Controlled foreign company (CFC) rules

When is a company a controlled foreign company?

EX 1 Meaning of controlled foreign company
Tests of control

(1)

A foreign company is a controlled foreign company (CFC) if any of the following tests is met:

(a)

there is a group of 5 or fewer New Zealand residents whose total control interests in the company are more than 50% in any one of the control interest categories:

(b)

a single New Zealand resident holds a control interest of 40% or more unless at the same time—

(i)

the person’s control interest is less than or equal to a control interest in the same category held by another person; and

(ii)

the other person is not a New Zealand resident; and

(iii)

the other person is not associated with the New Zealand resident:

(c)

there is a group of 5 or fewer New Zealand residents who can control the exercise of the shareholder decision-making rights for the company and, as a result, control the company’s affairs.

Exception

(2)

Even if a test in subsection (1) is met, a foreign company is not a CFC if—

(a)

the foreign company is a foreign PIE equivalent; and

(b)

1 of the New Zealand residents is—

(i)

a portfolio investment entity:

(ii)

an entity that qualifies for PIE status:

(iii)

a life insurance company.

Status applies for whole accounting period

(3)

If any of the tests in subsection (1) is met at any time in a foreign company’s accounting period and the exception in subsection (2) does not apply at the time, the company is treated as a CFC for the whole of the accounting period.

Defined in this Act: accounting period, associated person, CFC, company, control interest, control interest category, foreign company, foreign investment vehicle, life insurance, New Zealand resident, portfolio investment entity, shareholder decision-making right

Compare: 2004 No 35 s EX 1

Section EX 1(1)(b)(i): substituted (with effect on 1 April 2008), on 7 September 2010, by section 42(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EX 1(2): amended, on 1 April 2008, by section 381 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).

Section EX 1(2)(a): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 149(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 1(2)(b)(ii): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 149(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 1 list of defined terms control: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).