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Income Tax Act 2007

Recharacterisation of certain transactions - Hybrid and branch mismatches of deductions and income from multi-jurisdictional arrangements

FH 9: Expenditure or loss of hybrid entity, or non-resident through deducting branch, producing double deduction without double income

You could also call this:

“Preventing double tax deductions for certain overseas companies operating in New Zealand”

This law is about making sure some companies don’t get to claim the same expense twice in different countries. Here’s how it works:

If you’re a company from another country and you have a special type of business in New Zealand (called a hybrid entity or a deducting branch), you might try to claim the same expense in both countries. This law stops that from happening.

The law applies when:

  1. You could normally claim an expense in New Zealand,
  2. You can also claim that expense in your home country, and
  3. Your home country doesn’t have a law to stop this double-claiming.

If all these things are true, then you can’t claim that expense in New Zealand. The money you’re not allowed to claim is called a “mismatch amount”.

You might be able to use this mismatch amount later if your business makes extra money in New Zealand. This is explained in section FH 12.

If your home country makes a new law to stop this double-claiming, then you can’t keep your mismatch amount after that new law starts.

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 It might be out of date or be missing some parts.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=LMS65835.

Topics:
Money and consumer rights > Taxes
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FH 8: Expenditure or loss through hybrid entity or foreign deducting branch producing double deduction without double income, or

“No double tax deductions for expenses from overseas entities”

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FH 10: Expenditure or loss of dual resident company producing double deduction without double income, or

“Dual resident companies can't claim double tax deductions without double income”

Part F Recharacterisation of certain transactions
Hybrid and branch mismatches of deductions and income from multi-jurisdictional arrangements

FH 9Expenditure or loss of hybrid entity, or non-resident through deducting branch, producing double deduction without double income

  1. This section applies when a resident (the foreign resident) in a country or territory outside New Zealand (the foreign jurisdiction) is in the same control group as a hybrid entity resident in New Zealand, or has a deducting branch in New Zealand, if—

  2. expenditure or loss of the hybrid entity, or of the foreign resident attributed to the deducting branch, would be allowed as a deduction in an income year in the absence of this section and section FH 10; and
    1. the taxation law of a country or territory outside New Zealand allows expenditure of the hybrid entity or attributed to the deducting branch to be deducted in the income year against income of the foreign resident; and
      1. the foreign jurisdiction does not have hybrid mismatch legislation corresponding to section FH 8 and applying at any time in the income year to expenditure of the hybrid entity or foreign resident referred to in paragraph (b).

        1. The hybrid entity or foreign resident is denied a deduction for the amount of expenditure or loss that—

        2. is incurred by the hybrid entity or attributed to the deducting branch in the income year corresponding to the tax year; and
          1. would, in the absence of this section, be allowed as a deduction.

            1. The amount of a deduction denied under subsection (2) is a mismatch amount for the hybrid entity or foreign resident until the mismatch amount is set off under section FH 12 against surplus assessable income under that section for the hybrid entity or foreign resident.

            2. A mismatch amount under subsection (3) is not available to be carried forward beyond a time (the transition time) if the foreign jurisdiction introduces from the transition time hybrid mismatch legislation corresponding to section FH 8 and applying to expenditure of the hybrid entity or foreign resident to which this section applies.

            Notes
            • Section FH 9: inserted, on , by section 35(1) (and see section 35(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).