Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Timing and quantifying rules - Controlled foreign company and foreign investment fund rules - Calculation of person’s control interest

EX 5: Direct control interests

You could also call this:

“Ownership or control of shares, decisions, income, or assets in a foreign company”

You have a direct control interest in a foreign company if you own any of its shares or have any rights to make decisions for the company. You also have a direct control interest if you can receive any of the company’s income or assets.

Your direct control interest is measured as a percentage of the total for each type of interest. For shares, it’s the percentage of the total value of all shares that you own. For decision-making rights, it’s the highest percentage of rights you have.

When calculating your interest in the company’s income, it’s assumed that the income is given out on the last day of the accounting period and that your right to it hasn’t changed. Also, some types of interest payments are counted as income distributions.

If the company gives out its assets, your direct control interest is the percentage of those assets you have a right to receive or have dealt with for you.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515418.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
Previous

EX 4: Limits to requirement to include associated person interests, or

“Rules for counting associated persons' interests in foreign companies”

Next

EX 6: Direct control interests include options and similar rights, or

“Options and potential future ownership count when determining company control”

Part E Timing and quantifying rules
Controlled foreign company and foreign investment fund rules: Calculation of person’s control interest

EX 5Direct control interests

  1. A person has a direct control interest in a foreign company at any time if they hold—

  2. any of the shares in the foreign company:
    1. any of the shareholder decision-making rights for the company:
      1. a right to—
        1. receive any income of the company for the accounting period in which the time falls; or
          1. have the income of the company for the accounting period in which the time falls dealt with in their interest or on their behalf:
          2. a right to—
            1. receive any of the value of the net assets of the company, if they are distributed; or
              1. have the net value of the assets, if they are distributed, dealt with in their interest or on their behalf.

              2. The direct control interest in each control interest category is the percentage of the total that the person holds.

              3. When the direct control interest in the category in subsection (1)(a) is calculated, the percentage is the total of the available subscribed capital per share calculated under the slice rule of the shares held as a percentage of the total available subscribed capital per share calculated under the slice rule of all shares in the company.

              4. When the direct control interest in the category in subsection (1)(b) is calculated, if the percentage varies between the rights described in the different paragraphs of the definition of shareholder decision-making rights in section YA 1 (Definitions), the highest percentage is taken.

              5. When the direct control interest in the category in subsection (1)(c) is calculated, it is assumed that—

              6. the income is distributed on the last day of the accounting period; and
                1. the person’s entitlement is unchanged during the period; and
                  1. a payment of interest on a debenture subject to section FA 2 (Recharacterisation of certain debentures), FA 2B (Stapled debt securities), or FZ 1 (Treatment of interest payable under debentures issued before certain date) is a distribution of income.

                    Compare
                    Notes
                    • Section EX 5(1)(c): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 84(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                    • Section EX 5(1)(d): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 84(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                    • Section EX 5(5)(c): amended (with effect on 1 April 2008), on , by section 150 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).