Attributable CFC amount and net attributable CFC income or loss

Heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

EX 20B Attributable CFC amount
Attributable CFC amount

(1)

Attributable CFC amount, for an accounting period and a CFC, means the amount calculated under the rules in section EX 21 using the formula—

gross + arrangement − apportioned funding income.

Definition of items in formula

(2)

The items in the formula in subsection (1) are defined in subsections (3) to (4B).

Gross

(3)

Gross is the total amount of income derived in the accounting period by the CFC that is 1 or more of the following:

(a)

a dividend that is paid in relation to rights that are a direct income interest in a foreign company, meet the requirements of neither section EX 34 nor section EX 35, and are excluded from being an attributing interest by—

(b)

a dividend that is paid by a company resident in New Zealand to the extent to which the dividend is not fully imputed:

(c)

an amount that is a deductible foreign equity distribution or a distribution for fixed-rate equity and is not a distribution from an associated non-attributing active CFC:

(d)

a royalty of a type referred to in subsection (5):

(e)

rent of a type referred to in subsection (6):

(f)

income from a business of insurance or from being an insurer:

(g)

income from a life insurance policy of a type referred to in subsection (8):

(h)

income from the supply of personal services of a type referred to in subsection (9):

(i)

income from the disposal of revenue account property that is a share, other than a share referred to in subsection (10):

(j)

income from the disposal of revenue account property that is an option to acquire or dispose of a share:

(k)

income from the disposal of revenue account property that is—

(i)

not a share, financial arrangement, or life insurance policy; and

(ii)

used by the CFC with a purpose or effect of giving rise to income of the CFC referred to in another paragraph of this subsection:

(l)

income from a service, other than a telecommunications service, to the extent to which the service is physically performed in New Zealand:

(m)

income from a service relating to the use of equipment to provide a telecommunications service, to the extent to which the equipment is at the time—

(i)

physically located outside any country or territory; and

(ii)

owned by the CFC or by a FIF that is associated with the CFC; and

(iii)

not a mobile telephone handset or a radio receiver and transmitter for a ship or aircraft:

(n)

income from a telecommunications service to the extent to which the service is physically performed in New Zealand and is not described in subsection (11):

(o)

attributed PIE income that, for a CFC, is not excluded income under section CX 56 (Attributed income of certain investors in multi-rate PIEs):

(p)

a dividend that is excluded by section CD 36(2) (Foreign investment fund income) from the effect of section CD 36(1).

Arrangement

(4)

Arrangement is the total for the CFC and the accounting period of amounts of income under section CC 3 (Financial arrangements) for—

(a)

an arrangement that—

(i)

is a financial arrangement, or a short-term agreement for sale and purchase for which the CFC has made an election under section EW 8 (Election to treat certain excepted financial arrangements as financial arrangements); and

(ii)

is not a derivative instrument; and

(iii)

is not referred to in subsection (12):

(b)

a derivative instrument—

(i)

that is held in the course of a business of the CFC for the purpose of dealing with the derivative instrument:

(ii)

that is not entered in the ordinary course of a business of the CFC:

(iii)

to the extent to which the income is from a hedging relationship, of a type referred to in NZIAS 39, with income of the CFC referred to in subsection (3) or paragraph (a) or with a transaction producing such income of the CFC.

Apportioned funding income

(4B)

Apportioned funding income is,—

(a)

if the CFC is an entity carrying on a business of banking or insurance or is directly or indirectly controlled by such an entity, zero:

(b)

if paragraph (a) does not apply, the amount calculated using the formula—

funding income × funding fraction × (1 − asset fraction).

Definition of items in formula

(4C)

The items in the formula in subsection (4B)(b) are defined in subsections (4D) to (4F).

Funding income

(4D)

Funding income is the total of the amounts in the accounting period that are included in the items gross and arrangement and relate to a financial arrangement—

(a)

that provides funds for the CFC; and

(b)

for which there is no reasonable expectation, when the CFC enters the financial arrangement or when the terms of the financial arrangement are changed, that the CFC will have from the financial arrangement amounts that would be income for the CFC exceeding in total the amounts that would be deductions for the CFC, during—

(i)

the period in which the CFC is party to the financial arrangement:

(ii)

a period predictable in advance during which the CFC is a party to the financial arrangement.

