CORPORATE NEW ZEALAND should consider tax consequences as it moves towards the adoption of International Financial Reporting Standards, according to a tax partner at leading New Zealand law firm Bell Gully.
Companies could have to review the way they report their tax exposures, and thin cap companies would have to monitor their reporting to ensure they did not miss out on interest deductions, Bell Gully partner Niels Campbell said.
“The tax provision in the balance sheet normally records actual tax liabilities, however companies often include an allowance for tax positions, which may be challenged by IRD,” Campbell said. “Often these allowances are calculated according to their assessed risk exposure.”
Campbell said provisions must be recognised in the balance sheet where it is “probable” the exposure would have to be met and the inclusion of a potential tax exposure in the provision could therefore be evidence that a taxpayer believes payment to the IRD is ultimately probable.