Taxation (Tax Administration and Remedial Matters) Act 2011

44 New section EZ 32C
  • (1) After section EZ 32, the following is inserted:

    EZ 32C Treatment in section EX 20C of currency effects on CFC's borrowing
    • When this section applies

      (1) This section applies for a person for an accounting period (the current period) and a CFC when—

      • (a) the CFC is not an entity that carries on a business of banking or insurance and is not controlled by such an entity; and

      • (b) the main activity of the CFC in the period described in subsection (9) (the offset period) is borrowing to invest in shares in a foreign company controlled by the CFC; and

      • (c) the CFC is a party to financial arrangements (the funding arrangements) for each of which—

        • (i) the financial arrangement is a liability of the CFC providing funds to the CFC; and

        • (ii) when the financial arrangement is entered, none of the parties to the financial arrangement, the person, and the associated persons, has a reasonable expectation that the CFC will have more income than expenditure under the financial arrangement; and

      • (d) as a result of changes in currency exchange rates, the CFC has an amount (a loan currency amount) of loss (treated as a negative amount) or gain (treated as a positive amount) from a funding arrangement for the current period; and

      • (e) the CFC has a loan currency amount from a funding arrangement for an accounting period—

        • (i) other than the current period; and

        • (ii) in the offset period for the current period; and

      • (f) for either accounting period, a loan currency amount is included in the calculation for the funding arrangement of the amount of expenditure that contributes to the item limited funding costs in the formula in section EX 20C(2) (Net attributable CFC income or loss); and

      • (g) for the relevant accounting period, the contribution of the item limited funding costs to the CFC's net attributable CFC income or net attributable CFC loss is reduced because the item fraction in that formula is less than 1; and

      • (h) the person chooses in a return of income to have this section apply to the income year corresponding to the accounting period or to an earlier income year.

      Included loan currency amount for funding arrangement and current period

      (2) For a funding arrangement having a loan currency amount for an accounting period (the currency movement period) in the offset period that is included in the calculation of an item, other than later losses, in the formula in section EX 20C(2), an amount (the included currency amount) relating to the currency movement period is calculated for the item, the funding arrangement, and the current period using the formula—

       currency contribution × fraction − earlier adjustments. 
      Definition of items in formula

      (3) In the formula in subsection (2),—

      • (a) currency contribution is the loan currency amount contributed to the item for the funding arrangement and the currency movement period:

      • (b) fraction is—

        • (i) 1, if the loan currency amount is included in the calculation of the item attributable CFC; or

        • (ii) the value for the funding arrangement and the currency movement period of the item fraction in the formula in section EX 20C(2), to the extent that the loan currency amount is included in the calculation of the item limited funding costs; or

        • (iii) the fraction of the loan currency amount that is included in the item other deductions, to the extent that the loan currency amount is included in the calculation of that item:

      • (c) earlier adjustments is the total amount of adjustments (treated as positive amounts) to the included currency amount for the funding arrangement and the currency movement period, each resulting from the application of subsection (7) for an accounting period that is not the current period and is in the offset period.

      Conditions for adjustment of included currency amounts

      (4) For the current period, subsection (7) applies to decrease included currency amounts that are zero or negative and relate to funding arrangements and currency movement periods in the offset period if, for the offset period and the funding arrangements of the CFC, the total of the included currency amounts—

      • (a) is greater than zero; and

      • (b) is greater than the total of the loan currency amounts.

      Total amount of adjustments for included currency amounts

      (5) For the current period, subsection (7) decreases included currency amounts referred to in subsection (4) by a total amount (the total current adjustment) equal to the lowest of the following:

      • (a) the total, for the offset period and the funding arrangements, of the included currency amounts:

      • (b) the amount obtained for the offset period and the funding arrangements by subtracting the total of the loan currency amounts from the total of the included currency amounts:

      • (c) the total of the amounts calculated, for each accounting period in the offset period and each funding arrangement, using the formula—

         loan contribution × fraction − earlier adjustments. 
      Definition of items in formula

      (6) In the formula in subsection (5)(c),—

      • (a) loan contribution is the amount included in the calculation of an item, other than later losses, in the formula in section EX 20C(2) for the funding arrangement and the accounting period:

      • (b) fraction is—

        • (i) 1, if the amount is included in the calculation of the item attributable CFC; or

        • (ii) the value for the funding arrangement and the accounting period of the item fraction in the formula in section EX 20C(2), to the extent that the amount is included in the calculation of the item limited funding costs; or

        • (iii) the fraction of the amount that is included in the item other deductions, to the extent that the amount is included in the calculation of that item:

      • (c) earlier adjustments is the total amount of adjustments (treated as positive amounts) to the amount for the funding arrangement and the accounting period, each resulting from the application of subsection (7) for an accounting period that is not the current period and is in the offset period.

