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FE 25: New Zealand group for excess debt entity that is a company or non-resident owning body
or “How to determine the New Zealand group for companies or non-resident bodies with excessive debt”
You could also call this:

“How to determine which company is the New Zealand parent for tax purposes”

This section explains how to identify the New Zealand parent of an excess debt entity. Here’s what you need to know:

  1. The New Zealand parent is usually the entity itself if:
    • It’s not a New Zealand resident
    • It’s a New Zealand resident but a non-resident owns 50% or more of it
    • It’s a non-resident owning body
    • It’s an excess debt outbound company with no single New Zealand company owning 50% or more
  2. If the above doesn’t apply, the New Zealand parent is usually a company that:
    • Is in New Zealand or does business here
    • Has an ownership interest in the entity
    • Is owned by a non-resident (if the company isn’t in New Zealand)
    • Has non-residents owning 50% or more of both it and the entity (if the company is in New Zealand)

  3. There are special rules for identifying the New Zealand parent in some cases, like when the entity is an excess debt outbound company or when it’s controlled by a non-resident owning body.

  4. If more than one company could be the New Zealand parent, there are rules to pick the one with the highest ownership value.

  5. If no company meets the requirements, the excess debt entity itself is treated as the New Zealand parent.

The section also includes specific details about how ownership interests are determined for these purposes.

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Next up: FE 27: Establishing companies under parent’s control

or “How to determine which companies are part of a New Zealand tax group”
Next

Part F Recharacterisation of certain transactions
Interest apportionment on thin capitalisation: New Zealand group

FE 26Identifying New Zealand parent

  1. The New Zealand parent of an excess debt entity is the entity identified in whichever is applicable of subsections (2) to (6).

  2. The excess debt entity is treated as the New Zealand parent if—

  3. the entity is not resident in New Zealand; or
    1. the entity is resident in New Zealand, and—
      1. a non-resident has a direct ownership interest in the entity of 50% or more, as determined under section FE 39; and
        1. no single non-resident who is carrying on business in New Zealand through a fixed establishment in New Zealand or who derives income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable has an ownership interest in the entity of 50% or more; or
        2. the entity is resident in New Zealand, and meets the requirements of none of the other paragraphs, and has a non-resident owning body having a direct ownership interest of 50% or more in the entity and not having a member (a tax-return member)—
          1. carrying on business in New Zealand through a fixed establishment in New Zealand:
            1. deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax is unavailable under all relevant double tax agreements; or
            2. the entity is a non-resident owning body; or
              1. the entity is an excess debt outbound company and no single company resident in New Zealand has an ownership interest in the entity of 50% or more.

                1. If subsection (2) does not apply, and the excess debt entity is not an excess debt outbound company, the entity’s New Zealand parent is the company (company A) that meets all the following requirements:

                2. company A is either—
                  1. resident in New Zealand; or
                    1. not resident in New Zealand but carrying on business in New Zealand through a fixed establishment in New Zealand; or
                      1. not resident in New Zealand but deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and
                      2. company A has an ownership interest in the entity; and
                        1. if company A is a non-resident, a non-resident has a direct ownership in company A; and
                          1. if company A is resident in New Zealand,—
                            1. a non-resident has a direct ownership interest in company A and ownership interests of 50% or more in the entity and company A; or
                              1. the requirements of subparagraph (i) are not met and a group of non-residents is a non-resident owning body for the entity and for company A, and has ownership interests of 50% or more in the entity and company A, and no such non-resident owning body for the entity and for company A has a tax-return member; and
                              2. no company that meets the requirements of paragraphs (a) to (d) has a direct ownership interest in company A.

                                1. Despite subsection (3), if the interest apportionment rule in section FE 6 applies to the excess debt entity only through the application of section FE 2(1)(c)(ii), the entity’s New Zealand parent is the company (company B) that meets all the following requirements:

                                2. company B is either—
                                  1. resident in New Zealand; or
                                    1. not resident in New Zealand but carrying on business in New Zealand through a fixed establishment in New Zealand; or
                                      1. not resident in New Zealand but deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and
                                      2. company B has an ownership interest in the entity; and
                                        1. if company B is resident in New Zealand, a non-resident, or non-resident owning body, who has control of the entity by any means, has control of company B by any means; and
                                          1. no company that meets the requirements of paragraphs (a) to (c) has a direct ownership interest in company B.

                                            1. If subsection (2) does not apply, and the excess debt entity is an excess debt outbound company, the entity’s New Zealand parent is the company (company C) that meets all the following requirements:

                                            2. company C—
                                              1. is resident in New Zealand; and
                                                1. has an ownership interest of 50% or more in the entity; and
                                                2. no company that meets the requirements of paragraph (a)(i) and (ii) has a direct ownership interest in company C.

