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Section 61 of the Tax Administration Act 1994 (TAA) requires disclosure of interests in foreign entities.
Under section 61(1) of the TAA, 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 an income year must disclose the interest held.1 However, section 61(2) 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 by section OB1) contained in the Income Tax Act 2004 (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) which applies for the income year corresponding to the tax year ended 31March 2008. This exemption may be cited as "International tax disclosure exemption ITR19" and the full text appears at the end of this item.
In general for interests of 10% or more, the scope of the 2008 disclosure exemption is the same as the 2007 exemption. However, for attributing interests in FIFs that are direct income interests of less than 10%, the scope of the 2008 exemption has changed in situations where the fair dividend rate or comparative value calculation method is used.
Disclosure is required by residents holding these interests
United Arab Emirates
United States of America
No disclosure is required by non-widely held taxpayers whose attributing interests in FIFs are incorporated or tax resident in a treaty country.
A widely held entity for the purposes of this disclosure is one which is a:
Portfolio investment entity, widely held company, widely held superannuation fund and widely held GIF are all as defined in section OB 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 or listed. A split by the currency in which the investment is held, will be also accepted as long as it is a reasonable proxy - that is at least 90-95% accurate - for the underlying jurisdictions. 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.
For determining an income interest at 10% or more for controlled foreign companies, sections EX 14 to EX 17 of the ITA apply. For determining an income interest of 10% or more for entities that are not CFCs, for the purpose of this exemption, sections EX 14 to EX 17 of the ITA are to be applied as if the foreign company were a CFC.
Under section 61, a resident who holds a control or income interest in a foreign company must disclose that interest, regardless of the company's country of residence. The 2008 international tax disclosure exemption also makes no distinction about residence for any interest in a foreign company which is an income interest of 10% or more. Disclosure is to be made on an IR477 or IR479 Interest in a foreign company disclosure schedule form.
The disclosure exemption makes no distinction on the residence of a foreign company with income interests of 10% or more for these reasons:
In previous years, an interest in a foreign entity had to be disclosed if it constituted an attributing interest in a foreign investment fund in respect of which FIF income under section CQ 5 or FIF loss under section DN 6 arose.
This year with the widening of the FIF rules through the removal of the grey-list exemption for interests under 10%, a new approach is being adopted to meet the revenue forecasting and risk assessment needs of the Commissioner without imposing undue compliance costs on taxpayers.
The types of interest that fall within the scope of section 61(1) of the TAA are:
However, the following interests are exempt (under sections EX 32 to EX 37) 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. This disclosure exemption is made because no FIF income under section CQ 5 or FIF loss under section DN 6 arises in respect of these interests.
The respective forms to use for whichever FIF calculation method you apply are as follows:2
A situation may arise where a person is required to furnish a disclosure for an interest in a foreign company which is also an attributing interest in a FIF. For example, a person with an income interest of 10% or greater in a foreign company which is not a CFC is strictly required to disclose both an interest held in a foreign company and an attributing interest held in a FIF.
However, to meet the disclosure obligations, only one disclosure return (either the IR477 or IR479 form, or the IR439, IR440, IR443, IR445, IR446, IR447, IR448 or IR449 form) is required for each interest, or group of interests in the case of fair dividend rate or comparative value method, a person holds in a foreign entity.
Here are the general rules for determining which disclosure return to file:
Use an IR477 or IR479 form to disclose:
Disclosure is not required on any of the forms for an income interest of less than 10% in a foreign company (whether a CFC or not) which is also not an attributing interest in a FIF or is an attributing interest in a FIF in respect of which no FIF income or loss arises under sections CQ 5(1)(d) or DN 6(1)(d). Examples include an interest which is covered by the Australian listed company exemption from the FIF rules or interests held by a natural person, not acting in the capacity of a trustee, with a total cost of below $50,000.
The 2008 disclosure exemption removes the need to disclose interests held by non-residents and transitional residents in foreign companies and FIFs.
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.
The purpose of the international tax rules is to make sure that New Zealand residents are taxed on their share of the income of any overseas interests they hold. However, under the international tax rules non-residents and transitional residents are not required to calculate or attribute income under the CFC or FIF rules. The disclosure of non-residents' or transitional residents' holdings in foreign companies or FIFs is not necessary for the administration of the international tax rules.
The 2008 international tax disclosure exemption removes the requirement of a resident to disclose:
The 2008 disclosure exemption also removes the requirement for a non-resident or transitional resident to disclose interests held in foreign companies and FIFs.
This exemption may be cited as "International tax disclosure exemption ITR19".
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 requirement in section61 of the Tax Administration Act 1994 to make disclosure of their interests, for the income year corresponding to the tax year ending 31 March 2008.
For the purpose of this disclosure exemption to determine an income interest of 10% or more, sections EX 14 to EX 17 of the Income Tax Act 2004 apply for interests in controlled foreign companies. In the case of attributing interests in FIFs, those sections are to be applied as if the FIF were a CFC.
The relevant definition of associated persons is that contained in section OD 8(3) of the Income Tax Act 2004.
Otherwise, unless the context requires, expressions used have the same meaning as in section OB1 of the Income Tax Act 2004.
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 15th day of April 2008.
Assurance Manager (Large Enterprises)
2 In the case of forms IR445 to IR449 relating to the fair dividend rate, comparative value and cost method of calculation, the intention is that in subsequent years section 35 of the TAA will require mandatory electronic filing. This year the IR449 - cost method - and IR447 and IR448 - fair dividend rate and comparative value methods for non-widely held entities will still be paper based.