Countdown to change: the GloBE Rules take effect in 2025

New Zealand has joined the growing list of countries enacting the Global Anti-Base Erosion (Pillar 2) Model Rules (GloBE Rules) into domestic law, effective for income years beginning on or after 1 January 2025. The rules require in-scope multinational groups (MNEs), including New Zealand headquartered multinationals, to pay at least 15% tax on their income in each jurisdiction they operate, introducing increased registration, compliance, and reporting obligations.

This article navigates the associated complexities and provides actionable insights for New Zealand taxpayers, highlighting key steps in-scope MNEs should take to ensure they are well prepared to meet their tax and reporting obligations in New Zealand.

Overview of the GloBE Rules

In December 2021, the OECD / G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) released the GloBE Rules as part of its ongoing efforts to address the tax challenges arising from globalisation and digitalisation.

The key features and components of the GloBE Rules include:

Application scope: The rules apply to large MNEs with an annual global turnover exceeding EUR 750 million (approximately NZD 1.3 billion) in at least two of the four preceding income years.

Application date: In New Zealand, the rules will come into effect for income years beginning on or after 1 January 2025. Information on the implementation status in other countries is available via KPMG’s Digital Gateway - Pillar Two - State of Play. Please note that local compliance obligations in other countries may be triggered sooner.

Effective tax rate (ETR) calculations: In-scope MNEs will be required to calculate the ETR for each jurisdiction in which they operate. The calculation rules are complex, requiring numerous adjustments and differing significantly from traditional ETR calculations. As a result, it is unlikely that in-scope MNEs will be able to rely solely on their financial statements to determine a jurisdictional ETR.

Top-up tax liability and rules hierarchy: If the ETR for a specific jurisdiction falls below 15%, a top-up tax will be imposed on the low-taxed Constituent Entities (CEs) within that jurisdiction, based on the following hierarchy of rules:

First priority: The jurisdiction where the low-taxed CEs are located can opt to impose a Qualified Domestic Minimum Top-up Tax (QDMTT).
Second priority: An Income Inclusion Rule (IIR) will apply to impose a top-up tax on a parent entity in respect of low-taxed CEs within the MNE Group.
Third priority: An Undertaxed Profits Rule (UTPR) will act as a back-up if the top-up tax is not levied under the QDMTT or the IIR.

The rules hierarchy means that the top-up tax may not necessarily be paid in the jurisdiction in which the low-taxed income originates. However, the operation of the IIR and the UTPR ensures a top-up tax on low-taxed income will be payable regardless, even if some jurisdictions in which the MNE Group operates do not adopt the GloBE Rules.

Safe harbours: The GloBE Rules incorporate several safe-harbour tests intended to reduce compliance burdens for businesses and tax administrations by allowing simplified calculations under certain conditions. The potential application of these simplification measures should be explored as part of any compliance planning projects.

The New Zealand implementation approach

The GloBE Rules were incorporated into New Zealand domestic law with the enactment of the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024, which takes effect for income years beginning on or after 1 January 2025.

Instead of hardwiring the GloBE Rules into domestic legislation, as seen in other jurisdictions, the New Zealand Government has decided to incorporate the GloBE Rules, together with the OECD Commentary and Administrative Guidance, by reference. This is supplemented with specific domestic provisions to address necessary modifications for the New Zealand context. While this approach is broadly consistent with New Zealand’s transfer pricing regime, it is inconsistent with the implementation of other BEPS measures, such as the hybrid and branch mismatch rules which have been hardwired into New Zealand legislation.

Incorporation of the GloBE Rules by reference means that any amendments to the OECD Commentary and Administrative Guidance will automatically form part of New Zealand domestic law, unless the Government regulates to exclude the amendments. Although this approach is uncommon, it acknowledges the global nature of the rules and recognises the importance of administrative coherence between jurisdictions. It also means that in-scope MNEs, including impacted New Zealand headquartered multinationals, will need to keep on top of global developments.

New Zealand has decided not to implement a QDMTT. Instead, a Domestic Income Inclusion Rule (DIIR) has been enacted, which only applies to New Zealand headquartered MNEs with low-taxed New Zealand income. The DIIR will come into effect for income years commencing on or after 1 January 2026.

Inland Revenue has the authority to issue binding rulings to taxpayers regarding the application of the GloBE Rules, including the interpretation of the OECD Commentary and Administrative Guidance.

For more detailed information, Inland Revenue’s commentary on the legislation can be accessed here: TIB - May 2024 (ird.govt.nz).