                                                  1. If subsections (2) to (4B) do not apply and the entity is resident in New Zealand and has a non-resident owning body, the non-resident owning body is the entity's New Zealand parent if the non-resident owning body has—

                                                  2. a direct ownership interest of 50% or more in the entity; and
                                                    1. a tax-return member.

                                                      1. If an excess debt entity meets the requirements of section FE 2(1)(cc) and the New Zealand parent of the entity cannot be determined in the absence of this subsection and subsection (6), the New Zealand parent of the entity is the trustee referred to in section FE 2(1)(cc).

                                                      2. If more than 1 company is identified as New Zealand parent under subsection (3) or (4), the New Zealand parent is the company that has the highest value in ownership interests calculated by multiplying—

                                                      3. the total direct ownership interests in company A or company B of non-residents who also have ownership interests in the entity of 50% or more:
                                                        1. the ownership interests of company A or company B in the entity.

                                                          1. If subsection (2) does not apply, and no company meets the requirements of 1 of subsections (3) to (4D), the excess debt entity is treated as the New Zealand parent.

                                                          2. In subsections (3) to (4C), ownership interests are determined under sections FE 38 to FE 41, but for the purposes of identifying a New Zealand parent,—

                                                          3. the ownership interests of a person associated with another person are not included with the ownership interests of the other person, except if the persons are associated under paragraph (b):
                                                            1. a trustee who acts in concert with another trustee is treated as being associated with the other trustee.

                                                              Compare
                                                              Notes
                                                              • Section FE 26(2)(b)(ii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 60(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                              • Section FE 26(2)(bb): inserted, on (applying for the 2015–16 and later income years), by section 114(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                              • Section FE 26(2)(bc): inserted, on (applying for the 2015–16 and later income years), by section 114(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                              • Section FE 26(2)(c): added (with effect on 30 June 2009), on , by section 220(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                              • Section FE 26(3) heading: substituted (with effect on 30 June 2009), on , by section 220(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                              • Section FE 26(3): amended (with effect on 30 June 2009), on , by section 220(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                              • Section FE 26(3)(a)(ii): amended (with effect on 30 June 2009), on , by section 220(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                              • Section FE 26(3)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 60(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                              • Section FE 26(3)(c): replaced, on (applying for the 2015–16 and later income years), by section 114(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                              • Section FE 26(3)(d): replaced, on (applying for the 2015–16 and later income years), by section 114(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                              • Section FE 26(4)(a)(ii): amended (with effect on 30 June 2009), on , by section 220(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                              • Section FE 26(4)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 60(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                              • Section FE 26(4)(c): amended, on (applying for the 2015–16 and later income years), by section 114(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                              • Section FE 26(4B) heading: inserted (with effect on 30 June 2009), on , by section 220(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                              • Section FE 26(4B): inserted (with effect on 30 June 2009), on , by section 220(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                              • Section FE 26(4C) heading: inserted, on (applying for the 2015–16 and later income years), by section 114(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                              • Section FE 26(4C): inserted, on (applying for the 2015–16 and later income years), by section 114(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                              • Section FE 26(4D) heading: inserted, on (applying for the 2015–16 and later income years), by section 114(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                              • Section FE 26(4D): inserted, on (applying for the 2015–16 and later income years), by section 114(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                              • Section FE 26(6): substituted (with effect on 30 June 2009), on , by section 220(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                              • Section FE 26(6): amended, on (applying for the 2015–16 and later income years), by section 114(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                              • Section FE 26(7) heading: replaced, on (applying for the 2015–16 and later income years), by section 114(6) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                              • Section FE 26(7): replaced, on (applying for the 2015–16 and later income years), by section 114(6) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                              • Section FE 26 list of defined terms control: repealed, on , by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                              • Section FE 26 list of defined terms double tax agreement: inserted (with effect on 30 June 2009), on , by section 220(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                              • Section FE 26 list of defined terms excess debt outbound company: inserted (with effect on 30 June 2009), on , by section 220(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                              • Section FE 26 list of defined terms income: inserted, on , by section 114(7) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                              • Section FE 26 list of defined terms non-resident owning body: inserted, on , by section 114(7) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                              • Section FE 26 list of defined terms non-resident passive income: inserted (with effect on 1 July 2011), on , by section 60(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                                              • Section FE 26 list of defined terms ownership interest: inserted, on , by section 114(7) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                              • Section FE 26 list of defined terms source in New Zealand: inserted (with effect on 30 June 2009), on , by section 220(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                              • Section FE 26 list of defined terms tax: inserted (with effect on 1 July 2011), on , by section 60(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).