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Income Tax Act 2007

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

EX 7: Indirect control interests

You could also call this:

“How ownership in a foreign company is calculated through a controlled foreign company”

You have an indirect control interest in a foreign company when you own some or all of the direct control interests that a Controlled Foreign Company (CFC) has in that foreign company.

When figuring out indirect control interests, you need to consider the direct control interests that a CFC holds in another foreign company. You also need to include any direct control interests held by people or companies associated with the CFC.

To make sure that the real chain of control is recognised, the CFC’s direct control interests are given to the smallest group that controls the CFC. If more than one person gets these interests, they are split based on how much income interest each person has in the CFC.

If only one group of New Zealand residents controls the CFC (as defined in section EX 1), that group gets all the CFC’s direct control interests. If there’s more than one controlling group, the smallest group gets the interests. If there are multiple smallest groups with the same amount of control, each group gets all the interests.

Remember, when deciding if a foreign company is a CFC, you can only count a direct control interest once. If a foreign company becomes a CFC because of these rules, you then use these same rules to figure out who gets its direct control interests.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515424.

Topics:

Money and consumer rights > Taxes

Business > Industry rules

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

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

EX 8: Income interests: total of direct and indirect interests, or

“Calculating your total income interest in a foreign company”

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

EX 7Indirect control interests

A person has an indirect control interest in a foreign company to the extent to which the rules in this section attribute to them some or all of the direct control interests held by a CFC in the foreign company.
A CFC’s direct control interest in another foreign company is attributed under subsections (3) to (11).
For the purposes of this section, the CFC is treated as also holding any direct control interests in the foreign company held by persons associated with the CFC.
Subsections (6) to (11) apply to attribute the CFC’s direct control interests to the smallest controlling group, to ensure that the attribution exercise does not dilute recognition of a factual chain of control.
If the CFC’s direct control interests are attributed to more than 1 person, the direct control interests are divided in proportion to each group member’s respective income interest in the CFC.
If there is only 1 group of New Zealand residents whose control interests have caused the CFC to be a CFC under section EX 1, the CFC’s direct control interests are treated as being held by that group.
If there is more than 1 group whose control interests have caused the CFC to be a CFC under section EX 1, the CFC’s direct control interests are attributed to the smallest group.
If there are 2 or more groups that are equally the smallest, and 1 group has the greatest total control interests in the CFC, the attribution is to that group.
If there are 2 or more smallest groups with equal greatest total control interests in the CFC, the attribution is made in full to each group.
Despite subsection (9), for the purpose of determining whether a foreign company is a CFC, a direct control interest may be counted only once.
If a foreign company becomes a CFC under this section, this section is then applied to attribute its direct control interests.

Compare

2004 No 35 s EX 7

Notes

Section EX 7 list of defined terms control: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).