Funding fraction

(4E)

Funding fraction is the amount given by section EX 20C(6) for the CFC.

Asset fraction

(4F)

Asset fraction is the amount given by section EX 20C(8) for the CFC.

Attributable CFC amount: royalties

(5)

A royalty derived by a CFC is included in an attributable CFC amount under subsection (3)(d) if none of the following are satisfied:

(a)

the CFC is regularly engaged in creating, developing, or adding value to property that produces royalties and the royalty is—

(i)

paid by a person who is not associated with the CFC under section YB 2 (Two companies); and

(ii)

from property that is not linked to New Zealand under subsection (13); and

(iii)

from property that the CFC has created or developed or to which the CFC has added substantial value:

(b)

the CFC is regularly engaged in creating, developing, or adding value to property that produces royalties and the royalty is—

(i)

paid by a person who is associated with the CFC under section YB 2; and

(ii)

from property that is not linked to New Zealand under subsection (13); and

(iii)

from property that the CFC has created or developed, or to which the CFC has added substantial value; and

(iv)

an arm’s length amount determined under section GC 13 (Calculation of arm’s length amounts) for the arrangement between the CFC and the associated person:

(c)

the royalty is—

(i)

paid by a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (7)(c) and (12)(a); and

(ii)

from property that is not linked to New Zealand under subsection (13):

(d)

the royalty is—

(i)

paid to the CFC by a person not associated with the CFC under section YB 2, or by a CFC associated with the CFC under section YB 2 that has received a royalty payment from such a person or a royalty payment arising from such a royalty payment; and

(ii)

from property owned by a New Zealand resident who is resident in no other country under all applicable double tax agreements; and

(iii)

from property licensed to the CFC, or to a CFC associated with the CFC under section YB 2, (the licensee) by the New Zealand resident for an arm’s length amount determined under section GC 13 for the arrangement between the licensee and the New Zealand resident.

Attributable CFC amount: rent

(6)

Rent derived by a CFC is included in an attributable CFC amount under subsection (3)(e) if the rent is not of a type referred to in subsection (7) and is from—

(a)

a lease or sublease of land:

(b)

a lease or sublease of personal property:

(c)

a licence to use intangible property:

(d)

a hire or bailment.

Attributable CFC amount: exclusions from rent

(7)

Rent derived by a CFC from a source referred to in subsection (6) is not included in an attributable CFC amount under subsection (3)(e) if the rent is—

(a)

from land in a country or territory with which the CFC has a taxed CFC connection:

(b)

from property other than land, to the extent to which the rent relates to the use of the property in a country or territory referred to in paragraph (a):

(c)

paid by a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (5)(c) and (12)(a):

(d)

a payment under a hire purchase agreement:

(e)

a payment under a finance lease:

(f)

a royalty:

(g)

a payment under a licence to use intangible property that—

(i)

is not a royalty; and

(ii)

would not be included in an attributable CFC amount under subsection (5) if treated as a royalty for the purposes of that subsection.

Attributable CFC amount: income from life insurance contract

(8)

Income from a life insurance policy is included in an attributable CFC amount under subsection (3)(g) if the income is not included in a calculation of FIF income or loss and is—

(a)

a distribution, if the life insurance policy is not intended to compensate the CFC for financial losses arising from the death or extended incapacity of a specified employee or member involved in the CFC’s business:

(b)

a distribution that is not intended to compensate the CFC for financial losses arising from the death or extended incapacity of a specified employee or member involved in the CFC’s business, if the life insurance policy is intended to compensate the CFC for such losses:

(c)

income from a disposal of the life insurance policy, if the policy is revenue account property.

