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Income Tax Act 2007

Avoidance and non-market transactions - Market value substituted

GC 6: Purpose and application of rules and nature of arrangements

You could also call this:

“Rules for taxing international business deals fairly”

This section is about rules for cross-border financial arrangements and how they affect a person’s income tax. Here’s what you need to know:

The rules aim to make sure that when companies or people make deals across countries, they pay the right amount of tax. They do this by using something called an “arm’s length” price, which is what the price would be if the companies weren’t related.

These rules apply when:

  • Two companies or people are connected (like parent and child companies) and make a deal across countries.
  • The deal involves buying or selling things, services, or money.
  • The deal affects how much tax someone pays in New Zealand.

The rules also cover special cases where companies lend money to each other across countries. They make sure that these loans are treated fairly for tax purposes.

If you’re involved in business deals with companies in other countries, especially if they’re related to your company, these rules might affect your taxes. The government uses guidelines from an international organisation (OECD) to decide how to apply these rules.

The rules are quite detailed and cover many different situations. If you think these rules might apply to you, it’s a good idea to talk to a tax expert who can help you understand how they work for your specific situation.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517090.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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Part G Avoidance and non-market transactions
Market value substituted

GC 6Purpose and application of rules and nature of arrangements

  1. The purpose of this section and sections GC 7 to GC 14 is to substitute an arm’s length consideration in the calculation of a person’s net income if the person’s net income is reduced by the conditions of a cross-border arrangement—

  2. with an associated person or with a party to a financial arrangement that is a cross-border related borrowing of the person under subsection (3B); and
    1. for the acquisition or supply of goods, services, or anything else, or that includes a financial arrangement that is a cross-border related borrowing.

      1. This section and sections GC 7 to GC 14 apply consistently with the OECD transfer pricing guidelines.

      2. An arrangement is a transfer pricing arrangement if—

      3. the arrangement involves the supply and acquisition of goods, services, money, other intangible property, or anything else; and
        1. the arrangement—
          1. is between a supplier and acquirer who are associated persons or are a company and a person who is a member of a non-resident owning body that has an ownership interest in the company of 50% or more:
            1. includes a financial arrangement that is a cross-border related borrowing; and
            2. the arrangement is a cross-border arrangement under subsection (3).

              1. An arrangement is a cross-border arrangement if the requirements of any of the following paragraphs is met:

              2. the supplier and acquirer are a New Zealand resident and non-resident, unless the requirements of both of the following subparagraphs are met:
                1. the non-resident enters into the arrangement for the purposes of a business carried on by the non-resident in New Zealand through a fixed establishment in New Zealand:
                  1. the New Zealand resident has not entered into the arrangement for the purposes of a business carried on by the New Zealand resident outside New Zealand:
                  2. the supplier and acquirer are 2 New Zealand residents and either or both enter into the arrangement for the purposes of a business carried on by the person outside New Zealand:
                    1. the supplier and acquirer are 2 non-residents, unless each enters into the arrangement for the purposes of a business carried on by the person in New Zealand through a fixed establishment in New Zealand.

                      1. A financial arrangement is a cross-border related borrowing under this subsection if, under the financial arrangement,—

                      2. a non-resident person (the lender) provides funds to another person (the borrower) when—
                        1. the lender and borrower are associated persons:
                          1. a person or group of persons has a total ownership interest, determined under sections FE 38 to FE 41 (which give the measurement of ownership interests in companies), of 50% or more in each of the lender and borrower:
                            1. the funding is provided through an indirect associated funding arrangement described in subsection (3C):
                              1. the lender is a member of a non-resident owning body, or of a group of non-residents who act in concert and are each described in section FE 2(1)(a) to (db) (When this subpart applies), and the members of the non-resident owning body or of the group have a total ownership interest, determined under sections FE 38 to FE 41, of 50% or more in the borrower; and
                              2. expenditure arises for the borrower for which the borrower is allowed a deduction.

                                1. An indirect associated funding arrangement exists under this subsection when,—

                                2. under an arrangement, a non-resident person (the indirect lender) provides funds or pays money, directly or indirectly, to another person (the direct lender) who provides funds to a third person (the borrower)—
                                  1. in order for the funds to be provided to the borrower, or to reimburse the direct lender or compensate them, for providing the funds to the borrower; and
                                    1. with the purpose or effect that this section and sections GC 6 to GC 14 and GC 16 to GC 19 do not apply to the arrangement; and
                                    2. the indirect lender is associated with the borrower, or a person or group of persons has a total ownership interest, determined under sections FE 38 to FE 41, of 50% or more in each of the indirect lender and borrower; and
                                      1. the direct lender is not associated with the borrower and is not described in subsection (3B)(a)(iv).

                                        1. If a transfer pricing arrangement includes a financial arrangement that is a cross-border related borrowing, sections GC 7 to GC 14 are applied to the transfer pricing arrangement as if the adjustments required by sections GC 15 to GC 19 had been made to the credit rating of the borrower and the conditions of the financial arrangement.

                                        2. In calculating the ownership interests in a lender or borrower (the issuer) for the purposes of subsection (3B), a preference share is not included in the calculation if the preference share—

                                        3. is held by a person (the creditor) who is not associated with the issuer; and
                                          1. was issued to the creditor with the intention of satisfying or replacing debt provided by the creditor to the issuer in the ordinary course of business.

                                            1. Section GC 7, GC 8, GC 9, or GC 10 can apply to an arrangement under section GB 2 (Arrangements involving transfer pricing).

                                            Compare
                                            Notes
                                            • Section GC 6 heading: amended, on , by section 40(1) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6(1): replaced, on , by section 40(2) (and see section 40(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6(1B) heading: inserted, on , by section 40(3) (and see section 40(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6(1B): inserted, on , by section 40(3) (and see section 40(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6(2)(b): replaced, on , by section 40(4) (and see section 40(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6(3B) heading: inserted, on , by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6(3B): inserted, on , by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6(3C) heading: inserted, on , by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6(3C): inserted, on , by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6(3D) heading: inserted, on , by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6(3D): inserted, on , by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6(3E) heading: inserted, on , by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6(3E): inserted, on , by section 40(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6 list of defined terms cross-border related borrowing: inserted, on , by section 40(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6 list of defined terms financial arrangement: inserted, on , by section 40(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6 list of defined terms non-resident owning body: inserted, on , by section 40(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6 list of defined terms OECD transfer pricing guidelines: inserted, on , by section 40(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                            • Section GC 6 list of defined terms ownership interest: inserted, on , by section 40(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).