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DB 54: No deductions for fees relating to interests in multi-rate PIEs
or “You can't claim tax deductions for fees paid to multi-rate PIE investment funds”
You could also call this:

“Special tax rules for certain investments in foreign investment PIEs”

This section talks about special rules for foreign investment PIEs. A PIE is a type of investment fund in New Zealand. When a foreign investment PIE spends money or has a loss while making money for certain investors, it can’t claim that spending or loss as a tax deduction.

This rule applies to two types of investors:

  1. Notified foreign investors in the PIE
  2. Transitional residents who have chosen to use a specific tax rate

The law says that the PIE can’t claim a deduction for any money spent or losses related to these investors. This rule is stronger than other rules that might usually allow companies to claim interest as a deduction. It also overrides the general permission for deductions in tax law.

You should know that a “notified foreign investor” is someone from another country who has told the PIE about their foreign status. A “transitional resident” is someone who has recently moved to New Zealand and gets some tax benefits for a while.

This rule helps make sure that foreign investment PIEs treat certain investors differently for tax purposes.

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Next up: DB 54C: Certain expenditure incurred by foreign PIE equivalents

or “Foreign investment entities can't deduct expenses from certain income”
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Part D Deductions
Specific rules for expenditure types

DB 54BExpenditure incurred by foreign investment PIEs

  1. This section applies when a foreign investment PIE incurs expenditure or loss in deriving income attributable to—

  2. a notified foreign investor in the PIE:
    1. a transitional resident who has chosen under section HM 55D(9) (Requirements for investors in foreign investment PIEs) to use the specified prescribed investor rate.

      1. The PIE is denied a deduction for the amount of the expenditure or loss.

      2. This section overrides section DB 7 (Interest: most companies need no nexus with income).

      3. This section overrides the general permission.

      Notes
      • Section DB 54B: inserted, on (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 16(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
      • Section DB 54B(1): replaced, on , by section 22(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
      • Section DB 54B list of defined terms prescribed investor rate: inserted, on , by section 22(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
      • Section DB 54B list of defined terms transitional resident: inserted, on , by section 22(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).