141Tax shortfalls

1. Tax shortfalls are to be calculated by the Commissioner in accordance with this section unless otherwise specified in a provision of an Inland Revenue Act.

2. A tax shortfall calculation is required each time a taxpayer is liable to pay a shortfall penalty, subject to sections 141AA(1) and 141EE(4).

3. A separate tax shortfall calculation is required—

4. for each return period; and
5. for each tax type; and
6. for each tax position taken by a taxpayer.

7. Each tax deemed to be another tax is a separate tax type.

8. If, in a return period—

9. a taxpayer is liable to pay 1 or more shortfall penalties in respect of the same tax type; and
10. the taxpayer's liability to the tax is overstated in 1 or more respects—
the tax shortfall for a tax type shall be calculated by—
11. setting off the tax effects of the overstatements against the understatement, in the case of 1 tax shortfall; and
12. setting off the tax effects of the overstatements prorated against the understatements, in the case of more than 1 tax shortfall.

13. If—

14. a taxpayer's tax position in respect of a tax type (in this subsection referred to as tax one) in a return period is adjusted by the Commissioner, and the tax effect of the adjustment is a tax shortfall; and
15. as a result or consequence of the adjustment, the Commissioner also adjusts the taxpayer's tax position in respect of another type of tax (in this subsection referred to as tax two) in the same return period, and the tax effect of the further adjustment is an entitlement to a refund or to an increased refund of tax,—
the Commissioner may, for the purpose of imposing a penalty, treat an amount up to the refund, or increased refund, of tax two as though it were tax one paid by the taxpayer in the return period, and in so doing reduce the tax shortfall for tax one.

16. If—

17. a taxpayer's tax position in respect of a tax type in a return period is adjusted by the Commissioner, and the tax effect of the adjustment is a tax shortfall; and
18. linked to the adjustment, the Commissioner adjusts another taxpayer's tax position in respect of the same tax type in the same return period, and the tax effect of the further adjustment is an entitlement to a refund or an increased refund of tax or a reduction in tax to pay; and
19. the 2 taxpayers are associated persons,—
the Commissioner may, for the purpose of imposing a penalty, treat an amount up to the refund, or increased refund, or reduction, of tax as though it were tax paid by the taxpayer referred to in paragraph (a) in the return period, and in so doing reduce that taxpayer's tax shortfall.

20. The Commissioner may exercise the discretion under subsection (7) in relation to a taxpayer and an associated person having a different return period if—

21. subsection (7) would apply to the taxpayer in the absence of this subsection if the associated person's return period were the same as the taxpayer's return period; and
22. the taxpayer's return period affected by the adjustment referred to in subsection (7)(a) overlaps the associated person's return period affected by the adjustment referred to in subsection (7)(b); and
23. the taxpayer's tax position is not an abusive tax position and does not involve evasion or a similar act.

24. Repealed

25. Repealed

26. The Commissioner may treat the companies in a wholly-owned group as if they were a single taxpayer for the purposes of determining a tax shortfall.

27. If, in the application of subsection (6), 2 types of tax have different return periods, the Commissioner may, for the purpose of determining a tax shortfall, specify that part of 1 or more return periods for one of the tax types is to be treated as the same return period for the other tax type.

28. If—

29. in a return period, a taxpayer takes a taxpayer's tax position—
    1. in respect of, or as a consequence of entering into, an arrangement; or
    2. in respect of an article, item, or matter; and
30. in the same return period, the taxpayer takes a similar or identical taxpayer's tax position—
    1. in respect of, or as a consequence of entering into, a similar or identical arrangement; or
    2. in respect of a similar or identical article, item, or matter,—
the tax shortfalls arising from the taxpayer's tax positions are to be aggregated and deemed to be 1 tax shortfall.

31. Repealed

32. The tax effect of a tax position taken by a taxpayer in a return period is to be calculated having regard to—

33. the marginal rate or rates of tax applicable to the taxpayer during the return period; and
34. where the taxpayer has no tax to pay in the return period, the rate of tax or lowest marginal rate of tax that would apply to the taxpayer during the return period, if the taxpayer had tax to pay.

35. Where a life insurer derives policyholder income in a tax year and the life insurer's tax position in respect of the policyholder base income tax liability gives rise to a tax shortfall, the Commissioner shall not assess under sections 141A to 141EB a penalty on the proportion of the tax shortfall that is attributable to the life insurer's tax position in respect of the amount of underwriting income represented by underwriting result in the formula in section EY 43(1) of the Income Tax Act 2007.

36. In this section, tax does not include a civil penalty.

37. For the purposes of determining the amount of a tax shortfall in relation to an instalment date and a provisional taxpayer other than a date and taxpayer using the AIM method, the tax shortfall shall be the difference between—

38. the lesser of—
    1. the amount of provisional tax payable on the instalment date if an estimate had not applied at that instalment date; and
    2. the amount that would have been payable on that instalment date if the taxpayer's provisional tax payable for the tax year had been the taxpayer's residual income tax liability for the tax year; and
39. the amount of provisional tax payable on that instalment date as determined by the estimate applying as at that instalment date.