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Income Tax Act 2007

Avoidance and non-market transactions - Market value substituted

GC 13: Calculation of arm’s length amounts

You could also call this:

“How to work out fair prices between businesses”

When you’re figuring out how much something should cost in a fair deal between businesses, you need to follow these steps:

First, you need to look at the actual deal and figure out what’s really happening. You might find that there’s no real deal at all, or that it’s different from what it looks like at first.

Next, you need to think about what independent businesses would agree to if they were making this deal. They would bargain with each other to get the best price.

Then, you need to use one or more methods to work out the fair price. These methods include looking at similar deals between independent businesses, or figuring out what a fair profit would be.

When you’re choosing which method to use, you need to think about how similar the deals you’re comparing are, how good your information is, and whether your assumptions make sense.

If the tax department finds out about a deal that wasn’t fair, they can change your tax bill. They can do this for up to 7 years after you filed your tax return, as long as they tell you within 4 years that they’re looking into it.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517112.

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

GC 13Calculation of arm’s length amounts

  1. An arm's length amount of consideration for a supply and acquisition under a transfer pricing arrangement must be determined by—

  2. identifying, as required by subsections (1B) and (1C), a transaction reproducing the supply and acquisition (the identified transaction) or the absence of such a transaction; and
    1. identifying the conditions (the arm’s length conditions) that independent parties after real and independent bargaining might be expected to agree upon for the identified transaction; and
      1. applying whichever 1 or a combination of the methods listed in subsection (2) produces the most reliable measure of the arm’s length amount of consideration (the arm’s length amount) that independent parties after real and independent bargaining would have agreed upon as the price for the identified transaction as part of the arm’s length conditions.

        1. A transaction reproducing a supply and acquisition under a transfer pricing arrangement is determined by—

        2. accurately delineating the transfer pricing arrangement using the approach given in the OECD transfer pricing guidelines, chapter I, section D.1; and
          1. identifying a transaction of supply and acquisition under the transfer pricing arrangement as delineated under paragraph (a).

            1. If the requirements of the OECD transfer pricing guidelines, paragraph 1.142, are met, the approach described in the OECD transfer pricing guidelines, chapter I, section D.2 must be used to treat a transfer pricing arrangement involving a supply and acquisition as instead involving—

            2. no supply and acquisition; or
              1. an identified transaction that differs from the supply and acquisition under the accurately delineated transfer pricing arrangement.

                1. The arm’s length amount of consideration for a supply and acquisition under a transfer pricing arrangement is zero, if there is no supply and acquisition under subsection (1C)(a), or is the amount calculated for the identified transaction under arm’s length conditions by performing a comparability analysis as required by the OECD transfer pricing guidelines, chapter III, using any 1 or a combination of—

                2. the comparable uncontrolled price method:
                  1. the resale price method:
                    1. the cost plus method:
                      1. the transactional profit split method:
                        1. the transactional net margin method.

                          1. The choice and application of a method or methods must be made having regard to each of the following factors:

                          2. the degree of comparability between the transactions used for comparison and the transactions of the taxpayer under the transfer pricing arrangement:
                            1. the completeness and accuracy of the data relied on:
                              1. the reliability of all assumptions:
                                1. the sensitivity of a result to possible deficiencies in the data and assumptions.

                                  1. Repealed

                                  2. Repealed

                                  3. Despite the time bar, the Commissioner may amend an assessment for a tax year (the assessed year) in order to give effect to this section and to sections GC 6 to GC 12 and GC 14 to GC 19 at any time in the period of 7 tax years after the tax year (the return year) in which a return of income is made for the assessed year if, at any time in the period of 4 tax years after the return year, the Commissioner notifies the taxpayer that a tax audit or investigation has commenced and this subsection applies.

                                  Compare
                                  • 2004 No 35 s GD 13(6)–(9)
                                  Notes
                                  • Section GC 13(1) heading: replaced, on , by section 41(1) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13(1): replaced, on , by section 41(1) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13(1B) heading: inserted, on , by section 41(1) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13(1B): inserted, on , by section 41(1) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13(1C) heading: inserted, on , by section 41(1) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13(1C): inserted, on , by section 41(1) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13(1C): amended (with effect on 20 January 2022), on , by section 74 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                  • Section GC 13(2) heading: replaced, on , by section 41(2) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13(2): replaced, on , by section 41(2) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13(3)(a): replaced, on , by section 41(3) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13(4) heading: repealed, on , pursuant to section 41(4) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13(4): repealed, on , by section 41(4) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13(5) heading: repealed, on , pursuant to section 41(4) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13(5): repealed, on , by section 41(4) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13(6) heading: inserted, on , by section 41(5) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13(6): inserted, on , by section 41(5) (and see section 41(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13 list of defined terms arm's length amount: inserted, on , by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13 list of defined terms assessment: inserted, on , by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13 list of defined terms associated person: inserted, on , by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13 list of defined terms OECD transfer pricing guidelines: inserted, on , by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13 list of defined terms return of income: inserted, on , by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13 list of defined terms tax year: inserted, on , by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13 list of defined terms time bar: inserted, on , by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
                                  • Section GC 13 list of defined terms transfer pricing arrangement: inserted, on , by section 41(6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).