Subject always to the express provisions of this Subpart, the purpose of this Subpart is to ensure, in the case of a New Zealand taxpayer controlled by a single non-resident and which has a disproportionately high level of New Zealand group debt funding, an appropriate apportionment to the New Zealand taxpayer of the worldwide interest expenditure of the group of entities of which the New Zealand taxpayer is a part.

The interest apportionment rule in section FG 8 can apply only if, at any time in the relevant income year, the taxpayer is—

A person’s ownership interest in a company is equal to the sum of—

A person’s direct ownership interest in a company is equal to the highest percentage held by the person out of the categories listed in paragraphs (a) to (d) of section CG 4(4) (applying those paragraphs as if the company were the foreign company referred to).

If a person has a direct ownership interest in a company (referred to in this subsection as the upper company) and the upper company has an ownership interest in another company (referred to in this subsection as the lower company), then—

If the application of subsection (2) or subsection (4) to require a person’s ownership interest in a company to be calculated on a basis of aggregation with associated persons results in the same percentage shares or rights in respect of the company being counted more than once, the person’s ownership interest in the company will be adjusted to the extent necessary to avoid multiple counting.

For the purposes of subsections (1)(a)(ii) and (2), a person not resident in New Zealand who does not hold any direct or indirect ownership interests in the company and any relative of that person resident in New Zealand are not associated persons in respect of that company.

For the purposes of this section, a trust will be treated as being 50% or more settled by a single person if the value of settlements by the single person, when aggregated with the value of settlements by all the persons associated with the single person, aggregate to 50% or more of the total value of all settlements on the trust.

For the purposes of this section, a foreign company will be treated as not being resident in New Zealand.

Section FG 8 will apply to require an apportionment of interest deductions for an income year if the taxpayer has a New Zealand group debt percentage for the income year which—

The New Zealand group debt percentage will be the percentage which the amount of total debt represents of the amount of total assets for the taxpayer’s New Zealand group for the income year, and must be calculated under the rules in this section.

Total debt means the aggregate of the outstanding balances on the relevant date chosen under subsection (5) of all financial arrangements issued by the taxpayer (or another group member) if—

Total assets for the income year means the aggregate on the relevant date chosen under subsection (5) of all assets of the taxpayer (or another group member), which (subject to the following subsections) must be measured, by any combination, elected by the taxpayer, of—

Except where subsection (3)(c) applies, the amount of total assets must be calculated under generally accepted accounting principles of New Zealand.

The amount of total debt and total assets for the income year must be measured, at the election of the taxpayer, on the basis of—

Notwithstanding subsection (5), if members of the taxpayer’s New Zealand group have different income tax balance dates, the election made by the taxpayer under subsection (5) will apply as if the taxpayer’s income year was the same as that of the New Zealand parent (as defined in subsection (10)).

The amount of total debt and the amount of total assets calculated must be in New Zealand currency and, subject to section FG 7, any necessary currency conversions must be made at the close of trading spot exchange rate on the date as at which the amount is being calculated.

Any temporary—

must be excluded from the calculations if the reduction or increase has a purpose or effect of defeating the intent and application of this Subpart.

If the taxpayer is a company, the amount of total debt and the amount of total assets must be calculated, on a consolidated basis for elimination of intra-group balances used under generally accepted accounting principles of New Zealand for consolidation of a group of companies, for the group identified under subsections (10) to (13).

If the taxpayer is a company, the members of the group will be determined in accordance with the election made under subsection (11) by—

(the party entitled to elect being referred to in subsections (12), (13), and (14) as the New Zealand parent).

Notwithstanding paragraph (c) of subsection (10), the 2 or more companies identified under paragraph (b) of that subsection may jointly elect that one of them will be the taxpayer’s New Zealand parent referred to in subsections (12), (13), and (14), in which event subsection (10)(c) will not apply and the election will take effect.

The taxpayer’s New Zealand group will comprise the taxpayer, the New Zealand parent (if different from the taxpayer), and all companies which—

If the New Zealand parent has made an election for an income year to apply subparagraph (i) or subparagraph (ii) of subsection (12)(b) to identify a taxpayer’s New Zealand group, the New Zealand parent must and is deemed to make the same election for the income year with respect to any other taxpayer in respect of which it is determined to be the New Zealand parent.

If the New Zealand parent fails to make an election under paragraph (b) of subsection (12), the New Zealand parent will be deemed to have elected that subparagraph (ii) of paragraph (b) applies.

If the taxpayer is a trustee, the amount of total debt and the amount of total assets must be calculated, on a consolidated basis for elimination of intra-group balances equivalent to that used for consolidation of a group of companies under generally accepted accounting principles of New Zealand, for the group comprising the taxpayer and all associated persons which are—

If the taxpayer is an individual who is not a trustee—

In any case where a group member required to be included in the consolidated calculation under subsection (9), subsection (12), or subsection (15) is not resident in New Zealand, the amount of total debt and amount of total assets will only include the total debt and total assets of that group member to the extent that that group member is carrying on business in New Zealand through a fixed establishment in New Zealand.

