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Section 61 of the Tax Administration Act 1994 ("TAA") requires taxpayers to disclose interests in foreign entities.
Section 61(1) of the TAA states that a person who has a control or income interest in a foreign company or an attributing interest in a foreign investment fund ("FIF") at any time during the income year must disclose the interest held.1 However, section 61(2) of the TAA allows the Commissioner of Inland Revenue to exempt any person or class of persons from this requirement if disclosure is not necessary for the administration of the international tax rules (as defined in section YA 1) contained in the Income Tax Act 2007 ("ITA").
To balance the revenue forecasting and risk assessment needs of the Commissioner with the compliance costs of taxpayers providing the information, the Commissioner has issued an international tax disclosure exemption under section 61(2) of the TAA that applies for the income year corresponding to the tax year ended 31 March 2012. This exemption may be cited as "International Tax Disclosure Exemption ITR23" and the full text appears at the end of this item.
We note at the time of writing, the Taxation (International Investment and Remedial Matters) Bill, which is due to bring in an active income exemption for holdings above 10% in foreign companies that are not CFCs, has yet to be enacted. As the amendments apply for balance dates starting from 1 July 2011 to 30 September 2011, this disclosure exemption will apply to those taxpayers.
The scope of the 2012 exemption is the same as the 2011 exemption.
This exemption applies for the income year corresponding to the tax year ending 31 March 2012.
In summary, the 2012 international tax disclosure exemption removes the requirement of a resident to disclose:
The 2012 disclosure exemption also removes the requirement for a non-resident or transitional resident to disclose interests held in foreign companies and FIFs.
Generally, residents who hold an income interest or a control interest in a foreign company, or an attributing interest in a FIF are required to disclose these interests to the Commissioner. These interests are considered in further detail below.
A resident is required to disclose an attributing interest in a FIF if FIF income or a FIF loss arises through the use of one of the following calculation methods:
The 37 countries or territories that New Zealand does have a double tax agreement in force as at 31 March 2012 are listed below.
United Arab Emirates
United States of America
No disclosure is required by non-widely-held taxpayers for attributing interests in FIFs that are incorporated or otherwise tax resident in a tax treaty country or territory, if the fair dividend rate or comparative value methods of calculation are used.
A "widely-held entity" for the purposes of this disclosure is an entity which is a:
Portfolio investment entity, widely-held company, widely-held superannuation fund and widely-held GIF are all defined in section YA 1 of the ITA.
The disclosure required by widely-held entities of attributing interests in FIFs which use the fair dividend rate or the comparative value method of calculation is that, for each calculation method, they disclose the end-of-year New Zealand dollar market value of investments split by the jurisdiction in which the attributing interest in a FIF is held, listed, organised or managed. In the event that tax residence is not easily determined, a further option of a split by currency in which the investment is held will also be accepted as long as it is a reasonable proxy - that is at least 90-95% accurate - for the underlying jurisdictions in which the FIF is held, listed, organised or managed. For example, investments denominated in euros will not be able to meet this test and so euro-based investments will need to be split into the underlying jurisdictions.
The types of interests that fall within the scope of section 61(1) of the TAA are:
However, the following interests are exempt (under sections EX 31 to EX 43 of the ITA) from being an attributing interest in a FIF and do not have to be disclosed:
Interests in foreign entities held by a natural person not acting as a trustee also do not have to be disclosed if the total cost of the interests remains under $50,000 at all times during the income year - the de minimis exemption. This disclosure exemption is made because no FIF income under section CQ 5 of the ITA or FIF loss under section DN 6 arises in respect of these interests.
We note that from 1 April 2012 in the event that legislation is passed to allow an opt-out of the de minimis, disclosure may be required if it would have been required had the cost of the person’s FIF interest exceeded the de minimis.
The forms for the disclosure of FIF interests are as follows:
FIF disclosure forms (of methods that will be unaffected by the potential law change to bring in an active income exemption), have been updated and online filing improved.
In particular, improvements have been made to the Foreign investment fund disclosure (IR445) or (IR447), Interest in a foreign investment fund disclosure schedule (cost method) (IR449), Interest in a foreign investment fund disclosure schedule (deemed rate of return method) (IR443) and Comparative value disclosures (IR446) or (IR448).
It is now possible to download a spreadsheet as a working paper or complete the disclosures online. If you’re downloading the spreadsheet you will be able to save it as a working paper on your computer and when completed submit the form by using Inland Revenue’s online services.
You will still able to complete the disclosure online without downloading a spreadsheet by directly entering the disclosure online.
