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Income Tax Act 2007

General collection rules - Withholding tax on non-resident passive income (NRWT)

RF 12J: Treatment of certain payments made under indirect associated funding arrangements

You could also call this:

“How tax applies to payments in complex lending arrangements”

This part of the law talks about how certain payments are treated when there’s a special kind of money lending arrangement. Here’s what you need to know:

When someone borrows money through an indirect associated funding arrangement, it’s treated as if the borrower is dealing directly with the indirect lender, not the direct lender. This means:

The money the indirect lender gives to the direct lender is seen as if it went straight to the borrower. The same goes for when the borrower pays back the money - it’s treated as if it goes straight to the indirect lender, even though it passes through the direct lender first.

If the borrower doesn’t take out the right amount of tax when paying back the loan, the direct lender has to take out the tax on the interest. But the direct lender doesn’t have to do this if the borrower tells them that the payment isn’t part of this special arrangement or that a certain kind of income has already been counted.

When figuring out how much tax to take out, some special rules apply. The usual definition of ‘pay’ is changed a bit, and if the direct lender doesn’t have to take out as much tax, it doesn’t change how much tax should be taken out for the indirect lender.

These rules are quite complex, but they’re designed to make sure the right amount of tax is paid when money is lent in certain ways.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM7227955.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Banking and loans
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“How related-party debt is defined using indirect lending and non-resident ownership”

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RF 13: Basis for payment of amounts of tax for non-resident passive income, or

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Part R General collection rules
Withholding tax on non-resident passive income (NRWT)

RF 12JTreatment of certain payments made under indirect associated funding arrangements

  1. The payment made under an indirect associated funding arrangement described in section RF 12I(2), to the extent to which subsection (2) applies, is treated as made under a financial arrangement between the borrower and the indirect lender, and not made under a financial arrangement between the borrower and the direct lender.

  2. Under this subsection,—

  3. an amount that the indirect lender pays to the direct lender is treated as paid by the indirect lender to the borrower to the extent to which the amount is not more than the amount paid by the direct lender to the borrower:
    1. an amount that the borrower pays to the direct lender is treated as paid to the direct lender as agent for the indirect lender to the extent to which the amount is not more than the amount paid by the direct lender to the indirect lender.

      1. For the purposes of subsection (2)(b), if the borrower does not withhold the full amount required to be withheld under sections RA 6 (Withholding and payment obligations for passive income) and RF 3, the direct lender must withhold NRWT on interest paid to them.

      2. Despite subsection (3), the direct lender has no liability to withhold an amount of tax for the payment if the borrower has notified the direct lender that—

      3. the payment is not made under an indirect associated funding arrangement:
        1. non-resident financial arrangement income has been derived on the financial arrangement.

          1. For the purposes of subsection (3),—

          2. paragraph (d) of the definition of pay does not apply:
            1. for the financial arrangement, a reduction for the direct lender through the application of subsection (4) and paragraph (a) has no effect on the amount of NRWT that must be withheld on behalf of the indirect lender.

              Notes
              • Section RF 12J: inserted, on , by section 279 (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).