GC 18Loan features disregarded by rules for transfer pricing arrangements

1. This section applies when sections GC 7 to GC 14 are applied to a borrower and a transfer pricing arrangement including a financial arrangement (the loan) that is a cross-border related borrowing, as referred to in section GC 15(1).

2. A feature of the loan is disregarded, or adjusted as required by this section, for the purposes of applying sections GC 7 to GC 14 if—

3. 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); and
4. the feature may increase the rate of interest payable by the borrower under the loan and—
   1. is referred to in subsection (3); and
   2. is not included in an exception under subsections (9) and (10).

5. A feature of a financial arrangement that is a cross-border related borrowing may be disregarded or adjusted under this section if the feature—

6. allows the reduction of a liability for interest or principal by a provision of value other than payment of an amount of money:
7. allows a liability to pay interest to be deferred for a period of more than 12 months:
8. provides for a change in the rate of interest payable that is contingent on an event within the control of the borrower or the lender:
9. excludes the exercise of a lender’s usual rights to enforce the payment of interest or repayment of principal:
10. provides that a liability to pay interest or repay principal is contingent on an event within the control of the borrower or the lender:
11. provides that the term of the loan from when the financial arrangement is entered is more than 5 years:
12. provides that the borrower’s obligations under the loan are subordinate to other financial arrangements of the borrower.

13. A term of more than 5 years for a cross-border related borrowing (the borrowing) may be adjusted under subsection (8) if—

14. the borrower is referred to as an insuring or lending person in section GC 15(2)(a), (b), or (c), or is associated with such a person, and the exception in subsection (10) does not apply:
15. the borrower is not referred to as an insuring or lending person in section GC 15(2)(a), (b), or (c), and is not associated with such a person and, for the borrowing, either or both—
    1. the term of the borrowing is more than the period that is the weighted average of the terms of the financial arrangements included in the total group debt of the borrower’s worldwide group under subpart FE (Interest apportionment on thin capitalisation):
    2. the amount of the borrower’s cross-border related borrowing, including the borrowing, is more than the amount that is 4 times the total value of the financial arrangements included in the total group debt of the borrower’s worldwide group under subpart FE.

16. Whether an adjustment is required under subsection (8), and the amount of a required adjustment, is found for the date (the calculation date) on which the loan is entered or renewed or extended using—

17. the figure (the threshold term) calculated using the formula in subsection (6) for financial arrangements having a term of more than 5 years—
    1. included in the total group debt of the borrower’s worldwide group under subpart FE; or
    2. between members of the borrower’s New Zealand group under subpart FE and persons other than associated persons excluding cross-border related borrowing:
18. the value of the financial arrangements used in calculating the threshold term, expressed as a fraction (the threshold fraction) of—
    1. the total group debt of the borrower’s worldwide group, if the threshold term is calculated under paragraph (a)(i); or
    2. the total value of loans to members of the borrower’s New Zealand group by persons other than associated persons excluding cross-border related borrowing, if the threshold term is calculated under paragraph (a)(ii).

19. The threshold term for the purposes of subsection (5)(a) is the total of amounts, each of which is calculated using the formula—

    $term\; \times \; term\; debt\; ÷\; long-term\; debt.$

    Where:

20. In the formula,—

21. term is the period of the loan term, calculated from the most recent date on which each loan is entered or renewed or extended:
22. term debt is the total value on the calculation date of the principal amounts of loans with the loan term:
23. long-term debt is—
    1. the total group debt having a term of more than 5 years of the borrower’s worldwide group, if the threshold term is calculated for financial arrangements described in subsection (5)(a)(i); or
    2. the total value of loans having a term of more than 5 years to members of the borrower’s New Zealand group by persons other than associated persons excluding cross-border related borrowing, if the threshold term is calculated for financial arrangements described in subsection (5)(a)(ii).

24. The term of a loan is adjusted to equal—

25. the threshold term under subsection (5)(a), if—
    1. the term of the loan exceeds the threshold term; and
    2. the total value of loans that are cross-border related borrowing or are to members of the borrower’s New Zealand group by associated persons, and having a term of more than 5 years, expressed as a proportion of the total value of loans that are cross-border related borrowing or are to members of the borrower’s New Zealand group by associated persons, does not exceed the threshold fraction under subsection (5)(b); or
26. 5 years, if when the loan is included, the total value of loans that are cross-border related borrowing or are to members of the borrower’s New Zealand group by associated persons, and having a term of more than 5 years,—
    1. expressed as a proportion of the total value of loans that are cross-border related borrowing or are to members of the borrower’s New Zealand group by associated persons, exceeds the threshold fraction under subsection (5)(b):
    2. is more than 4 times the total value of financial arrangements with the feature that are included in total group debt of the borrower’s worldwide group, when the threshold fraction is determined under subsection (5)(b)(i):
    3. is more than 4 times the total value of financial arrangements with the feature that are included in the debt that is financial arrangements between members of the borrower’s New Zealand group and persons other than associated persons excluding cross-border related borrowing, when the threshold fraction is determined under subsection (5)(b)(ii).

