EX 21Attributable CFC amount and net attributable CFC income or loss: calculation rules

1. The rules in this section apply for the purposes of—

2. calculating the attributable CFC amount for a CFC under section EX 20B:
3. calculating the net attributable CFC income or loss for a CFC under section EX 20C:
4. determining under section EX 21D whether a CFC is a non-attributing active CFC.

5. For the purpose of determining under section EX 21D whether a member of a group of CFCs is a non-attributing active CFC,—

6. the consolidated annual gross income of the group is calculated under the rules in this section; and
7. the consolidated attributable CFC amount of the group is calculated under the rules in this section.

8. The rules in this Act are applied as if the CFC were always a New Zealand resident.

9. However, the rules in the Act are modified for the purposes of the calculation by the following subsections.

10. The taxpayer must choose—

11. for all the calculations to be done in New Zealand dollars; or
12. for all the calculations to be done in the currency of the CFC’s financial accounts; and if the CFC has no financial accounts, the currency used is that of the CFC’s country of residence, the result being then converted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each complete month that falls in the period.

13. Having chosen a currency, the taxpayer must use the same currency for calculating attributable CFC amount and net attributable CFC income or loss attributable to the CFC for each later consecutive accounting period, unless the Commissioner allows the taxpayer to choose again.

14. The Commissioner may consent to a change under subsection (5) only if satisfied that—

15. the taxpayer’s main purpose in changing is a commercial one, and for this purpose, the reducing of tax is not a commercial purpose; and
16. the change does not have an effect of defeating the intent and application of subpart CQ (Attributed income from foreign equity) or DN (Attributed losses from foreign equity) or this subpart.

17. Despite subsections (4) to (6), New Zealand currency calculations must be used to calculate that part of the attributable CFC amount and net attributable CFC income or loss arising from financial arrangements if—

18. the total value of financial arrangements to which the CFC is a party is more than $1,000,000 at any time during the relevant accounting period, applying section EW 17(2)(b) (Straight-line method) to measure the values; or
19. the CFC’s total net foreign exchange loss attributable to financial arrangements, calculated under subsections (4) to (6) for the accounting period, is more than $100,000.

20. Subsection (7) does not apply to a financial arrangement if—

21. it is a variable principal debt instrument; and
22. all the rights and obligations of all the parties to the financial arrangement are expressed in the currency chosen under subsection (4)(b); and
23. no other party to the financial arrangement is associated with the CFC; and
24. no person enters into the financial arrangement under an arrangement that has a purpose of defeating the application of subsection (7).

25. If the taxpayer had no attributed CFC income or loss from the CFC for the previous accounting period, the taxpayer must choose whether to measure the cost base at the start of an accounting period of premises, plant, machinery, equipment, and trading stock of the CFC at—

26. historical cost minus any accumulated amounts of depreciation loss, or another value used by the CFC as the starting value for the period for income tax calculations in the country in which the CFC is resident, but only if the value is below market value; or
27. the starting value that would be used under this Act if the CFC had always been a New Zealand resident.

28. If the taxpayer had attributed CFC income or loss from the CFC for the previous period, the cost base at the start of an accounting period of premises, plant, machinery, equipment, and trading stock of the CFC is the closing value at the end of the previous period used to calculate the income or loss.

29. If the taxpayer had no attributed CFC income or loss from the CFC for the previous accounting period, the taxpayer must choose to calculate the consideration under the financial arrangements rules for a financial arrangement at the start of an accounting period, at—

30. the market value of the financial arrangement; or
31. the absolute value calculated using the formula—

32. In the formula,—

33. consideration paid to the CFC is the consideration paid to the CFC for all periods before the accounting period:
34. expenditure is expenditure that would have been incurred under the financial arrangements rules for all periods before the accounting period if the CFC had been resident in New Zealand:
35. consideration paid by the CFC is the consideration paid by the CFC for all periods before the accounting period:
36. income is income that would have been derived under the financial arrangements rules for all periods before the accounting period if the CFC had been resident in New Zealand.

