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Income Tax Act 2007

Avoidance and non-market transactions - Avoidance: specific

GB 10: Temporary acquisitions of direct control or income interests

You could also call this:

“Rule for short-term ownership of foreign company shares to prevent tax avoidance”

You need to know about a rule that applies when someone buys and then quickly sells part of a foreign company. This rule is meant to stop people from trying to avoid paying taxes.

Here’s how it works: If you buy a part of a foreign company, and then sell it within 183 days, the government might act as if you never bought it in the first place. But this only happens if:

  1. You didn’t buy it from a New Zealander who owned at least 10% of the company and was losing money from it.
  2. Your purchase would have increased losses from the company for you, someone connected to you, or someone who owns part of your company (if you’re a foreign company yourself).
  3. It looks like you bought and sold the company part just to try to avoid paying taxes.

If all these things are true, then when the government figures out how much of the foreign company you own at the end of every three months, they might pretend you never bought that extra part.

This rule is part of New Zealand’s international tax rules. It’s designed to stop people from using quick buy-and-sell tricks to pay less tax than they should.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516903.

Topics:
Money and consumer rights > Taxes
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GB 9: Temporary disposals of direct control or income interests, or

“Rules for temporary sales of interests in foreign companies”

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GB 11: Temporary increases in totals for control interest categories, or

“Temporary changes in foreign company control may be ignored for tax purposes”

Part G Avoidance and non-market transactions
Avoidance: specific

GB 10Temporary acquisitions of direct control or income interests

  1. This section applies when,—

  2. before the end of a quarter, a person (the acquirer), directly or indirectly acquires a direct control interest or direct income interest in a foreign company (the acquisition); and
    1. the acquisition is not from a New Zealand resident who, immediately before the acquisition, has an income interest of 10% or more in the foreign company from which an attributed CFC loss is incurred; and
      1. within 183 days after the acquisition, the acquirer directly or indirectly disposes of a direct control interest or direct income interest in the foreign company (the disposal); and
        1. the acquisition has the effect of increasing an attributed CFC loss of—
          1. the acquirer; or
            1. an associated person of the acquirer; or
              1. if the acquirer is a CFC, a person holding an income interest in the acquirer; and
              2. the acquisition and disposal are part of an arrangement that has an effect of defeating the intent and application of the international tax rules.

                1. The acquisition is treated as not having occurred, when the person’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the extent to which the disposal reverses the acquisition.

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