Worldwide transfer pricing reference guide 2014

New Zealand
Taxing authority and tax law
Taxing authority: Inland Revenue Department (IRD).
Tax law:
• Sections YD 5, GB 2 and GC 6 to GC 14 of the Income Tax Act 2007 (ITA)
• Section 141A–K of the Tax Administration Act 1994 (TAA) governs the imposition of penalties
• New Zealand’s double tax agreements are also relevant tax laws in New Zealand
Relevant regulations and rulings
The final New Zealand Transfer Pricing Guidelines (IRD Guidelines) were issued in October 2000. While the IRD Guidelines are still
relevant, the IRD is now applying the latest 2010 OECD Guidelines, which are consistent with New Zealand’s transfer pricing legislation
and double taxation treaties.
OECD Guidelines treatment
The IRD fully endorses the positions set out in Chapters I to IX of the OECD Guidelines and generally follows those positions in
administering New Zealand’s transfer pricing rules. Consequently, the IRD Guidelines should be read as supplementing the OECD
Guidelines, rather than superseding them. This applies for the domestic application of the New Zealand rules, as well as in relation to
issues raised under New Zealand’s double tax agreements.
In addressing business restructuring issues, the IRD will seek to ensure that there is a commercial case for any restructuring and that
the economic substance aligns with the legal form of the arrangement. The IRD has released some high-level guidance in the form of
10 questions that should be addressed by companies undertaking cross-border business restructurings. These questions aim to help
ascertain the commercial rationale of the restructuring.
Priorities/pricing methods
The IRD accepts the most reliable method (or combination of methods) chosen from CUP, Resale Price, Cost Plus, Profit Split,
CPM (or TNMM).
Transfer pricing penalties
Under §141A–K of the TAA, the following penalties are imposed:
• A 20% penalty for not taking reasonable care
• A 20% penalty for an unacceptable tax position
• A 40% penalty for gross carelessness
• A 100% penalty for an abusive tax position
• A 150% penalty for evasion or a similar act
Penalty relief
Shortfall penalties may be reduced upon voluntary disclosure to the Commissioner of the details of the shortfall:
• If the disclosure occurs before notification of an investigation, the penalty may be reduced by 100% (only for lack of reasonable care or
unacceptable tax position categories) or 75% for other shortfall penalties
• If disclosure occurs after notification of an investigation, but before the investigation commences, the penalty may be reduced by 40%
Shortfall penalties may be reduced by a further 50% if a taxpayer has a past record of “good behavior.”
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