37. The following provisions do not apply:

38. the consolidation rules:
39. section CB 27 (Income equalisation schemes) and subparts DQ (Income equalisation schemes and environmental restoration accounts schemes) and EH (Income equalisation schemes):
40. subpart CQ (Attributed income from foreign equity) or DN (Attributed losses from foreign equity) or this subpart to the extent to which any of the subparts would result in attributed CFC income or attributed CFC loss for the CFC:
41. section CW 8 (Money lent to government of New Zealand):
42. section CW 9 (Dividend derived from foreign company):
43. section CW 10 (Dividend within New Zealand wholly-owned group:
44. section CW 40(1) (Local and regional promotion bodies):
45. sections DO 1 (Enhancements to land) and DO 2 (Plantings for erosion, shelter, and water protection purposes):
46. sections EW 9 (Persons to whom financial arrangements rules apply) and EW 11(b) (What financial arrangements rules do not apply to):
47. subpart FE (Interest apportionment on thin capitalisation):
48. section GB 5 (Arrangements involving trust beneficiaries):
49. sections IA 2 to IA 9, subparts IB and IC, and sections IP 3 to IP 7, IZ 4, and IZ 5 (which relate to the use of tax losses).

50. The following provisions apply as if the CFC’s business activities were carried on in New Zealand:

51. sections CT 1 to CT 3, CT 5 to CT 7, CX 42, CX 43, CZ 8, DT 1 to DT 15, and DT 17 to DT 19 (which relate to petroleum mining):
52. sections DO 4 to DO 7, DO 12, DP 1 to DP 3, DP 8, and DP 11 (which relate to farming, aquacultural, and forestry expenditure):
53. section EZ 16 (Amount of depreciation loss for plant or machinery additional to section EZ 15 amount):
54. the definitions in subpart YA (General definitions) that specifically apply for the purposes of those sections.

55. Sections GC 6 to GC 14 (which relate to transfer pricing arrangements between associated persons) apply only to a transaction that has a purpose or effect of defeating any of the jurisdictional ring-fencing rules for CFC losses and tax credits in—

56. section DN 4 (Ring-fencing cap on deduction):
57. section IQ 2 (Ring-fencing cap on attributed CFC net losses):
58. section IQ 4 (Group companies using attributed CFC net losses):
59. sections LK 1 to LK 7 (which relate to foreign tax credits and CFCs).

60. Dividends that are not part of the CFC's attributable CFC amount are exempt income of the CFC.

61. Repealed

62. When section CC 7 (Consideration other than in money) is applied, the borrower is treated as if it carries on a business in New Zealand.

63. Sections CB 9 to CB 13 (which relate to the disposal of land) and CV 1 (Group companies) do not apply to treat an amount derived by the CFC as income merely because of the activities of a person associated with the CFC if the associate is a non-resident.

64. The reference in section EI 8(1) (Disposal of land to the Crown) to the Crown includes any relevant government outside New Zealand.

65. When sections EE 48 to EE 52 (which relate to disposals and similar events) are applied, the CFC is treated as having had a deduction for an amount of depreciation loss, and to have an adjusted tax value accordingly, if an amount of depreciation loss has been deducted when calculating the CFC’s branch equivalent income or loss for any period and the attributed CFC income or loss of any person.

66. When sections CX 1 (Goods and services tax), DB 2 (Goods and services tax), EE 45 (Consideration for purposes of section EE 44), EE 54 (Cost: GST), and EZ 17 (Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994) are applied, references to output tax, input tax, or goods and services tax (GST) payable include a reference to the equivalent item arising under the value-added tax or other tax rules of a country or territory outside New Zealand if the rules have a similar intent and application to the New Zealand GST rules.

67. When section DF 1 (Government grants to businesses) is applied, a reference to the New Zealand government includes a government outside New Zealand but, to the extent to which section DF 1 still does not apply to a grant or subsidy to the CFC from a government, the grant or subsidy is income of the CFC.

68. If an amount is paid as consideration for the transfer of tax losses,—

69. it is income if derived by the CFC; and
70. it is a deduction if—
    1. paid by the CFC to a person who is resident in the same country as the CFC and not a non-attributing active CFC; and
    2. deductible under the taxation law of that country.

71. Subsection (26) applies if—

72. the CFC itself carries on the business of providing life insurance; or
73. shares in the CFC are held, directly or indirectly, by a foreign company (the parent company, in subsection (26)) that carries on the business of providing life insurance and those shares have to be taken into account under sections EX 8 to EX 13 to calculate the taxpayer’s income interest in the CFC.

74. If the test in subsection (25) is met, the net attributable CFC income or loss of the CFC is the amount actuarially determined to be the part of the CFC’s net attributable CFC income or loss to which shareholders, and not policyholders in either the CFC or the parent company, are entitled.

