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Income Tax Act 2007

Timing and quantifying rules - Controlled foreign company and foreign investment fund rules - Attributable CFC amount and net attributable CFC income or loss

EX 20C: Net attributable CFC income or loss

You could also call this:

“How to calculate income or loss from a foreign company you control”

You need to know about how to calculate net attributable CFC income or loss for a controlled foreign company (CFC). Here’s what it means:

  1. For someone with an income interest in a CFC, the CFC’s net attributable income is the larger of zero or the amount from a special calculation.

  2. The CFC’s net attributable loss is either zero or the absolute value of the calculation result if it’s less than zero.

  3. The calculation uses this formula: attributable CFC minus apportioned funding costs minus other deductions.

  4. Attributable CFC is the CFC’s attributable amount for the accounting period.

  5. Apportioned funding costs are calculated using another formula involving funding fraction, funding costs, and cost fraction.

  6. Other deductions are expenses and losses that meet specific criteria, like being incurred to earn attributable CFC income.

  7. There are detailed rules for calculating the funding fraction, asset fraction, and cost fraction used in these formulas.

  8. The calculations take into account things like the CFC’s assets, debts, and financial arrangements.

  9. Some special rules apply if the CFC is excessively debt funded.

This provision sets out complex formulas and definitions to determine how much of a CFC’s income or loss should be attributed to the New Zealand owner for tax purposes.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM2547215.

Topics:
Money and consumer rights > Taxes
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EX 20B: Attributable CFC amount, or

“Calculating overseas company income to include in your tax return”

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EX 20D: Adjustment of cost fraction for excessively debt funded CFC, or

“Adjusting calculations when a foreign company has too much debt”

Part E Timing and quantifying rules
Controlled foreign company and foreign investment fund rules: Attributable CFC amount and net attributable CFC income or loss

EX 20CNet attributable CFC income or loss

  1. For the purpose of calculating the attributed CFC income or loss for an accounting period of a person (the interest holder) with an income interest in a CFC,—

  2. the CFC's net attributable CFC income for the accounting period is the greater of zero and the amount calculated using the formula in subsection (2):
    1. the CFC's net attributable CFC loss for the accounting period is—
      1. the absolute value of the amount calculated using the formula in subsection (2), if that amount is less than zero:
        1. zero, if subparagraph (i) does not apply.

        2. The amount of a CFC's net attributable CFC income or loss for an accounting period is calculated using the rules in section EX 21 and the formula—

          attributable CFC − apportioned funding costs − other deductions.

          Where:

          • In the formula in subsection (2),—

          • attributable CFC is the CFC's attributable CFC amount for the accounting period:
              1. apportioned funding costs is the amount calculated using the formula—
                1. other deductions is the amount of expenditure and loss incurred in the accounting period by the CFC to the extent to which the expenditure and loss meets the requirements of subsection (13).

                  1. The items in the formula in subsection (3)(c) are defined in subsections (6), (10), and (11).

                  2. Repealed

                  3. Funding fraction is equal to,—

                  4. if the item funding in subsection (7)(a) is zero, 1; or
                    1. if the item is being used to calculate the item apportioned funding costs and the interest holder chooses to rely on this paragraph, 1; or
                      1. if neither of paragraphs (a) and (b) apply, the amount calculated using the formula—

                        1. In the formula in subsection (6),—

                        2. funding is the total of amounts, each of which is the outstanding balance for—
                          1. a financial arrangement to which the CFC is a party and which provides funds for the CFC:
                            1. a fixed rate foreign equity, or share giving a right to a deductible foreign equity distribution, issued by the CFC and held by a company that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method:
                            2. group funding is the lesser of the item funding and the total of amounts, each of which is the outstanding balance for a financial arrangement, a fixed-rate foreign equity, or a share giving a right to a deductible foreign equity distribution,—
                              1. under which the CFC provides funds to another CFC associated with the CFC under section YB 2 (Two companies) or to a FIF for which the interest holder uses the attributable FIF income method and that is associated with the CFC under section YB 2; and
                                1. that produces for the CFC an amount that is included in the item arrangement under section EX 20B(4) or is a deductible foreign equity distribution or a distribution for fixed-rate foreign equity.

