NEW ZEALAND Law and Practice Contributed by: Greg Neill, Fred Ward and Callum Burnett, Russell McVeagh
5. Taxation of Non-Local Corporations 5.1 Compensating Adjustments A taxpayer may be party to two or more cross-bor - der arrangements regarded as involving non-arm’s length pricing, and one of those arrangements may be adjusted as part of a transfer pricing dispute (whether pursuant to a settlement or otherwise). In those circumstances, the taxpayer may be permitted a compensating adjustment in relation to the other cross-border arrangements. In broad terms, where the consideration under a trans - fer pricing arrangement is adjusted, a taxpayer may be entitled to relief in the form of a compensating adjustment in relation to a “compensating arrange - ment” where: • the same parties are involved in the transfer pric - ing arrangement and the relevant compensating arrangement; • the transfer pricing arrangement and the com - pensating arrangement involve the same type of goods, services, money, other intangible property or anything else, or there is a link between the pric - ing under the two arrangements; and • the adjustment under the transfer pricing arrange - ment takes place in the same income year or in the year immediately before or after that income year. For the purposes of calculating the taxpayer’s income tax liability, the actual amount either paid or received by the taxpayer under the compensating arrangement is able to be substituted with an arm’s length amount. 5.2 Local Branches and Local Subsidiaries A non-resident company may have a taxable presence in New Zealand by carrying on business in New Zea - land either through a fixed establishment (or “branch”) or by incorporating a local subsidiary. If operating through a New Zealand branch, a non- resident company will only be subject to New Zealand income tax on any income that is deemed to have a New Zealand source. That taxation does not differ from the taxation of a New Zealand resident company deriving the same amounts.
Conversely, a New Zealand incorporated subsidiary of a non-resident company will be considered a New Zealand tax resident and will therefore be subject to New Zealand income tax on its worldwide income. Most of New Zealand’s DTAs contain non-discrimi - nation articles that would generally be expected to apply in the event New Zealand were to adopt dispa - rate treatment for non-resident companies operating in New Zealand compared to New Zealand resident companies. 5.3 Capital Gains of Non-Residents Unlike many other OECD countries, New Zealand has no comprehensive capital gains tax regime. However, the definition or concept of income for New Zealand tax purposes does include profits and gains from certain transactions that would conventionally be regarded as capital in nature (see 2.7 Capital Gains ). This treatment is consistent for both residents and non-residents. Any gain derived from the sale of shares in a New Zealand company by a non-resident would be taxed under New Zealand law only where the gain is regard - ed as income (and not a capital gain) that is sourced in New Zealand. In any event, DTA relief may be avail - able depending on the jurisdiction of residence of the non-resident and the nature of the shares being sold. 5.4 Tax Implications of Change of Control The indirect change of control of a New Zealand com - pany generally should not of itself trigger an income tax charge or liability for duties. In limited circum - stances, the transfer of shares in a foreign company may give rise to tax risk in New Zealand, if (i) those shares were held on revenue account (ie, not held for purposes of investment) and (ii) the shares derive most of their value from real property situated in New Zea - land. New Zealand is permitted to impose tax on such transfers only under certain DTAs. An indirect change of control may affect a New Zea - land company’s ability to carry forward tax losses and imputation credits. The carry forward of tax losses and imputation credits has a shareholder continuity requirement of 49% and 66% respectively (see 2.4 Loss Relief ).
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