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FG 2: Notional loans
or “How banks' internal money transfers to branches are treated as loans for tax purposes”
You could also call this:

“How banks handle notional interest for tax purposes”

When a branch of a bank records an expense related to a notional loan in a year, you need to treat it as interest. This interest is considered non-resident passive income. You should think of it as if the branch paid this interest to the bank. The payment is treated as happening on the last day of the third month after the branch’s balance date. The bank is seen as earning this interest in the same year that relates to the notional loan.

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Part F Recharacterisation of certain transactions
Treatment of notional loans to New Zealand branches of foreign banks

FG 3Notional interest

  1. An amount recorded as an expense in relation to the notional loan in an income year is treated as interest that is non-resident passive income—

  2. paid by the branch to the bank on the last day of the third month that follows the balance date of the branch; and
    1. derived in the income year by the bank in relation to the notional loan.

      Notes
      • Section FG 3: inserted, on , by section 105(1)(and see section 105(2)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).