      Adjustment of included currency amount for funding arrangement and period

      (7) The amount of the total current adjustment is—

      • (a) applied first to the current period and then, in the order of earliest to latest, to the other accounting periods in the offset period:

      • (b) reduced, for each accounting period, by an amount corresponding to the total amount subtracted under paragraph (d) for the accounting period, with the result being the amount (the available current adjustment) available to be applied to the next accounting period referred to in paragraph (a):

      • (c) applied for funding arrangements having, for an accounting period,—

        • (i) a negative loan currency amount that contributed an amount of expenditure to the item limited funding costs in the formula in section EX 20C(2); and

        • (ii) an included currency amount that is negative or zero and from which the loan currency amount can be obtained by subtracting a positive amount (the difference):

      • (d) applied for each such funding arrangement, for the accounting period, by subtracting from the included currency amount for the funding arrangement an amount calculated using the formula—

         difference  × available 
           total differences. 
      Definition of items in formula

      (8) In the formula in subsection (7)(d),—

      • (a) difference is the amount of the difference for the funding arrangement and the accounting period:

      • (b) available is the lesser of the available current adjustment for the accounting period and the total amount of differences for the accounting period:

      • (c) total differences is the total amount of differences for the accounting period.

      Requirements for accounting periods in which adjustments made

      (9) For a current period for a CFC, adjustments may be made under subsection (7) for a funding arrangement and an accounting period if the following requirements are met:

      • (a) the accounting period is the current period or 1 of the 4 accounting periods immediately before the current period; and

      • (b) the accounting period begins on or after 1 July 2009; and

      • (c) the CFC is resident under section YD 3 (Country of residence of foreign companies) in the same country or territory for the period (the continuity period) consisting of the current period, the accounting period, and the accounting periods between the accounting period and the current period; and

      • (d) a group of persons exists that has, for the CFC and the continuity period,—

        • (i) voting interests of 49% or more in total; and

        • (ii) market value interests of 49% or more in total.

      Amount of adjustment included in item later losses in section EX 20C

      (10) For the purposes of section EX 20C(9B), the amount of an adjustment under subsection (7) for a CFC's funding arrangement and an accounting period is included in the item later losses for the funding arrangement and the accounting period.

      Amount of adjustment is expenditure of CFC under funding arrangement

      (11) For the purposes of section EW 31 (Base price adjustment formula), the amount of an adjustment under subsection (7) for a CFC's funding arrangement and an accounting period is expenditure incurred by the CFC under the funding arrangement in the accounting period to the extent that the included currency amount corresponding to the adjustment is not, in the absence of this subsection, included in expenditure incurred under the funding arrangement in the accounting period.

      Carrying back loss amounts arising from adjustments

      (12) If adjustments for a CFC under subsection (7) for an accounting period result in a net loss, or an increase in the net loss, of the person for the corresponding income year, the person—

      • (a) may use under section DZ 19 (Attributed CFC loss carried back under section EZ 32C) the amount of the net loss, or of the increase, to offset net income—

        • (i) for an earlier income year in the offset period; and

        • (ii) that has not previously been offset under this subsection; and

        • (iii) to the extent given by subsection (13); and

      • (b) must not use in the corresponding income year the amount of net loss carried back to the earlier income year.

      Limit on loss amounts carried back

      (13) The total amount of net loss carried back under subsection (12) to an earlier income year must not exceed the amount, calculated for the earlier income year in the absence of adjustments under subsection (7) and offsets under subsection (12), that is the lesser of—

      • (a) the net income, or the increase in net income, of the person for the earlier income year produced by including foreign currency amounts in the calculation of net attributable CFC income or loss from CFCs; and

      • (b) the net income, or the increase in net income, of the person for the earlier income year produced by including net attributable CFC income or loss from funding arrangements of CFCs.

      No interest if tax payment excessive because of offset under subsection (12)

      (14) An amount of tax paid by a person for an income year is not overpaid tax for the purposes of Part 7 of the Tax Administration Act 1994 to the extent that the amount—

      • (a) exceeds the income tax liability of the person for the income year because of the use under subsection (12) of net loss from a later income year to offset net income; and

      • (b) is paid before the offset occurs.

      Defined in this Act: accounting period, associated person, attributable CFC amount, CFC, financial arrangement, income year, market value interest, net attributable CFC income, net attributable CFC loss, net income, net loss, return of income, voting interest.

    (2) [Repealed]

    (3) Subsection (1) applies for income years beginning—

    • (a) on or after 1 July 2009; and

    • (b) before 1 July 2013.

    (4) Subsection (2) applies for income years beginning on or after 1 July 2013.

    Section 44(2): repealed (with effect on 29 August 2011), on 2 November 2012, by section 255 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).