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Income Tax Act 2007

Avoidance and non-market transactions - Avoidance: specific

GB 13: When combination of changes reduces income

You could also call this:

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

This law is about what happens when someone makes changes to their ownership of a foreign company that could reduce their income. Here’s what you need to know:

If you own part of a foreign company and you sell some of it, or if someone else buys more of the company, it might lower the income you have to report. But if certain things happen within a year, the law might ignore those changes when figuring out your income.

For example, if you sell part of the company, but then someone buys back a similar amount within a year, the law might pretend you never sold it. Or if someone else buys more of the company, but then sells it back to you within a year, the law might ignore that too.

The law does this to stop people from trying to avoid paying taxes by making quick changes to their ownership of foreign companies. If the tax office thinks you’re doing this on purpose to pay less tax, they can treat your ownership as if these changes never happened.

Remember, this only applies if the changes would have reduced your income from the foreign company, and if it looks like you’re trying to get around the tax rules.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516920.

Topics:
Money and consumer rights > Taxes
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GB 12: Temporary reductions in totals for control interest categories, or

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

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GB 14: When combination of changes increases loss, or

“ Increases in losses from foreign company ownership changes are limited ”

Part G Avoidance and non-market transactions
Avoidance: specific

GB 13When combination of changes reduces income

  1. This section applies when—

  2. before the end of a quarter, either—
    1. a person directly or indirectly disposes of a direct control interest or direct income interest in a foreign company (the disposal); or
      1. an increase occurs in the total of direct control interests in a foreign company in any of the control interest categories (the total increase); and
      2. in the case of the disposal, the disposal is not to a New Zealand resident who, immediately after the disposal, has an income interest of 10% or more in the foreign company from which they derive attributed CFC income; and
        1. in the case of the disposal, within 365 days after the disposal, a reduction occurs in the total of direct control interests in the foreign company in any of the control interest categories (the total reduction); and
          1. in the case of the total increase, within 365 days after the total increase, a person directly or indirectly acquires a direct control interest or direct income interest in the foreign company (the reacquisition); and
            1. the disposal or total increase has the effect of reducing attributed CFC income of—
              1. the person (the interest holder); or
                1. an associated person of the interest holder; or
                  1. if the interest holder is a CFC, a person holding an income interest in the interest holder; and
                  2. the disposal and total reduction or total increase and reacquisition are part of an arrangement that has an effect of defeating the intent and application of the international tax rules.

                    1. The disposal or total 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 reduction or reacquisition has the effect of reversing the effect of the disposal or total increase on the level of the interest holder’s control interest or income interest.

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                    Notes
                    • Section GB 13(1)(b): amended, on , by section 182(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                    • Section GB 13(1)(e): amended, on , by section 182(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                    • Section GB 13 list of defined terms attributed repatriation: repealed, on , by section 182(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).