By Alex Cooper
The New Zealand Inland Revenue is seeking to rectify a drafting error in a new rule to limit the rate of deductible interest on related-party, cross-border debt (the restricted transfer pricing rule) in the Taxation (Neutralising Base Erosion and Profit Shifting) Bill.
In a note issued on February 14, 2018, the Inland Revenue said that, as the Bill is drafted, “the use of the general transfer pricing ownership threshold means this rule does not apply as widely as was intended.” It noted that officials will be recommending to the Finance and Expenditure Committee that “in line with the stated policy intention, the ownership threshold is changed to align with that in the thin capitalization rules, which also deal with the issue of interest deductibility.”
The Inland Revenue explained: “As the Bill is drafted, the restricted transfer pricing rule applies where a person or group holds 50 percent or more of the voting interests in a New Zealand company. Voting interests are the average percentage a person holds of four shareholder decision-making rights in a company.”
“Officials intend to recommend that where a foreign shareholder has varying decision-making rights on their shares in a New Zealand company it will be the highest, rather than the average, of the four rights that determines whether that person or group has a 50 percent or greater interest in the New Zealand borrower.”
The Inland Revenue said that the change will not have any impact in the usual case where shareholders do not have varying rights.
The Finance and Expenditure Committee will hear from submitters on the Bill on February 28 and March 2.
The author is with TP News