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New Zealand law explained for everyone

Income Tax Act 2007

Recharacterisation of certain transactions - Interest apportionment on thin capitalisation

FE 10: Currency

You could also call this:

“Use New Zealand dollars for calculating financial values”

In this part of the law, you need to use New Zealand dollars when you’re working out some important numbers. These numbers include the total amount of money a group owes (their debt), the total value of things the group owns (their assets), and the total amount of money the group owes that isn’t debt (their non-debt liabilities). This applies to groups in New Zealand and around the world.

If any of these numbers are in a different country’s money, you need to change them to New Zealand dollars. You can do this in two ways:

  1. You can use the exchange rate at the end of the trading day on the date you’re measuring the numbers.
  2. You can use the exchange rate that was set at the start of the tax year for the date you’re measuring the numbers.

If you’re a bank that has to report these numbers, you must use the exchange rate at the end of the trading day on the date you’re measuring the numbers.

You also need to use New Zealand dollars when you’re dealing with financial arrangements or figuring out how risky certain investments are.

The date you use to measure these numbers is explained in section FE 8.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516439.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Banking and loans
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Part F Recharacterisation of certain transactions
Interest apportionment on thin capitalisation

FE 10Currency

  1. In this subpart, the following values must be calculated in New Zealand currency:

  2. an amount of total group debt, an amount of total group assets, and an amount of total group non-debt liabilities of a New Zealand group or of a worldwide group:
    1. a financial arrangement or risk-weighted exposure.

      1. If the value referred to in subsection (1) is denominated in a foreign currency, an excess debt entity must convert the value to New Zealand currency at—

      2. the close of trading spot exchange rate for the foreign currency on the relevant measurement date under section FE 8; or
        1. the forward exchange rate that applies on the first day of the income year for the relevant measurement date under section FE 8.

          1. If the value referred to in subsection (1) is denominated in a foreign currency, a reporting bank must convert the value to New Zealand currency at the close of trading spot exchange rate for the foreign currency on the relevant measurement date under section FE 8.

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          Notes
          • Section FE 10(1)(a): amended, on , by section 25(1) (and see section 25(3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
          • Section FE 10 list of defined terms total group non-debt liabilities: amended, on , by section 25(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).