework can reduce an MNE’s risk profile and influence the severity of penalties if issues arise.

IRD expects:

• Clear documentation of internal tax procedures
• Regular testing and updates
• Governance frameworks tailored to the New Zealand context
• Board-level engagement on tax matters

Risky factors include “set and forget” approaches, overreliance on key individuals, and offshore “lift and shift” models.

Transfer Pricing and Local Expectations

Transfer pricing remains a core area of IR focus. Taxpayers are expected to use appropriate comparables that reflect the New Zealand market. IR has stated it will not accept Asia-Pacific comparables, favouring Australia due to its economic and demographic similarities.

Particular attention is being paid to (among other factors):

• Bundled intangible property
• Complex intercompany financing arrangements
• Market support payments

All such transactions should be supported by robust documentation and intercompany agreements.

A notable insight from recent data: the median EBIT margin for New Zealand distributors is 4–5%, exceeding IR’s administrative guidance of 3% for small foreign-owned distributors. This difference has provided IR with ammunition to challenge companies reporting lower margins.

Updated Risk Indicators

New or updated risk indicators now include:

• Tax losses in two out of the last three years (rather than two consecutive years)
• Cross-border associated party transactions exceeding 20% of gross revenue (new indicator but appeared in International Questionnaires)
• Purchases and other operating expenses from low / no tax jurisdictions exceeding $30 million (up from $20 million)

While these do not automatically trigger an audit, they may prompt closer attention from IR.

More Data, More Insight

IR draws on a vast array of data sources: International Questionnaires (required for foreign-owned groups with turnovers greater than $30 million), Country-by-Country Reports, customs data, Companies office, Overseas Investment Office, exchange of ruling summaries, and open-source research. Intelligence sharing with treaty partners also make New Zealand a net importer of tax information.

This rich dataset, combined with improved analytics, enables targeted campaigns on sector-specific risks and ongoing enforcement through audits and litigation.

Tools for Certainty

For businesses seeking certainty, IR encourages the use of its dispute resolution and interpretive frameworks:

• Advance Pricing Agreements: strongly preferred by IR for managing transfer pricing risk
• Binding rulings: to clarify tax positions in advance

Equally important is the Mutual Agreement Procedure (MAP) which is a key mechanism for resolving international tax disputes. MAP enables competent authorities of two jurisdictions to negotiate the resolution of cases involving double taxation or inconsistent treaty interpretations. As tax authorities around the world become more assertive and complex cross-border arrangements come under increasing scrutiny, the MAP process provides businesses with a structured and treaty-backed avenue for obtaining relief. Inland Revenue has reaffirmed its commitment to the MAP framework, ensuring that multinational groups operating in New Zealand have access to fair and effective resolution of tax disputes with other jurisdictions.

Looking Ahead

With global tax reform accelerating and IR’s enforcement becoming increasingly data-driven, now is the time for multinationals to ensure their New Zealand tax positions are defensible and well-documented.

Now is the time to: 

• Review transfer pricing documentation and governance frameworks
• Assess preparedness for future global tax reforms
• Engage early with IR to reduce risk and gain certainty

The compliance landscape is evolving rapidly. With early planning and strategic engagement, MNEs can manage risk effectively while meeting IR's expectations.

Please get in touch with Serjit Singh (+64 29 123 1274) at Andersen New Zealand if you’d like to discuss how these developments may affect your business.

Author – Ansel Wong