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Income Tax Act 2007

Definitions and related matters - Measurement of company ownership

YC 4: Look-through rule for corporate shareholders

You could also call this:

“How ownership of one company affects your stake in another”

When a company owns shares in another company, the law looks at who really owns those shares. If you own part of the first company, you’re treated as if you own a part of the second company too.

Here’s how it works: If you have voting rights in Company A, and Company A has voting rights in Company B, you’re seen as having some voting rights in Company B. The amount you’re treated as having in Company B is based on how much of Company A you own.

The same idea applies to the market value of shares. If you own part of Company A, and Company A owns shares in Company B, you’re treated as owning some of Company B’s shares too.

Sometimes, there might not be a clear market value for a company’s shares. In this case, the law says to use the voting rights instead to figure out how much of the company you own.

This rule helps to see who really controls companies, even when there are multiple layers of ownership.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1523065.

Topics:

Business > Industry rules

YC 3: Market value interests, or

“How much of a company you own based on your shares and options”

YC 5: Treatment of special corporate entities, or

“How special corporate entities are treated for tax purposes”

Part Y Definitions and related matters
Measurement of company ownership

YC 4Look-through rule for corporate shareholders

Subsection (2) applies if a company (the shareholder company) has or is treated as having, whether under subsection (2) or otherwise, a voting interest in another company (the issuing company).
Each person (the shareholder) who has a voting interest in the shareholder company is treated as having (to be added to any other percentage voting interest in the issuing company which the shareholder has) their portion of the shareholder company’s voting interest in the issuing company and the shareholder company is treated as not having that portion.
The shareholder’s portion of the voting interest is calculated by multiplying the shareholder company’s voting interest in the issuing company by the shareholder’s voting interest in the shareholder company.
Subsection (5) applies if a company (the shareholder company) is or is treated as having, whether under subsection (5) or otherwise, a market value interest in another company (the issuing company).
Each person (the shareholder) who has a market value interest in the shareholder company is treated as having their portion of the shareholder company’s market value interest in the issuing company and the shareholder company is treated as not having that portion. The shareholder’s portion is added to any other percentage market value interest in the issuing company which the shareholder has at that time.
The shareholder’s portion of the market value interest is calculated by multiplying the shareholder company’s market value interest in the issuing company by the shareholder’s market value interest in the shareholder company.
Subsection (8) applies if,—
in the case of a company (the first company), no direct market value circumstance exists; but
it is necessary to determine the direct market value interest of a person in the first company in order to apply subsection (5) in relation to an issuing company, whether that issuing company is the first company or any other company, because a direct market value circumstance exists for some other relevant company.

The direct market value interest of the person in the first company is equal to the direct voting interest of the person in the first company.

Compare

2004 No 35 ss OD 3(3)(d), OD 4(3)(d), (4)

Notes

Section YC 4(1): amended, on 29 March 2018 (with effect on 1 April 2008 and applying for the 2008–09 and later income years), by section 245(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section YC 4 compare note: amended (with effect on 1 April 2008), on 6 October 2009, by section 567 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).