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Income Tax Act 2007

Avoidance and non-market transactions - Market value substituted

GC 17: Credit rating of borrower: insuring or lending person

You could also call this:

“How to determine a borrower's credit rating for overseas-connected loans”

This law talks about how to figure out a credit rating for a borrower who is an insuring or lending person when they borrow money from someone in another country that they’re connected to. The credit rating depends on how much money they’ve borrowed.

If the borrower has borrowed $10 million or more, their credit rating is the same as the best credit rating for long-term loans in their worldwide group. This is based on the group member with the most long-term debt that isn’t from related parties or between associated non-residents.

If no one in the worldwide group has long-term debt, the credit rating is based on the group member with the highest credit rating. You don’t have to consider members who probably won’t have the highest rating.

For borrowers with less than $10 million in loans, the credit rating is what it would be without this special rule.

The borrower can also choose to use a different credit rating if they’re using it for an amount of related-party debt that’s no more than 4 times the total value of their long-term senior debt that isn’t from related parties.

This law is part of sections GC 7 to GC 14 and works with section GC 15 and section GC 16.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS66328.

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

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“Rules for ignoring certain loan features in transfer pricing arrangements”

Part G Avoidance and non-market transactions
Market value substituted

GC 17Credit rating of borrower: insuring or lending person

  1. For the purposes of sections GC 7 to GC 14, a borrower that is referred to as an insuring or lending person in section GC 15(2) has a credit rating for a cross-border related borrowing that is equal to—

  2. the credit rating for long-term senior unsecured debt of the member of the borrower’s worldwide group, under subpart FE (Interest apportionment on thin capitalisation), having the greatest long-term senior unsecured debt that is not related-party debt or between associated non-residents, if the borrower has debt under cross-border related borrowings including the loan of $10 million or more on the most recent calculation date given for the loan by section GC 16(4); or
    1. if no member of the borrower’s worldwide group under subpart FE has long-term senior unsecured debt, the credit rating of the member of the borrower’s worldwide group with the highest credit rating, which may be determined without considering the credit ratings of members that are reasonably considered to be unlikely to have the highest credit rating; or
      1. the credit rating for long-term senior unsecured debt that the borrower would have under section GC 13 in the absence of this section and section GC 15, if the borrower has debt under cross-border related borrowings including the loan of less than $10 million on the most recent calculation date; or
        1. the optional credit rating given for the borrower by section GC 16(11), if the borrower chooses to use the rate given by that subsection and uses the rate for an amount of related-party debt that is less than or equal to 4 times the total value of the long-term senior debt, that is not related-party debt, for which the borrower or a member of the borrower’s New Zealand group has the credit rating.

          Notes
          • Section GC 17: 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).
          • Section GC 17(a): amended (with effect on 1 July 2018), on , by section 207(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
          • Section GC 17(ab): inserted (with effect on 1 July 2018), on , by section 207(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
          • Section GC 17(c): amended (with effect on 1 July 2018), on , by section 207(3) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).