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Income Tax Act 2007

Avoidance and non-market transactions - Avoidance: specific

GB 12: Temporary reductions in totals for control interest categories

You could also call this:

“Temporary changes in foreign company control to avoid tax rules may be disregarded”

This law applies to you if there’s a decrease in the total direct control interests in a foreign company before the end of a quarter. If this decrease causes you or someone connected to you to have a bigger income or control interest in the foreign company, and within a year there’s an increase that reverses this, the law might affect you.

The law says that if these changes are part of a plan to avoid international tax rules, and they increase losses from a controlled foreign company for you or someone connected to you, then the increase in your interest is ignored when calculating your control or income interest at the end of the quarter.

This means that if you try to use temporary changes in control of a foreign company to increase tax losses, the law will treat it as if those changes didn’t happen. The law aims to stop people from using short-term shifts in company control to get tax advantages that go against the rules for international tax.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516914.

Topics:
Money and consumer rights > Taxes
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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”

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GB 13: When combination of changes reduces income, or

“Explaining when tax rules ignore changes in foreign company ownership that lower income”

Part G Avoidance and non-market transactions
Avoidance: specific

GB 12Temporary reductions in totals for control interest categories

  1. This section applies when,—

  2. before the end of a quarter, a reduction in the total of direct control interests in a foreign company occurs in a control interest category (the total reduction); and
    1. the total reduction results in a person (the interest holder) having an increased income interest or control interest in a foreign company (the interest increase); and
      1. within 365 days after the total reduction, an increase occurs in the total for the control interest category (the total increase); and
        1. the interest increase has the effect of increasing an attributed CFC loss of—
          1. the interest holder; or
            1. an associated person of the interest holder; or
              1. another person holding an income interest in the interest holder, if the interest holder is a CFC; and
              2. the total reduction and total increase are part of an arrangement which has an effect of defeating the intent and application of the international tax rules.

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

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