27. For a borrower that is not referred to as an insuring or lending person in section GC 15(2)(a), (b), or (c) and a feature of a financial arrangement other than the term of a loan, the feature is not disregarded or adjusted if—

28. the feature corresponds to a feature of financial arrangements with a total value that is a fraction (the feature fraction) of the total value of financial arrangements—
    1. included in the total group debt of the borrower’s worldwide group under subpart FE; or
    2. between members of the borrower’s New Zealand group under subpart FE and persons other than associated persons excluding cross-border related borrowing; and
29. the feature is included in financial arrangements, between members of the borrower’s New Zealand group under subpart FE and associated persons or that are cross-border related borrowing, having a total value when the loan is included that,—
    1. as a fraction of the total value of financial arrangements between the members of the borrower’s New Zealand group and associated persons, is less than or equal to the feature fraction; and
    2. if the feature fraction is determined under paragraph (a)(i), is less than or equal to 4 times the total value of financial arrangements with the feature that are included in total group debt of the borrower’s worldwide group; and
    3. if the feature fraction is determined under paragraph (a)(ii), is less than or equal to 4 times the total value of financial arrangements with the feature that are included in the debt that is financial arrangements between members of the borrower’s New Zealand group and persons other than associated persons excluding cross-border related borrowing.

30. For a borrower that is referred to as an insuring or lending person in section GC 15(2)(a), (b), or (c) or is associated with such a person, a feature of a financial arrangement is not disregarded or adjusted if,—

31. for a borrower referred to in section GC 15(2)(a), the feature reflects a requirement, applicable when the financial arrangement is entered, for an arrangement to be recognised by the Reserve Bank of New Zealand as regulatory capital for a member of the New Zealand banking group of a registered bank:
32. for a borrower who is associated with a person (the banking associate) referred to in section GC 15(2)(a),—
    1. the financial arrangement (the funding arrangement) is entered for the purpose of providing funds for a financial arrangement or excepted financial arrangement (the funded arrangement), to be entered by the banking associate to satisfy regulatory capital requirements; and
    2. the features of the funding arrangement reflect the features of the funded arrangement; and
    3. the feature reflects a feature of the funded arrangement that meets the requirements of paragraph (a):
33. for a borrower referred to in section GC 15(2)(b), the feature reflects solvency capital requirements that relate to features of loans and are imposed, when the financial arrangement is entered, on a licensed insurer as a condition of licence under the Insurance (Prudential Supervision) Act 2010:
34. for a borrower who is associated with a person (the insuring associate) referred to in section GC 15(2)(b),—
    1. the financial arrangement (the funding arrangement) is entered for the purpose of providing funds for a financial arrangement (the funded arrangement), to be entered by the insuring associate to satisfy solvency capital requirements; and
    2. the features of the funding arrangement reflect the features of the funded arrangement; and
    3. the feature reflects a feature of the funded arrangement that meets the requirements of paragraph (c):
35. for a borrower referred to in section GC 15(2)(c), the feature reflects minimum capital ratio requirements that relate to features of loans and are imposed, when the financial arrangement is entered, on a non-bank deposit taker by the non-bank deposit taker’s trust deed and regulations 8 and 10 of the Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010:
36. for a borrower who is associated with a person (the deposit taker associate) referred to in section GC 15(2)(c),—
    1. the financial arrangement (the funding arrangement) is entered for the purpose of providing funds for a financial arrangement (the funded arrangement), to be entered by the deposit taker associate to satisfy minimum capital ratio requirements; and
    2. the features of the funding arrangement reflect the features of the funded arrangement; and
    3. the feature reflects a feature of the funded arrangement that meets the requirements of paragraph (e).

Notes

• Section GC 18: inserted, on 1 July 2018, 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 18(4): replaced (with effect on 1 July 2018), on 30 March 2021, by section 82(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section GC 18(4)(b)(ii): amended (with effect on 1 July 2018), on 30 March 2022, by section 114 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
• Section GC 18(5)(a)(i): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section GC 18(5)(a)(ii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(3) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section GC 18(5)(b)(ii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(4) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section GC 18(7)(c)(ii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(5) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section GC 18(8)(a)(ii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(6) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section GC 18(8)(a)(ii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(7) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section GC 18(8)(b): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(8) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section GC 18(8)(b): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(9) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section GC 18(8)(b)(i): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(10) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section GC 18(8)(b)(iii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(11) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section GC 18(9)(a)(ii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(12) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section GC 18(9)(b): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(13) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
• Section GC 18(9)(b)(iii): amended (with effect on 1 July 2018), on 30 March 2021, by section 82(14) (and see section 82(15) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).