Attributable CFC amount: income from personal services

(9)

Income derived by a CFC from the supply of personal services is included in an attributable CFC amount under subsection (3)(h) if the personal services are performed by another person (the working person) and—

(a)

the working person is a New Zealand resident; and

(b)

the personal services are not essential support for a product supplied by the CFC; and

(c)

the working person is associated with the CFC under section YB 3 (Company and person other than company) at the time the services are performed or is a relative, at the beginning of the accounting period, of a person associated with the CFC under section YB 3; and

(d)

80% or more of the CFC’s total income in the accounting period from supplying personal services is derived through personal services meeting the requirements of paragraph (a) performed by working persons meeting the requirements of paragraph (b); and

(e)

to derive the income, the CFC uses a business structure that requires depreciable property having, at the end of the accounting period, a total cost under section GB 28(7) (Interpretation of terms used in section GB 27) less than or equal to the greater of $75,000 and 25% of the CFC’s total income from personal services performed in the accounting period; and

(f)

a person who holds an attributing interest in the CFC files, after the date on which the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 receives the Royal assent, a return of income in which the amount attributed to the working person is determined under this section.

Exclusions from attributable CFC amount: shares

(10)

Income derived by a CFC from the disposal of a share that is revenue account property is not included in an attributable CFC amount under subsection (3)(i) if the CFC’s FIF income or loss from the share in the period ending with the disposal is calculated using—

(a)

the comparative value method:

(b)

the deemed rate of return method:

(c)

the fair dividend rate method:

(d)

the cost method.

Exclusions from attributable CFC amount: telecommunications services in New Zealand

(11)

Income of a CFC from a telecommunications service physically performed in New Zealand is not included in an attributable CFC amount under subsection (3)(n) if—

(a)

the service is the transmission, emission, or reception of information between New Zealand and a country or territory with which the CFC has a taxed CFC connection; and

(b)

the CFC is a network operator under the Telecommunications (Interception Capability and Security) Act 2013 (a network operator), or—

(i)

a group of persons has, for the whole of the CFC’s accounting period, voting interests and, if a market value circumstance exists, market value interests, of more than 50% in the CFC; and

(ii)

the group of persons also has, for the whole of the CFC’s accounting period, voting interests and, if a market value circumstance exists, market value interests, of more than 50% in a network operator; and

(c)

the service is performed by a person, other than the CFC, who—

(i)

is resident in New Zealand, and is resident in no other country under all applicable double tax agreements:

(ii)

has a fixed establishment in New Zealand that is a permanent establishment under all applicable double tax agreements; and

(d)

the service is performed by the person as part of a business in New Zealand of providing telecommunication services in New Zealand—

(i)

carried on through the person’s fixed establishment, if the person is not resident in New Zealand; and

(ii)

from which the person derives assessable income of more than $5,000,000 per annum.

Exclusions from attributable CFC amount: income from financial arrangements other than derivative instruments

(12)

Income of a CFC from a financial arrangement or excepted financial arrangement that is referred to in subsection (4)(a)(i) is not included in an attributable CFC amount under subsection (4)(a) if the financial arrangement or agreement is—

(a)

an agreement by the CFC to lend money to a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (5)(c) and (7)(c):

(b)

an agreement for the sale or purchase of property or services or a hire purchase agreement—

(i)

entered in the ordinary course of business by the CFC:

(ii)

for property or services produced or used by the CFC in business.

Royalties: property linked to New Zealand

(13)

Property giving rise to a royalty is linked to New Zealand at a time in an accounting period for the purposes of subsection (5) if the property meets the requirements of subsection (14) at a time in the period—

(a)

beginning—

(i)

at the time the property was created, if the property has not since met the requirements of subsection (15); or

(ii)

from the time the property most recently met the requirements of subsection (15); and

(b)

ending at the time in the accounting period.

