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Income Tax Act 2007

Avoidance and non-market transactions - Market value substituted

GC 10: Compensating arrangement: person receiving more than arm’s length amount

You could also call this:

“Receiving more than fair market value in a related transaction”

This section applies to you if you are involved in a transfer pricing arrangement with someone else. It comes into effect when an adjustment is made to the amount you pay or receive under this arrangement. This adjustment could be because the amount was not at ‘arm’s length’, which means it wasn’t a fair market price.

The law also looks at whether you received more than a fair price for something else you sold to the same person. This could be in the same tax year, the year before, or the year after. The law calls this a ‘compensating supply arrangement’.

If these situations apply to you, and the goods or services in both arrangements are similar, or if the prices in both arrangements are linked, then the law steps in. It says that the amount you received in the compensating supply arrangement should be treated as if it were the fair market price.

This fair market price is used to calculate your income tax, and to determine if someone else needs to withhold money from the amount they pay you.

The law aims to make sure that you’re not getting around tax rules by setting unfair prices in related transactions.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517103.

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

GC 10Compensating arrangement: person receiving more than arm’s length amount

  1. This section applies when—

  2. a person (the taxpayer) is a party to a transfer pricing arrangement with another person; and
    1. an adjustment is made for a tax year under either—
      1. section GC 7 to an amount payable by the taxpayer under the transfer pricing arrangement; or
        1. section GC 8 to an amount receivable by the taxpayer under the transfer pricing arrangement; and
        2. an amount of consideration receivable by the taxpayer in the same tax year, or the preceding or next tax year, for a supply (the compensating supply arrangement) to the same person is more than an arm’s length amount; and
          1. either—
            1. the transfer pricing arrangement involves goods, services, money, other intangible property, or anything else of the same type as that acquired in the compensating supply arrangement; or
              1. the amount of consideration actually payable or receivable in the transfer pricing arrangement is set having regard to the amount of consideration receivable under the compensating supply arrangement.

              2. The amount received by the taxpayer in the compensating supply arrangement is treated as being an amount equal to the arm’s length amount determined under section GC 13, for each of the following purposes:

              3. 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.

                    Compare
                    Notes
                    • Section GC 10(1)(b)(ii): amended (with effect on 1 April 2008), on , by section 129(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                    • Section GC 10(1)(c): amended (with effect on 1 April 2008), on , by section 129(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                    • Section GC 10(2)(b): repealed (with effect on 30 June 2009), on , by section 247(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).