75. Despite subsection (25), subsection (26) does not apply if the Commissioner—

76. considers that the amount calculated is not a reasonable reflection of the part attributable to shareholders; or
77. has requested and not received sufficient information to enable the actuarial calculation to be reviewed.

78. Sections CU 1 to CU 9, DU 1 to DU 12, IS 1, and IS 2 (which relate to mineral mining) apply, with any necessary modifications, if the CFC carries on activities outside New Zealand that are substantially the same as the mineral mining activities to which those sections apply.

79. Sections CT 1 to CT 3, CT 5, CX 42, CX 43, CZ 8, DT 1 to DT 15, and DT 17 to DT 19 (which relate to petroleum mining) apply, with any necessary modifications, if the CFC carries on petroleum mining activities outside New Zealand that are substantially the same as the petroleum mining activities to which those sections apply.

80. A lease entered into by the CFC before the start of the first accounting period in which the CFC is a CFC is neither a finance lease (subject to the financial arrangements rules and sections FA 6 to FA 11, which relate to finance leases), nor a specified lease (subject to sections FZ 2 to FZ 4, which relate to leases).

81. Subsection (30) does not apply if another party to the lease is a New Zealand resident, a CFC, or a FIF for which the taxpayer uses the attributable FIF income method.

82. If the CFC gets a taxable distribution from a non-complying trust—

83. section HC 22 (Use of tax losses to reduce taxable distributions from non-complying trusts) does not apply; and
84. the taxable distribution is not taken into account in calculating the CFC’s net attributable CFC income or loss; and
85. section EX 19 applies.

86. If the CFC has rights in a FIF,—

87. the rights are not prevented from being an attributing interest of the CFC in a FIF merely because the notional New Zealand residence of the CFC under subsection (2) causes section EX 34 to apply; and
88. the CFC’s FIF income or loss is not taken into account in calculating the net attributable CFC income; and
89. section EX 58 applies.

90. Section CZ 12 (General insurance with risk period straddling 1 July 1993) applies as if the reference to New Zealand were a reference to the CFC’s country of residence.

91. Repealed

Compare

• 2004 No 35 s EX 21

Notes

• Section EX 21 heading: amended (with effect on 30 June 2009), on 6 October 2009, by section 161(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(1) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(1): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(1B) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(1B): inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(2): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(5): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(7): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(13)(c): replaced, on 24 February 2016, by section 139(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
• Section EX 21(13)(db): inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(13)(dc): inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(13)(f): amended (with effect on 1 April 2011), on 17 July 2013, by section 51(a) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
• Section EX 21(13)(f): amended (with effect on 1 April 2011), on 17 July 2013, by section 51(b) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
• Section EX 21(13)(j): amended (with effect on 1 April 2020), on 30 March 2021, by section 51(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section EX 21(14)(a): amended, on 1 April 2018, by section 83(1) (and see section 83(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
• Section EX 21(15): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 161(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(15): amended (with effect on 1 April 2008), on 6 October 2009, by section 161(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(16) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(16): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(17) heading: repealed (with effect on 30 June 2009), on 6 October 2009, by section 161(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(17): repealed (with effect on 30 June 2009), on 6 October 2009, by section 161(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(24)(b): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(26): amended (with effect on 2 November 2012), on 30 March 2021, by section 51(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section EX 21(26): amended (with effect on 1 April 2008), on 7 December 2009, by section 26(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
• Section EX 21(26): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(11)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(26): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(11)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(28): amended, on 1 April 2014, by section 52 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
• Section EX 21(29): amended, on 1 April 2018, by section 83(2) (and see section 83(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
• Section EX 21(31): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 23(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
• Section EX 21(32)(b): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(12) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(33)(b): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(13) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(35) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 161(14) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21(35): repealed (with effect on 30 June 2009), on 6 October 2009, by section 161(14) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21 list of defined terms 1973 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21 list of defined terms 1988 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21 list of defined terms 1990 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21 list of defined terms annual gross income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21 list of defined terms attributable CFC amount: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 23(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
• Section EX 21 list of defined terms attributed repatriation: repealed, on 24 February 2016, by section 139(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
• Section EX 21 list of defined terms branch equivalent income: repealed (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21 list of defined terms life insurance rules: repealed (with effect on 2 November 2012), on 30 March 2021, by section 51(3) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section EX 21 list of defined terms net attributable CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21 list of defined terms net attributable CFC loss: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21 list of defined terms non-attributing active CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section EX 21 list of defined terms request: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).