Situations creating link with New Zealand

(14)

Property owned by a CFC has a link with New Zealand if the property—

(a)

has been owned by a New Zealand resident:

(b)

has been owned by a non-resident for the purposes of a business carried on in New Zealand through a fixed establishment in New Zealand:

(c)

was created or developed in New Zealand:

(d)

has had substantial value added in New Zealand:

(e)

has been acquired by a person who had a deduction for expenditure or loss incurred in the acquisition:

(f)

is based on knowledge acquired by a person who—

(i)

acquired the knowledge with a purpose or intention of creating the property; and

(ii)

had a deduction for expenditure or loss incurred in the acquisition:

(g)

is created or developed from activities, or from the extension, continuation, development, or completion of activities, if the activities produced knowledge acquired by a person who had a deduction for expenditure or loss incurred in the acquisition.

Situations breaking link with New Zealand

(15)

There is no link between property and New Zealand for a CFC when the property is owned by a non-resident who—

(a)

is not a CFC and is not associated with the CFC; and

(b)

is not associated with a person who has owned the property while it had a link with New Zealand.

Defined in this Act: accounting period, agreement for the sale or purchase of property or services, associated, associated non-attributing active CFC, attributable CFC amount, attributable FIF income method, attributed PIE income, business, CFC, comparative value method, deductible foreign equity distribution, deduction, deemed rate of return method, depreciable property, derivative instrument, dividend, excluded income, exempt income, fair dividend rate method, finance lease, financial arrangement, fixed-rate foreign equity, fully imputed, general insurance, group of persons, hire purchase agreement, income, insurance contract, interest, land, life insurance, life insurance policy, loan, loss, market value circumstance, market value interest, money lent, New Zealand, New Zealand resident, non-attributing active CFC, non-resident, reinsurance contract, relative, resident in New Zealand, revenue account property, royalty, share, short-term agreement for sale and purchase, taxed CFC connection, telecommunications service, voting interest

Section EX 20B: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 20B(1) formula: replaced (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).

Section EX 20B(2): amended (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).

Section EX 20B(3)(a): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B(3)(c): replaced (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).

Section EX 20B(3)(f): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 41(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).

Section EX 20B(3)(m)(ii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B(3)(n): amended, on 29 August 2011, by section 36(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EX 20B(3)(o): added, on 29 August 2011, by section 36(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EX 20B(3)(p): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B(4) heading: substituted (with effect on 30 June 2009), on 7 December 2009, by section 23(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EX 20B(4)(b)(iii): amended (with effect on 30 June 2009), on 7 December 2009, by section 23(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EX 20B(4B) heading: inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).

Section EX 20B(4B): inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).

Section EX 20B(4C) heading: inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).

Section EX 20B(4C): inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).

Section EX 20B(4D) heading: inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).

Section EX 20B(4D): inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).

Section EX 20B(4E) heading: inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).

Section EX 20B(4E): inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).

Section EX 20B(4F) heading: inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).

Section EX 20B(4F): inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).

Section EX 20B(5)(a)(i): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 157(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 20B(5)(d)(i): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B(5)(d)(ii): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B(5)(d)(iii): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B(7)(a): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B(9)(c): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 157(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section EX 20B(9)(e): amended, on 24 February 2016, by section 137(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).

Section EX 20B(9)(f): inserted, on 24 February 2016, by section 137(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).

Section EX 20B(11)(a): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B(11)(b): substituted (with effect on 30 June 2009), on 7 December 2009, by section 23(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EX 20B(11)(b): amended, on 11 May 2014, by section 123 of the Telecommunications (Interception Capability and Security) Act 2013 (2013 No 91).

Section EX 20B(11)(b)(i): amended (with effect on 30 June 2009), on 7 September 2010 (applying for the income years beginning on or after 1 July 2009), by section 43(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).

Section EX 20B(11)(c): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(7) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B(11)(d): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(7) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 19(8) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B list of defined terms attributed PIE income: inserted, on 29 August 2011, by section 36(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EX 20B list of defined terms excluded income: inserted, on 29 August 2011, by section 36(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).

Section EX 20B list of defined terms group of persons: inserted (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EX 20B list of defined terms market value circumstance: inserted (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EX 20B list of defined terms market value interest: inserted (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EX 20B list of defined terms taxed CFC connection: inserted (with effect on 1 July 2009), on 7 May 2012, by section 19(9) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).

Section EX 20B list of defined terms voting interest: added (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).