Corporate Tax 2010 - BMR Advisors

Simpson Grierson
New Zealand
New Zealand
resident in New Zealand that are controlled directly or indirectly by
a single non-resident and branches of certain overseas companies.
The rules operate by limiting interest deductions to a level
consistent with a 75% New Zealand group debt percentage or 110%
of worldwide group debt, whichever is the greater (see our answer
to question 3.5). The thin capitalisation rules apply to interest on
both associated and non-associated debt.
A similar set of thin capitalisation rules will apply from the 2009-
2010 tax year to limit the interest deductions of New Zealand
resident entities that directly or indirectly control non-resident
companies (“CFCs”). These rules have been introduced in
conjunction with the introduction of an exemption for active
income derived by New Zealand residents from interests in CFCs,
and are intended to limit the extent to which New Zealand groups
can bias the allocation of their interest costs to New Zealand.
Note that there is a different set of thin capitalisation rules for
foreign-owned registered banks.
4 Tax on Business Operations: General
4.1 What is the headline rate of tax on corporate profits
The headline rate of tax on company profits is currently 30%.
4.2 When is that tax generally payable
New Zealand companies are generally required to pay income tax
in three equal “provisional tax” instalments. The instalment dates
are based on the company’s income year. For a standard income
year, which ends on 31 March, the instalment dates are 28 August
and 15 January of the relevant income year and 7 May of the
following income year. The amount of provisional tax is generally
calculated based on either an estimate of the company’s income, or
an uplift of 5% of tax payable for the previous income year.
3.5 If so, is there a “safe harbour” by reference to which tax
relief is assured
Yes. The thin capitalisation rules provide a safe harbour in which
interest deductions for a New Zealand group are allowed to the
extent its New Zealand group debt percentage (broadly New
Zealand group debt as a percentage of New Zealand group assets)
does not exceed the greater of 75%, or 110% of the debt percentage
of the worldwide group. The thin capitalisation rules also contain
an on-lending concession in calculating the debt percentages.
The different thin capitalisation rules that apply for foreign owned
registered banks are triggered where New Zealand group equity is
below 4% of risk weighted assets.
3.6 Would any such “thin capitalisation” rules extend to debt
advanced by a third party but guaranteed by a parent
company
Yes. There is no exception to the thin capitalisation rules for debt
advanced by third parties. See our answer to question 3.4.
3.7 Are there any restrictions on tax relief for interest
payments by a local company to a non-resident in addition
to any thin capitalisation rules mentioned in questions
3.4-3.6 above
Yes. If the debt funding was provided by a non-resident associated
person and was greater than an “arm’s-length” amount, the transferpricing
rules could limit the New Zealand borrower’s interest
deduction.
3.8 Does New Zealand have transfer pricing rules
4.3 What is the tax base for that tax (profits pursuant to
commercial accounts subject to adjustments; other tax
base)
New Zealand income tax is calculated on a gross/global basis,
meaning that for tax purposes net income (or loss) is calculated as
total “assessable income” less total “deductions” - these concepts
are extensively defined in the income tax rules. Therefore, in
principle, New Zealand does not impose tax based on commercial
accounts (especially in relation to deductions). However, in many
areas commercial accounting rules correspond to tax rules, so in
practice a company’s net income (or loss) is most commonly
calculated by making adjustments to commercial accounts.
4.4 If it otherwise differs from the profit shown in commercial
accounts, what are the main other differences
Significant differences between the profit in commercial accounts
and taxable income are likely to arise from:
depreciation deductions which are based on tax depreciation
rates that do not follow commercial accounts;
financial arrangements rules (applying to debt and debt
substitutes), which may deny deductions for credit
impairment adjustments, may include in assessable income
amounts allocated to equity for accounting purposes, and in
some cases may not follow commercial accounting rules at
all;
capital gains treated differently for commercial accounting
and income tax; and
impairments to goodwill or revaluations of assets.
4.5 Are there any tax grouping rules Do these allow for relief
in New Zealand for losses of overseas subsidiaries
176
Yes. Transfer pricing rules apply (with a number of exceptions)
where amounts paid by local entities to associated non-New
Zealand residents exceed an arm’s length consideration, and where
amounts received by local entities from associated non-New
Zealand residents are less than an arm’s length consideration. It is
possible to apply to the Inland Revenue Department for an
“advance pricing agreement” which approves transfer prices in
advance.
Yes, there are tax grouping rules. Broadly, loss offsets (and/or
subvention payments, where a profit company makes a deductible
payment to a loss company) are permitted between companies that
satisfy a 66% common ownership threshold from the time at which
the relevant losses were incurred by the loss company, to the time
at which they are to be offset (or subvented) to the profit company.
The loss grouping rules do not allow relief in New Zealand for
losses of overseas subsidiaries. The rules require that the loss
company is either incorporated, or carries on business through a
fixed establishment, in New Zealand. Further, if the loss company
is a New Zealand resident company, its losses cannot be offset
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