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מחירי העברה: ניו זילנד- אוקטובר 2011

13 אוקטובר 2011


New Zealand recently published an update to the Inland Revenue administrative practice on certain transfer pricing matters. The update forms an addendum to the transfer pricing guidelines previously issued by the New Zealand Inland Revenue in October 2000.      


The Arm’s length principle

Under the Income Tax Act 2007 cross-border transactions with related parties for “the acquisition or supply of goods, services or anything else” must be at an arm’s length consideration. In determining the arm’s length consideration taxpayers must apply whichever method or combination of methods produces the most reliable measure of the amount that completely independent parties would have agreed upon after real and fully adequate bargaining. The methods being:

  • Comparable uncontrolled price method (CUP method);
  • Resale price method;
  • Cost plus method;
  • Profit split method; and
  • Comparable profits method.

In choosing which method or combination of methods to use, taxpayers must have regard to the following factors:

  • The degree of comparability between the uncontrolled transactions used for comparison with the controlled transactions;
  • The completeness and accuracy of the data relied on;
  • The reliability of all assumptions; and
  • The sensitivity of a result to possible deficiencies in the data and assumptions. To assist taxpayers in applying these methods and assessing the factors, the New Zealand Inland Revenue have issued a number of transfer pricing guidelines, including specific guidelines on the treatment of intangible property, the treatment of intra-group services, such as management fees, and cost contribution arrangements.

Relationship with OECD Guidelines

The New Zealand Inland Revenue Guidelines do not replace the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration, but are intended to supplement the guidelines. The New Zealand Inland Revenue state that the OECD Guidelines will be the relevant guidelines to follow if, for example, a transfer pricing issue is raised under New Zealand’s Double Tax Agreements. The OECD Guidelines are endorsed by the Inland Revenue and therefore the New Zealand transfer pricing guidelines should be read as supplementing the OECD Guidelines, rather than superseding them. The New Zealand guidelines are an attempt to explain the OECD guidelines with a practical focus and in a way that is more accessible to New Zealand taxpayers, and can contain solutions to issues that are better suited to the New Zealand business environment. The recent update of the New Zealand Inland Revenue administrative practices on services and low value loans are a good example of the philosophy behind the New Zealand guidelines in action.

Administrative practice for services

The New Zealand Inland Revenue d in action. o not as a general rule support the use of safe harbour thresholds, as they can result in prices being determined that are clearly inconsistent with the arm’s length principle but are consistent with the safe harbour. An example of this may be an incidental service which if provided inhouse has a cost which is in excess of a CUP for that service. However the Inland Revenue is conscious of the desirability to minimise compliance costs for taxpayers, particularly where this can be achieved without compromising the integrity of the arm’s length principle.

Accordingly the Inland Revenue will follow:

  • an administrative practice applying to noncore services, being activities that are not integral to the profit earning or economically significant activities of the group; and
  • an administrative practice applying to services where the costs of the services are below a de-minimis threshold applying to all intragroup services supplied or acquired where the relevant cost limit is not exceeded.

Non-core services

The administrative practice applying to noncore services does not apply to all intra-group services. There is a restriction where the total amount charged for the services is not more than 15% of the total accounting expenses or accounting revenues (depending if it is a supply that is being made or received) of the group, and adequate documentation is maintained by the taxpayer. Under these conditions an acceptable transfer price will be:

  • not more than the lesser of:
  • the actual charge and
  • the cost of providing the service plus a 7.5% mark-up.

If the total direct and indirect cost of providing the services is not more than the de minimis threshold, then the administrative practice does not distinguish between core or non-core services. Core services refer to an integral part of the profit earning or economically significant activities of the group. Previously, the administrative practice would apply when the total direct and indirect costs of supplying the services is not more than NZD 100,000 in a year. This has been increased to NZD 600,000 for services supplied between associated parties. The increase is to align the administrative practice with the Australian Tax Office threshold and further minimise compliance costs between Australia and New Zealand, but it is not limited to services provided between those two countries.

Important limitation

The Inland Revenue make it clear that the administrative practice does not absolve taxpayers from the requirement to establish that a service or benefit has actually been supplied. If no service has been supplied or provided then no charge made would be at arm’s length.
Taxpayers must maintain documentation to establish the nature of the services supplied or acquired and to address the issues (as far as is relevant) considered in calculating the relevant total costs.

Administrative practice for small value loans

The Inland Revenue have accepted since October 2009 in relation to small value loans, an interest rate of 300 basis points (3.0%) over the relevant base indicator (generally the bank bill rate for variable rate loans or the swap rate for fixed rate loans) as broadly indicative of an arm’s length rate in the absence of a readily available market rate for a debt instrument with similar terms and risk characteristics. The Inland Revenue has reconfirmed this rate with application of this safe harbor interest rate until mid-2012 and will apply for small value loans of up to NZD 2 million in principal outstanding (an increase from a previous increase of NZD 1 million).


The changes to threshold for services and the safe harbor interest rates for small value loans are two practical steps endorsed by the Inland Revenue to reduce compliance costs for many small to medium size companies and are consistent with the philosophy of providing practical guidelines for taxpayers to follow.

**The information contained on this website and from any communication related to this website is for informational purposes only and does not constitute any legal, financial or other advice. For specific tax advice you should contact a qualified professional.