New Zealand transfer pricing laws align with the Guidelines set by the Organization for Economic Co-operation and Development (OECD Guidelines). They are incorporated within Sections YD 5, YD 5B, GB 2, and GC 6-14 of the Income Tax Act 2007.
Arm’s Length Principle
In New Zealand, the arm’s length principle ensures that transactions between related parties, such as a parent company and its foreign subsidiary, are priced as if they were conducted between independent entities. This prevents businesses from artificially shifting profits to lower-tax jurisdictions through manipulated pricing. The law applies arm’s length pricing to cross-border transactions that impact net income, aligning with OECD transfer pricing guidelines to maintain consistency. Financial arrangements, including intercompany loans, must also comply with these principles to prevent tax avoidance.
Related Party Definition
In New Zealand, two companies are considered related parties (associated persons) if they share common ownership or control. This includes cases where a group of persons holds 50% or more of the voting interests or market value interests in both companies or if they control both companies by any other means. Additionally, ownership and control can be combined based on associations with other entities. However, certain government entities, international tax situations, and managed funds are exempt from these rules.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in New Zealand are:
- Comparable Uncontrolled Price Method
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method
- Profit Split Method
In New Zealand, the arm’s length price must be determined by identifying a comparable transaction and establishing the terms that independent parties would agree upon. Unless there is an Advanced Pricing Agreement in force, the taxpayer chooses the method based on the most appropriate method. The choice of method depends on factors such as comparability, data accuracy, and reliability of assumptions.
Comparability Analysis
New Zealand Income Tax requires determining the arm’s length amount through a comparability analysis based on Chapter III of the OECD Transfer Pricing Guidelines. Regulations outline key factors in the analysis, including comparability between controlled and uncontrolled transactions, accuracy and completeness of data, reliability of assumptions, and sensitivity to potential data deficiencies. New Zealand law does not differentiate between local or foreign comparables; however, the law does allow for the usage of secret comparables, even though in practice they are not used.
Documentation Requirements
The legislation does not set out specific documentation requirements, although the New Zealander tax authority – Inland Revenue’s (IRD) transfer pricing guidelines provide some commentary on the matter. Nonetheless, maintaining thorough and well-prepared transfer pricing documentation in accordance with the OECD Guidelines is required for the taxpayer, as the burden of proof lies with them to demonstrate that their transfer pricing position is accurate.
Country-by-Country Reporting
Country-by-country (CBC) reporting rules apply to large corporate groups based in New Zealand that earn more than EUR 750 million a year (as a group). This affects about 20 New Zealand-based groups. Each year, the IRD contacts these groups and gives them the templates and guidance they need to complete the report, based on instructions from the OECD. The reporting needs to be submitted within 12 months of the end of the income year.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Advance Pricing Agreements (APAs) in New Zealand offer a collaborative way to manage transfer pricing compliance, reducing costs and providing certainty for both the IRD and multinational enterprises. APAs can be unilateral (issued as binding rulings under domestic law) or bilateral/multilateral (under double tax agreements). They are particularly effective for complex cases involving intangibles. As of 30 June 2024, New Zealand completed 297 APAs, with most bilateral agreements involving Australia, and others with countries like the US, UK, China, and Japan. The APA process is tailored to each case and typically includes pre-application discussions, formal application, review, agreement on outcomes, and ongoing compliance reporting.
Mutual Agreement Program (MAP)
New Zealand has 41 double tax agreements (DTAs) and 11 tax information exchange agreements (TIEAs), most of which include a Mutual Agreement Procedure (MAP) article for resolving cross-border tax disputes. The MAP allows New Zealand’s competent authority delegated to senior IRD officials to work with other countries to resolve issues like transfer pricing or double taxation. New Zealand aims to resolve MAP cases within 12 months, and most are completed in under 8 months. Taxpayers can submit a MAP request without any fees and may do so alongside local dispute processes. Early engagement through pre-filing discussions is encouraged to streamline the process.
Approach to Transfer Pricing Audits
In New Zealand, IRD usually audits taxpayers after they’ve filed their returns, but it can start earlier if needed. IRD often begins with a risk review—a high-level review of the taxpayer’s activities and procedures. Based on this, the IRD rates the risk and decides whether a deeper audit is necessary. The IRD also has established a specialist transfer pricing team that helps identify risks, supports audits, provides training, handles APAs and mutual agreement procedures, and works with international partners to exchange tax information.
Penalties
New Zealand law does not provide tailored penalties for the transfer pricing policies and rather relies on the same compliance and penalty rules on the general income tax issues. Taxpayers may face civil penalties for underpaid tax (shortfall penalties), late filing or payment, and even criminal penalties for serious non-compliance. The level of penalty depends on the taxpayer’s conduct, ranging from simple errors to deliberate avoidance. Large multinational groups can also be fined up to NZ$100,000 for failing to meet Country-by-Country reporting or Global Anti-Base Erosion information obligations. Penalties are not tax-deductible and can be financially significant.
Taxation at a Glance
New Zealand has a well-structured tax system that applies to both individuals and companies. While there is no general capital gains tax, some capital-like gains may still be taxed as income. The country also imposes a goods and services tax (GST), similar to a value-added tax, along with excise duties on items like fuel, alcohol, and tobacco. Tax laws cover income definitions, deductions, and timing rules, and provide clear procedures for filing and resolving disputes.
The currency of New Zealand is the New Zealand Dollar (ZND).
The official name of the New Zealand tax authority is the Inland Revenue Department.
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 28% |
VAT | 15% |
Withholding tax on dividends to non-residents | 0/15/30% |
Withholding tax on interest to non-residents | 15% |
Withholding tax on royalties to non-residents | 15% |
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