If the taxpayer is an individual, total assets will not include any private or domestic assets.

The worldwide group debt percentage will be the percentage which the amount of total debt represents of the amount of total assets for the taxpayer’s worldwide group for the accounting year of the group ending most immediately prior to the start of the income year, and must be calculated under the rules in this section.

Subject to the following subsections, either or both the amount of total debt and the amount of total assets can be taken from the financial accounts of the taxpayer’s worldwide group.

The amount of total debt and amount of total assets for the income year will be measured at the end of the relevant accounting year.

The amount of total debt and amount of total assets must be calculated—

Notwithstanding subsections (3) and (4), the taxpayer may elect either or both—

The amount of total debt and total assets calculated must be in New Zealand currency and, subject to section FG 7, any necessary currency conversions must be made at the close of trading spot exchange rate on the date as at which the amount is being calculated.

Any temporary increase in the amount of total debt and any temporary decrease in the amount of total assets must be excluded from the calculations if the increase or decrease has a purpose or effect of defeating the intent and application of this Subpart.

If the taxpayer is a company, the amount of total debt and total assets must be calculated for the group (referred to in this section as the taxpayer’s worldwide group) which comprises—

Notwithstanding subsection (8), if in a joint venture ownership situation of a taxpayer which is a company—

the excluded joint venturer will be excluded from the taxpayer’s worldwide group for the income year in respect of which the election is made.

If the taxpayer is a company, the amount of total debt and total assets must be calculated, for the group identified under subsections (8) and (9), on a consolidated basis for elimination of intra-group balances, under—

If the taxpayer is a trustee, the amount of total debt and total assets must be calculated, on a consolidated basis for elimination of intra-group balances equivalent to that used for consolidation of companies under generally accepted accounting principles of New Zealand, for the group comprising the taxpayer and all associated persons.

If it is impractical for the taxpayer to calculate the taxpayer’s worldwide group debt percentage for an income year due to an inability to comply with all or any of these rules,—

If there is no person in the taxpayer’s worldwide group who is not resident in New Zealand (other than the taxpayer), the taxpayer’s worldwide group debt percentage will be 68.1818 notwithstanding the calculation rules in this section.

If the taxpayer (or another group member) is the holder of a financial arrangement issued by—

which provides funds to the issuer, in calculating the taxpayer’s New Zealand group debt percentage the amount of total debt at the time and the amount of total assets at the time must be reduced by an amount equal to the outstanding balance of the financial arrangement.

If the taxpayer (or another group member) is the holder of a financial arrangement issued by a person not associated with the taxpayer which provides funds to the issuer, in calculating the taxpayer’s worldwide group debt percentage the amount of total debt at the time and the amount of total assets at the time must be reduced by an amount equal to the outstanding balance of the financial arrangement.

The taxpayer may elect, when calculating the taxpayer’s New Zealand or worldwide group debt percentage for the income year, to calculate the outstanding balance of any one or more financial arrangements, or the value of any one or more assets, denominated in a currency other than New Zealand currency using the forward exchange rate, for the relevant measurement date specified in section FG 4 or section FG 5, applicable on the first day of the income year.

Notwithstanding anything in section DD 1(b), if a taxpayer’s New Zealand group debt percentage for an income year fails the test in section FG 3, the amount deductible by the taxpayer in the income year under section DD 1(b) will be reduced by the amount calculated as follows:

where—

Notwithstanding subsection (1), if and to the extent that another member of the same wholly-owned group of companies elects that this subsection apply and has a sufficient deductible amount to be reduced (after allowing for any other reductions under this subsection), the reduction will be made to the amount deductible by the other group member under section DD 1(b) for the income year instead of to the amount deductible by the taxpayer.

For the purposes of this Subpart—

Any election available to a person under this Subpart must be exercised by the person filing the person’s return of income for the income year completed in a manner which reflects the election.

Notwithstanding subsection (1), any election under section FG 4(5) or section FG 5(5)(b) can be revoked and exercised differently on receipt of an assessment from the Commissioner for the relevant income year.

Notwithstanding subsection (1) of this section, an election made under section FG 4(11) or section FG 4(12)(b) by a person other than the taxpayer must be exercised by the person giving a notice in writing to the Commissioner with the taxpayer’s income tax return for the income year.”

Subject always to its express provisions, the purpose of this Subpart is to allow a company, which pays to a non-resident investor a dividend with an imputation credit attached, and a supplementary dividend to the same investor, to claim an income tax credit calculated by reference to the imputation credit which is equal to and sufficient to fund the supplementary dividend.

This section applies if a company resident in New Zealand pays in any income year with respect to its own shares—

derived by a person not resident in New Zealand.

