company in which it holds at least a 10% interest. The foreign company must be either:
q A controlled foreign company; or
q A company resident in a gray list country (Australia, Canada, Germany, Japan, Norway, the United Kingdom, and the United States).The underlying foreign taxes paid are then offset against any foreign dividend withholding payment liability.
Foreign Investor Tax Credit Regime. Nonresidents deriving dividends are subject to nonresident withholding tax (NRWT) (see item 17). The foreign investor tax credit regime allows for the payment of a supplementary dividend to nonresident shareholders by New Zealand companies in respect of imputed dividends at the election of the company. The supplementary dividend is calculated with reference to imputation credits attached to the ordinary dividend.
If the ordinary dividend is fully imputed, the upplementary
dividend will equate to the aggregate nonresident withholding tax liability on both the ordinary and supplementary dividends resulting in the nonresident shareholder being taxed at 33%, the same effective rate as New Zealand resident shareholders. The supplementary dividend is funded initially by the New Zealand company. The company is then entitled to a tax credit against its income tax payable. The regime previously only applied to foreign investors owning an interest of less
than 10% in a New Zealand company. As of December 12, 1995, the regime has been extended to apply to all foreign investors.
If the ordinary dividend carries no imputation credits, a
supplementary dividend is unable to be paid. If foreign dividend withholding payment credits are attached, these will reduce or eliminate the NRWT liability. NRWT is deemed to have been paid to the extent of such foreign dividend withholding payment credits.
29.Loss Carryovers
Losses may be carried forward indefinitely but, in the case of
corporations, there must be a minimum level of continuity in the economic ownership of the corporation. Various amendments, effective from April 1, 1992, make the criteria for loss carryforward much more stringent and increase the continuity percentage from 40% to 49%. Transitional rules apply.
There is provision for offset or contributions toward losses by corporations within groups where the common holding is at least 66%.
30.Transactions Between Related Parties
Transfer Pricing. Comprehensive transfer pricing rules, requiring associated taxpayers to value all cross border transactions on an armlength basis, have been introduced effective from the 1996/97 income year. The rules are based on OECD principals.
Thin Capitalization. Thin capitalization rules apply from the 1996/97 income year to New Zealand taxpayers controlled by
nonresidents, including branches of nonresidents. The New Zealand entity will not be entitled to an interest deduction to the extent it is thinly capitalized. An apportionment of the taxpayer deductible interest is required where the taxpayer group debt percentage (total debt/total assets) calculated on a consolidated basis exceeds 75% (the standard safe harbor) and exceeds 110% of the worldwide group debt percentage (the second safe harbor test available to companies and trusts only).
31.Consolidation of Income
Effective April 1, 1993, there is a provisio
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