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Income Tax Act 2007

Avoidance and non-market transactions - Market value substituted

GC 15: Aspects of loan adjusted for application of sections

You could also call this:

“Rules for adjusting international company loans for tax purposes”

This law is about how to handle certain types of loans between companies in different countries. When a company from another country lends money to a company in New Zealand, there are special rules to follow.

You need to pretend that the New Zealand company has a specific credit rating. The credit rating you use depends on what kind of company it is. If it’s a bank, insurance company, or similar business, you use one set of rules. If it’s any other type of company, you use a different set of rules.

You also need to ignore some of the conditions of the loan when you’re applying these rules.

The law explains which companies are considered “insuring or lending” companies. These include:

  • Banks registered in New Zealand
  • Insurance companies licensed in New Zealand, or companies closely related to them
  • Companies that take deposits but aren’t banks, or companies closely related to them
  • Groups of companies whose main business is lending money to people they’re not connected to
  • Companies that are part of a group with a different main business, but their own main business is lending money to people not connected to their group

This helps make sure that companies can’t avoid paying the right amount of tax by setting up complicated loan arrangements with companies in other countries.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS66324.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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GC 14: Definitions for sections GC 6 to GC 13, or

“Definitions used in rules about tax avoidance and transactions”

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GC 16: Credit rating of borrower: other than insuring or lending person, or

“Rules for determining a borrower's credit rating for loans, excluding insurers and lenders”

Part G Avoidance and non-market transactions
Market value substituted

GC 15Aspects of loan adjusted for application of sections

  1. If a transfer pricing arrangement includes a financial arrangement that is a cross-border related borrowing under which a non-resident (the lender) provides funds to a person (the borrower), sections GC 7 to GC 14 are applied to the transfer pricing arrangement as if—

  2. the borrower had the credit rating required by—
    1. section GC 16, if the borrower is not an insuring or lending person under subsection (2):
      1. section GC 17, if the borrower is an insuring or lending person under subsection (2); and
      2. conditions of the cross-border related borrowing were disregarded, as required by section GC 18.

        1. A borrower is an insuring or lending person under this subsection if the borrower is—

        2. a member of the New Zealand banking group of a registered bank for the purposes of subpart FE (Interest apportionment on thin capitalisation):
          1. a licensed insurer under the Insurance (Prudential Supervision) Act 2010 or an associated person under that Act of a licensed insurer:
            1. a non-bank deposit taker under the Non-bank Deposit Takers Act 2013 or an associated person or related person under that Act of a non-bank deposit taker:
              1. a member of a group of persons that has a main business activity of providing funds to persons who are not associated persons of the members of the group:
                1. a person that—
                  1. is a member of a group of persons (the business group) that has a main business activity other than the main business activity of a group of persons referred to in paragraphs (a) to (d); and
                    1. has a main business activity of providing funds to persons who are not associated persons of the members of the business group.

                    Notes
                    • Section GC 15: inserted, on , by section 42(1) (and see section 42(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).