The company will be entitled under this section to a credit against payment of its income tax calculated under the following formula:

where IC is the imputation credit (if any, and calculated having regard to subsections (11) and (12)) attached to the dividend.

The tax credit will be allowed only against the income tax payable—

The tax credit will be allowed in the first instance against income tax payable by the company for the income year.

If the amount of tax credit exceeds the income tax payable (after allowing for any credit under section LC 1 and before allowing for any credit under section LB 2 or section LD 3) by the company in respect of the income year, the company may—

If a company has any excess credit for an income year and the company so elects, by notice in writing to the Commissioner with the company’s return of income for the income year, the excess credit will be credited (so far as it extends) in payment of income tax payable—

A company which has an excess credit for an income year (referred to in this section as the original income year) may carry the excess credit forward to the succeeding or a later income year (referred to in this section as the year of carry forward) if and only if there is a group of persons—

and, for the purposes of this subsection, the minimum voting interest or minimum market value interest, as the case may be, of any person in the company in the continuity period shall be equal to the lowest voting interest or market value interest (as the case may be) in the company which that person has during the continuity period.

If a company has carried forward any excess credit to a year of carry forward, the excess credit will be allowed in the first instance against the income tax payable (after allowing for any credit under section LC 1 and before allowing for any credit under section LB 2 or section LD 3) by the company for the year of carry forward.

If and to the extent that the excess credit carried forward exceeds the income tax payable by the company for the year of carry forward, and the company so elects by notice in writing to the Commissioner with the company’s return of income for the year of carry forward, the excess credit will be credited in payment of income tax payable in respect of the year of carry forward by any other company which is in the same wholly-owned group of companies as the company for both the year of carry forward and the original income year (or, in any case where one of the companies exists for part only of the relevant income year, at all times in the relevant income year at which the 2 companies both exist).

If and to the extent that an excess credit is credited in payment of income tax under subsection (6) or subsection (8) or subsection (9), the excess credit shall cease to be available otherwise to be carried forward or credited under this section.

The benchmark dividend provisions of sections ME 8 and MG 8 and the provisions of section GC 22 will apply as if the company had never paid the supplementary dividend.

The maximum imputation credit ratio and benchmark dividend provisions of section ME 8 and the provisions of section GC 22 will apply as if the imputation credit attached to the dividend were increased by an amount equal to the tax credit calculated with respect to the dividend under subsection (2).

If the company pays such a supplementary dividend with respect to all shares or the relevant class held by persons not resident in New Zealand, the payment of the supplementary dividend with respect only to certain shares of that class will not be treated as contravening—

which would otherwise prohibit the payment by the company at the time of dividends of different amounts in relation to shares of the class.

If a trustee derives the dividend and is required under the terms of the trust to distribute it as beneficiary income to a beneficiary, the distribution by the trustee of the supplementary dividend to the same beneficiary will not be treated as contravening any term of the trust.

Subsections (4) to (10) apply if a company (referred to in this section as the company) resident in New Zealand pays in any income year with respect to its own shares—

derived by a section LE 3 holding company.

A section LE 3 holding company is a company resident in New Zealand which—

A notice given under subsection (2)(a) will be treated as having been revoked by the company which gave it (referred to in this section as the former section LE 3 holding company), and the former section LE 3 holding company must give notice in writing to the company of the revocation as soon as is practicable, if—

Section LE 2 will apply, with respect to the dividend and the supplementary dividend, as if the section LE 3 holding company were not resident in New Zealand.

Notwithstanding subsection (4) of this section and section LE 2, if—

the provisions of section LE 2 allowing the company a tax credit will apply as if the income year in which the company pays the dividend were the later income year.

Section CB 10(2) can apply to exempt the dividend from tax only to the extent to which it exceeds the amount calculated under the following formula:

where—

and the imputation credit will be deemed, for the purposes of section LB 2, to be included in the part of the dividend which is not exempt.

The dividend will be ignored for the purposes of the RWT rules to the extent to which it does not exceed the amount calculated under the formula in subsection (6), and the imputation credit will be deemed to be included in the part ignored.

The supplementary dividend will not be exempt from tax under section CB 10(2).

The supplementary dividend will be ignored for the purposes of the RWT rules.

Notwithstanding any other provision of this Act, the income tax payable by the section LE 3 holding company for the income year, after allowing for any credits under Subpart LD but before allowing for any other credits under this Part (including section LE 2), will be at least equal to the amount of all supplementary dividends derived by the section LE 3 holding company in the income year, and the section LE 3 holding company will be assessable accordingly.

If and to the extent subsection (10) applies to require payment of an additional amount of tax (or would have required payment but for any credit under section LE 2), the section LE 3 holding company will be deemed to have incurred an amount of loss for the relevant income year (in addition to any other loss for the income year) equal to the tax amount divided by the rate of resident companies’ tax, expressed as a percentage, stated in clause 5 of Part A of Schedule 1 and applying for the income year.”