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Income Tax Act 2007

Avoidance and non-market transactions - Avoidance: specific

GB 15C: Arrangements related to accounting test for non-attributing active CFC

You could also call this:

“Rules to prevent tax avoidance through overseas company accounting practices”

This section talks about rules for companies that operate in other countries, called Controlled Foreign Companies (CFCs). It aims to prevent people from using clever arrangements to make their CFC look like it doesn’t need to pay tax in New Zealand.

If you set up a plan to make your CFC pass a special accounting test when it wouldn’t pass the usual test, your CFC won’t be treated as a ‘non-attributing active CFC’. This means it might have to pay more tax.

Also, if your plan involves your CFC losing money on foreign currency exchanges to change how its finances look, any other CFCs connected to it won’t be treated as ‘non-attributing active CFCs’ either.

The special accounting test is explained in section EX 21E, and the usual test is in section EX 21D. The rule about foreign currency losses refers to a calculation in section EX 21E(5).

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM2566602.

Topics:
Money and consumer rights > Taxes
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Part G Avoidance and non-market transactions
Avoidance: specific

GB 15CArrangements related to accounting test for non-attributing active CFC

  1. This section applies when a person (the party) enters an arrangement having a purpose, that is more than incidental, of enabling a CFC to meet the requirements of section EX 21E (Non-attributing active CFC: test based on accounting standard) when the CFC would not meet the requirements of section EX 21D (Non-attributing active CFC: default test) to be a non-attributing active CFC.

  2. The CFC is not a non-attributing active CFC.

  3. A party who is a CFC associated with the CFC is not a non-attributing active CFC if—

  4. the arrangement involves a financial arrangement producing a foreign exchange loss for the CFC; and
    1. the foreign exchange loss decreases for the CFC the amount of the numerator in the formula in section EX 21E(5).

      Notes
      • Section GB 15C: inserted (with effect on 30 June 2009), on , by section 237(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).