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Income Tax Act 2007

Avoidance and non-market transactions - Avoidance: specific

GB 14: When combination of changes increases loss

You could also call this:

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

This law applies to situations involving changes in ownership or control of a foreign company. You need to know about it if you’re dealing with a foreign company and there are changes in who owns or controls it.

If someone buys a share in a foreign company, or if the total control of the company decreases, this law might apply. It also applies if, within a year of these changes, someone increases their control or sells their share in the company.

The law is concerned with how these changes might affect losses from the foreign company. If the changes reduce losses for you, someone connected to you, or a company you partly own, the law takes notice.

If all these changes are part of a plan to get around international tax rules, the law steps in. It might ignore the initial purchase or decrease in control when working out your interest in the foreign company at the end of the quarter. This happens to the extent that the later increase or sale cancels out the effects of the first change.

Remember, this law is quite complex. If you’re dealing with foreign companies and ownership changes, it’s a good idea to ask for help from someone who knows about tax laws.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516927.

Topics:
Money and consumer rights > Taxes
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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”

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Part G Avoidance and non-market transactions
Avoidance: specific

GB 14When combination of changes increases loss

  1. This section applies when,—

  2. before the end of a quarter, either—
    1. a person directly or indirectly acquires a direct control interest or direct income interest in a foreign company (the acquisition); or
      1. a decrease occurs in the total of direct control interests in a foreign company in any of the control interest categories (the total decrease); and
      2. in the case of the acquisition, 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 they have an attributed CFC loss; and
        1. in the case of the acquisition, within 365 days after the acquisition, an increase occurs in the total of direct control interests in the foreign company in any of the control interest categories (the total increase); and
          1. in the case of the total reduction, within 365 days after the total reduction, a person directly or indirectly disposes of a direct control interest or direct income interest in the foreign company (the disposal); and
            1. the acquisition or total reduction has the effect of reducing an attributed CFC loss 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 acquisition and total increase or total reduction 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 or total reduction 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 or disposal has the effect of reversing the effect of the acquisition or total reduction on the level of the interest holder’s control interest or income interest.

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