                                2. Asset fraction is the amount calculated using the formula—

                                  (attributable CFC’s assets − group funding)÷ (total CFC’s assets − group funding).

                                  Where:

                                  • In the formula in subsection (8),—

                                  • attributable CFC's assets is the total of amounts for the CFC's assets, each of which is the value of an asset to the extent to which the asset is used for the purpose of deriving an attributable CFC amount and not used for the purpose of deriving an amount that is not an attributable CFC amount:
                                    1. group funding is—
                                      1. zero, if subparagraph (ii) does not apply; or
                                        1. the amount of the item group funding referred to in subsection (7)(b), if subsection (6)(c) applies for the interest holder and the CFC:
                                        2. total CFC's assets is the total value of the CFC's assets.

                                          1. Funding costs is the total of amounts in the accounting period, each of which—

                                          2. would be a deduction of the CFC relating to a financial arrangement to which the CFC is a party and which provides funds for the CFC:
                                            1. is a distribution relating to fixed-rate foreign equity or a deductible foreign equity distribution of the CFC, other than a deductible foreign equity distribution (the distribution) to the extent to which the distribution is funded directly or indirectly from an attributing interest that is an income interest in a FIF meeting the requirements of section EX 59(1), and is paid by the CFC to a company resident in New Zealand, to another CFC, or to a FIF for which the interest holder uses the attributable FIF income method.

                                              1. Cost fraction is,—

                                              2. if the CFC is not excessively debt funded under section EX 20D, the amount of the item asset fraction referred to in subsection (8); or
                                                1. if the CFC is excessively debt funded under section EX 20D, the lesser of—
                                                  1. the amount of the item asset fraction referred to in subsection (8):
                                                    1. the amount calculated under section EX 20D.

                                                    2. For the items referred to in subsection (9), the debts and assets of the CFC are determined under sections FE 8 to FE 11 (which contain rules for determining the apportionment of interest) as if the CFC were—

                                                    3. an excess debt outbound company; and
                                                      1. the only member of the CFC's New Zealand group.

                                                        1. Amounts of expenditure or loss contribute to the item other deductions to the extent to which—

                                                        2. the amounts do not relate to a financial arrangement or share and—
                                                          1. are incurred for the purpose of deriving an attributable CFC amount; and
                                                            1. are not incurred for the purpose of deriving an amount that is not an attributable CFC amount; and
                                                              1. correspond to amounts that would be deductions of the CFC after the adjustments that would be made under sections CH 2 and DB 50 (which relate to adjustments for prepayments) if the CFC were a resident:
                                                              2. the amounts relate to financial arrangements or shares referred to in the definition of the item funding in subsection (7)(a) and exceed in total the amount given by multiplying the items funding costs and funding fraction, used in calculating the item apportioned funding costs under subsection (3)(c):
                                                                1. the amounts—
                                                                  1. do not relate to financial arrangements that provide funds for the CFC; and
                                                                    1. relate to financial arrangements referred to in section EX 20B(4).

                                                                    Notes
                                                                    • Section EX 20C: inserted (with effect on 30 June 2009), on , by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                                    • Section EX 20C(2) formula: replaced (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on , by section 87(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                                    • Section EX 20C(3) heading: replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(3): replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(3)(b): repealed (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on , by section 87(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                                    • Section EX 20C(4) heading: replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(4): replaced (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on , by section 87(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                                    • Section EX 20C(5) heading: repealed (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on , pursuant to section 87(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                                    • Section EX 20C(5): repealed (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on , by section 87(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                                    • Section EX 20C(6) heading: replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(6): replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(7) heading: replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(7): replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(7)(a)(ii): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 42(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(7)(b): replaced (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on , by section 87(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                                    • Section EX 20C(8) heading: replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(8): replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(9) heading: replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(9): replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(9B) heading: repealed (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(9B): repealed (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(10) heading: replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(10): replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(10)(b): amended, on , by section 59(1) (and see section 59(2) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                                                    • Section EX 20C(10)(b): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on , by section 42(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(11) heading: replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(11): replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(12): amended (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(6) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(13) heading: inserted (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(7) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(13): inserted (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 42(7) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                                    • Section EX 20C(13)(a)(iii): replaced, on (applying for the 2016–17 and later income years), by section 138(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).