Action steps for in-scope MNEs

The complexity of the GloBE Rules, and the information required to assess positions and perform necessary calculations, should not be underestimated. In-scope MNEs should thoroughly evaluate the application of the GloBE Rules and consider the steps and resources required for implementation and compliance, irrespective of whether any top-up tax liabilities are expected. Based on our experience supporting clients in New Zealand and internationally, relevant activities and considerations may include:

Classifying entities under the GloBE definitions and special rules
Performing safe harbour assessments, including confirming eligibility to use safe harbours
Conducting impact assessments, including prospective modelling
Analysing data gaps and developing resolution strategies
Implementing technology solutions and other project accelerators
Developing a registration and compliance programme
Considering financial reporting and disclosure implications, including pre-regime requirements and engagement with auditors
Drafting technical and process manuals
Developing stakeholder management plans
Monitoring status and developments across jurisdictions

The extent of work and investment required will vary for each in-scope MNE Group, and there is no ‘one size fits all’ approach. It is crucial for all in-scope MNE Groups to engage relevant stakeholders within the business and develop a project (and resourcing) plan to implement the necessary changes. While many foreign-headquartered MNE Groups may lead these projects from overseas, it is vital that New Zealand tax teams are involved in the process, not least from a tax governance perspective.

New Zealand registration and compliance requirements

The following summary provides an overview of New Zealand's registration and compliance requirements under the GloBE Rules, designed to support in-scope MNEs in developing their compliance programmes.

Compliance activity	Foreign headquartered MNEs with New Zealand CEs	New Zealand headquartered MNEs	Due date
Registration with Inland Revenue	Each CE located in New Zealand must register with Inland Revenue.		Registration must be completed within 6 months after the end of the first fiscal year that an MNE is in-scope of the GloBE Rules.
GloBE Information Return (GIR)	This is only required in New Zealand if the foreign headquartered MNE does not file a GIR in a jurisdiction with which New Zealand has an exchange of information agreement.	New Zealand headquartered MNEs are required to file a GIR in New Zealand using the standard template developed by the OECD.	For the first fiscal year, a GIR must be filed within 18 months after the end of the fiscal year. For subsequent fiscal years, it must be filed within 15 months after the end of the fiscal year.
Additional notification requirement	If local CEs benefit from reporting relief, they are required to notify the Commissioner of Inland Revenue.	Not applicable.	This requirement is only applicable to inbound groups. For the first fiscal year, a notification is required within 18 months after the end of the fiscal year. For subsequent fiscal years, it is required within 15 months after the end of the fiscal year.
Multinational Top-up Tax Return (MTTR)	New Zealand CEs are required to make a self-assessment and file a MTTR with Inland Revenue using the prescribed form, regardless of whether there is a top-up tax liability. The form is yet to be released by Inland Revenue.		For the first fiscal year, a MTTR must be filed within 20 months after the end of the fiscal year. For subsequent fiscal years, it must be filed within 16 months after the end of the fiscal year.
Top-up tax payment	Top-up tax is payable in a single instalment. No provisional tax payments are required in connection with the top-up tax liability.		Same as the due date for filing of the MTTR above.
Financial reporting and disclosure obligations	CEs with New Zealand financial reporting obligations must consider the new requirements stipulated in the International Tax Reform – Pillar Two Model Rules (Amendments to NZ IAS 12) approved by the New Zealand External Reporting Board, where applicable. Broadly, depending on the MNE Group’s operations and circumstances, this may include: Current tax expense accounting Statement regarding the application of a temporary mandatory exception from deferred tax accounting Qualitative and quantitative information disclosures		This would largely be driven by the financial reporting timelines.

New Zealand penalties for non-compliance

New penalty provisions have been introduced for non-compliance with the GloBE Rules requirements. These penalties are specified by Inland Revenue, with a maximum penalty not exceeding NZD 100,000. Additionally, a penalty of NZD 500 may apply for late or incomplete filing of a multinational top-up tax return. Other shortfall penalties already in law may also apply, subject to transitional concessions.

KPMG is ready to assist you

Navigating the complexities of the GloBE Rules can be challenging. KPMG is dedicated to helping in-scope MNEs manage these challenges effectively with our knowledgeable team and market leading technology solutions.

We are committed to supporting you throughout the compliance process to ensure a smooth and efficient journey. Please contact us to discuss your specific circumstances – we will be delighted to help.