Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Timing and quantifying rules - Financial arrangements rules - Consideration when financial arrangement involves property or services

EW 33D: Foreign ASAPs: contingencies for business combinations

You could also call this:

“How to handle extra payments when buying or selling a business using foreign agreements”

When you buy or sell a business using a foreign ASAP (Agreement for Sale and Purchase), there might be extra money involved that depends on future events. This is called contingent consideration. Here’s how it works:

If you’re buying or selling a business by purchasing its assets and debts:

You might need to add or subtract the contingent consideration from the value of the business’s goodwill. This happens in certain situations, like when the extra money becomes real but wasn’t counted at first, or when it was counted but never actually happened.

If you’re buying or selling a business by purchasing its shares:

You might need to add or subtract the contingent consideration from the value of the shares. This also happens in similar situations to those mentioned above.

In both cases, the rules about when to do this are explained in section EW 32. The exact details depend on which part of that section applies to your situation.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS179421.

Topics:
Money and consumer rights > Taxes
Business > Starting a business
Previous

EW 33C: Consideration in foreign currency: some agreements for sale and purchase, or

“Rules for handling foreign currency in certain sales agreements”

Next

EW 34: Consideration in foreign currency, or

“Converting foreign currency payments in financial arrangements to New Zealand dollars”

Part E Timing and quantifying rules
Financial arrangements rules: Consideration when financial arrangement involves property or services

EW 33DForeign ASAPs: contingencies for business combinations

  1. For a foreign ASAP, in relation to the sale and purchase of a business combination by way of sale and purchase of the combination’s assets and liabilities, an amount of contingent consideration under the ASAP is credited or debited, as applicable, against goodwill to the extent to which—

  2. section EW 32(2B) applies to the ASAP and the amount of contingent consideration is realised and has not been accounted for initially:
    1. section EW 32(2B) applies to the ASAP and the amount of contingent consideration is never realised and the initial accounting for contingent consideration is reversed:
      1. section EW 32(2C), (2D), or (2E) applies to the ASAP and the amount of contingent consideration is realised and has not been included in the value of the property or services at the rights date:
        1. section EW 32(2C), (2D), or (2E) applies to the ASAP and the amount of contingent consideration is never realised and the amount included in the value of the property or services at the rights date is reversed.

          1. For a foreign ASAP, in relation to the sale and purchase of a business combination by way of sale and purchase of the combination’s shares, an amount of contingent consideration under the ASAP is credited or debited, as applicable, against the shares if—

          2. section EW 32(2B) applies to the ASAP and the amount of contingent consideration is realised and has not been accounted for initially:
            1. section EW 32(2B) applies to the ASAP and the amount of contingent consideration is never realised and the initial accounting for contingent consideration is reversed:
              1. section EW 32(2C), (2D), or (2E) applies to the ASAP and the amount of contingent consideration is realised and has not been included in the value of the property or services at the rights date:
                1. section EW 32(2C), (2D), or (2E) applies to the ASAP and the amount of contingent consideration is never realised and the amount included in the value of the property or services at the rights date is reversed.

                  Notes
                  • Section EW 33D: inserted, on , by section 180 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).