The IR445 and IR446 forms, which reflect the disclosure for fair dividend rate and comparative value for widely-held entities must be completed online. As discussed above this disclosure is by country rather than by individual investment as is the general requirement of section 61. In order to be exempt from the general requirements, the alternative disclosure must be made electronically.
The IR447, IR448 and IR449 forms, applying to the fair dividend rate and comparative value methods for individuals or non-widely-held entities as well as the cost method for all taxpayers may be completed online. The online forms can be found at www.ird.govt.nz "Get it done online", "Foreign investment fund disclosure".
Once enacted, the Taxation (International Investment and Remedial Matters) Bill will affect some taxpayers with balance dates starting after 30 June 2011. More specifically these taxpayers will:
Until the proposed extension of the active income exemption is passed into law, or for taxpayers for whom the change does not apply in the 2012 tax year, a transitional measure for non-portfolio FIFs using the branch equivalent or accounting profits, namely an alternative to using the IR439 and IR440 forms, is acceptable for the income year corresponding to the tax year ending 31 March 2012. For each calculation method, an acceptable alternative disclosure will be a schedule outlining all the FIF interests of a particular taxpayer and must, as a minimum, include the following information:
A scanned copy of the audited financial statements of the FIF must also accompany the schedule(s).
The alternative disclosure schedules and audited financial accounts should be sent to the following email address: email@example.com
The alternative disclosure schedule filed must also be printed, dated and signed by the taxpayer as true and correct. This should be held on file by the taxpayer and may be requested by the Commissioner.
A resident is required to disclose an income interest of 10% or more in a foreign company. This obligation to disclose applies to all foreign companies regardless of the country of residence. For this purpose, the following interests need to be considered:
To determine whether a resident has an income interest of 10% or more for CFCs, sections EX 14 to EX 17 of the ITA should be applied. To determine whether a resident has an income interest of 10% or more in any entity that is not a CFC, for the purposes of this exemption, sections EX 14 to EX 17 should be applied to the foreign company as if it were a CFC.
Disclosure of all interests in a controlled foreign company is required using a Controlled foreign companies disclosure (IR458) form. This form, which involves uploading a prescribed spreadsheet, can cater for up to 500 individual disclosures.
The IR458 form must be completed online at www.ird.govt.nz (keyword: ir458). Please note that electronic filing is a mandatory requirement for CFC disclosure.
It is possible that a resident may be required to disclose an interest in a foreign company that also constitutes an attributing interest in a FIF. For example, a person with an income interest of 10% or greater in a foreign company that is not a CFC is strictly required to disclose both an interest held in a foreign company and an attributing interest in a FIF.
To meet disclosure requirements, only one form of disclosure is required for each interest. If the interest is an attributing interest in a FIF, then the appropriate disclosure for the calculation method, as discussed previously, must be made.
In all other cases, where the interest in a foreign company is not an attributing interest in a FIF, the IR458 for controlled foreign companies must be filed.
Interests held by non-residents and transitional residents in foreign companies and FIFs do not need to be disclosed.
This would apply for example to an overseas company operating in New Zealand (through a branch) in respect of its interests in foreign companies and FIFs; or to a transitional resident with interests in a foreign company or an attributing interest in a FIF.
Under the international tax rules, non-residents and transitional residents are not required to calculate or attribute income under either the CFC or FIF rules. Therefore disclosure of non-residents’ or transitional residents’ holdings in foreign companies or FIFs is not necessary for the administration of the international tax rules and so an exemption is made for this group.
This exemption may be cited as "International Tax Disclosure Exemption ITR23".
This exemption is made under section 61(2) of the Tax Administration Act 1994. It details interests in foreign companies and attributing interests in FIFs in relation to which any person is not required to comply with the requirements in section 61 of the Tax Administration Act 1994 to make disclosure of their interests, for the income year ending 31 March 2012.
For the purpose of this disclosure exemption:
The relevant definition of "associated persons" is contained in the parts of subpart YB of the Income Tax Act 2007.
Otherwise, unless the context requires, expressions used have the same meaning as in section YA 1 of the Income Tax Act 2007.
This exemption is made by me acting under delegated authority from the Commissioner of Inland Revenue pursuant to section 7 of the Tax Administration Act 1994.
This exemption is signed on the 8th of March 2012.
Principal Advisor (International Tax)
1 In the case of partnerships, disclosure needs to be made by the individual partners in the partnership. The partnership itself is not required to disclose.
2 We note that the proposed ability to opt out of the de minimis cannot apply until 1 April 2012 and so is outside the scope of this disclosure exemption.