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

You could also call this:

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

This section is about companies that are residents of both New Zealand and another country. If you are such a company, you are called a ‘dual resident’. The other country where you are also a resident is called the ‘dual tax jurisdiction’.

You can’t claim a deduction for some of your expenses in New Zealand. The amount you can’t deduct is equal to your expenses minus any amount that the other country doesn’t allow you to deduct. The other country might not allow you to deduct an expense if it’s not connected to income that they tax.

When you’re not allowed to deduct an expense because of this rule, it’s called a ‘mismatch amount’. This mismatch amount comes from a ‘mismatch situation’. You might be able to use this mismatch amount later to reduce your taxable income. This is explained in section FH 12.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS65837.

Topics:
Money and consumer rights > Taxes
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FH 9: Expenditure or loss of hybrid entity, or non-resident through deducting branch, producing double deduction without double income, or

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

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

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

  1. This section applies for a company that is a New Zealand resident (the dual resident) and under the taxation law of another country or territory outside New Zealand (the dual tax jurisdiction) is liable to income tax in the dual tax jurisdiction through domicile, residence, or place of incorporation.

  2. The dual resident is denied a deduction for an amount equal to the amount of expenditure that would, in the absence of this section, be allowed as a deduction in the income year reduced by the amount of the expenditure for which the dual tax jurisdiction does not allow a deduction against income or equivalent tax relief because the expenditure is not connected with income that is subject to tax under the taxation law of the jurisdiction.

  3. A deduction that is denied under subsection (2) is a mismatch amount from a mismatch situation until the mismatch amount is set off under section FH 12 against surplus assessable income under that section from the mismatch situation.

Notes
  • Section FH 10: 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).
  • Section FH 10(2): amended (with effect on 1 July 2018), on , by section 198(1)(a) (and see section 198(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
  • Section FH 10(2): amended (with effect on 1 July 2018), on , by section 198(1)(b) (and see section 198(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).