Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Avoidance and non-market transactions - Market value substituted

GC 8: Insufficient amount receivable by person

You could also call this:

“Rules for fair payment in business deals and their tax implications”

When you receive money from a deal, it should be a fair amount. If you get less than what’s considered fair, the law treats it as if you received the fair amount. This affects how much tax you pay and how much the other person in the deal needs to hold back for tax purposes.

There are some cases where this rule doesn’t apply. If you don’t live in New Zealand and aren’t doing business here, the rule might not apply. It also doesn’t apply if the extra money would give the other person a tax deduction, or if it’s interest, royalties, or insurance money that’s handled differently.

If you don’t live in New Zealand and aren’t doing business here, and the money is a dividend from a special type of share, this rule also doesn’t apply.

The law wants to make sure that when you make deals, you’re getting paid fairly, even if it’s with people or businesses in other countries.

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 It might be out of date or be missing some parts.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=DLM1517096.

Topics:
Money and consumer rights > Taxes
Business > Fair trading
Previous

GC 7: Excess amount payable by person, or

“You pay tax on the fair price, not the higher price you paid”

Next

GC 9: Compensating arrangement: person paying less than arm’s length amount, or

“Tax adjustments for underpriced transactions in related business deals”

Part G Avoidance and non-market transactions
Market value substituted

GC 8Insufficient amount receivable by person

  1. If the amount of consideration receivable by a person (the taxpayer) under a transfer pricing arrangement is less than an arm’s length amount, an amount equal to the arm’s length amount is treated as the amount receivable by the taxpayer for each of the following purposes:

  2. the calculation of their income tax liability for a tax year:
      1. the determination of the obligation of another person to withhold under Part R (General collection rules) from the amount.

        1. This section does not apply when—

        2. the taxpayer is neither resident in New Zealand nor entering into the transfer pricing arrangement for the purposes of a business carried on in New Zealand through a fixed establishment in New Zealand; and
          1. the increase under subsection (1) in the amount receivable by the taxpayer—
            1. produces an increase in the amount that is a deduction of the other party, or would be a deduction of the other party in the absence of sections FH 5, FH 8, and FH 9 (which deny deductions arising from some mismatch situations); or
              1. if the transfer pricing arrangement is an interest-free loan, would produce an increase in the income of the borrower under subpart FE (Interest apportionment on thin capitalisation) or an increase in the amount that would be a deduction of the borrower in the absence of subpart FH (Hybrid and branch mismatches of deductions and income from multi-jurisdictional arrangements); and
              2. the amount receivable is interest, royalties, or an insurance premium to which section YD 8 (Apportionment of premiums derived by non-resident general insurers) applies.

                1. This section does not apply if both of the following requirements are met:

                2. the taxpayer is neither resident in New Zealand nor entering into the arrangement for the purposes of a business carried on in New Zealand through a fixed establishment in New Zealand:
                  1. the amount is a dividend receivable on a fixed-rate share.

                    Compare
                    Notes
                    • Section GC 8(1)(b): repealed (with effect on 30 June 2009), on , by section 246(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                    • Section GC 8(2)(a): amended (with effect on 1 July 2018), on , by section 80(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                    • Section GC 8(2)(b): replaced (with effect on 1 July 2018), on , by section 80(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).