Section EX 21E — Income Tax Act 2007: Non-attributing active CFC: test based on accounting standard

EX 21E Non-attributing active CFC: test based on accounting standard Applicable accounting standard (1) A person (the interest holder ) who chooses to determine under this section whether a CFC is a non-attributing active CFC for the person for an accounting period must use an accounting standard (the applicable accounting standard ) permitted by section EX 21C . CFC as part of test group (2) The interest holder may choose to apply this section for the CFC as a member of a group (a test group ) if— (a) the group consists of companies required under the applicable accounting standard to consolidate, whether or not with companies that are not in the group; and (b) each company is subject to the laws of the same country or territory and has a taxed CFC connection with the country or territory; and (c) the interest holder holds an income interest of more than 50% in each company; and (d) each company has the same functional currency; and (e) there are audited and consolidated financial statements that— (i) include the accounts of the companies in the group, whether or not with accounts of companies that are not in the group; and (ii) comply with the applicable accounting standard. Threshold ratio (3) A CFC is a non-attributing active CFC under section EX 21B(2)(b) for an accounting period and an interest holder if, under subsection (4),— (a) the amount calculated using the formula in subsection (5) is less than 0.05; and (b) the amount calculated using the numerator in the formula in subsection (5) is equal to or more than zero; and (c) the amount calculated using the denominator in the formula in subsection (5) is more than zero. Application of formula (4) In using the formula in subsection (5),— (a) each item in the formula is— (i) determined under the applicable accounting standard; and (ii) adjusted so that no amount is included in the item more than once; and (b) each item in the formula is determined— (i) from amounts consolidated for the CFC's test group under the applicable accounting standard, if the interest holder chooses to apply the formula to the test group; or (ii) from amounts for the CFC, if subparagraph (i) does not apply; and (c) each item in the formula is determined after adjustment of amounts included in the item by removing amounts corresponding to minority interests not held by the interest holder; and (d) a reference to a company that is associated is treated as being a reference to a company that is— (i) associated with a member of the CFC's test group, although not a member of the CFC's test group, if the interest holder chooses to apply the formula to the test group; or (ii) associated with the CFC, if subparagraph (i) does not apply; and (e) a reference to a company that is in the same group of companies is treated as being a reference to a company that is— (i) in the same group of companies as a member of the CFC's test group, although not a member of the CFC's test group, if the person chooses to apply the formula to the test group; or (ii) in the same group of companies as the CFC, if subparagraph (i) does not apply; and (f) amounts determined for a CFC other than as part of a test group are— (i) determined in the functional currency of the CFC; and (ii) converted between currencies under the applicable accounting standard, but ignoring exchange differences arising on a monetary item that forms part of a net investment of the CFC in a foreign operation; and (g) amounts determined for a test group are— (i) converted from the functional currency of the CFC to the presentation currency of the consolidated accounts for the test group using the average conversion rate for the accounting period; and (ii) otherwise converted between currencies under the applicable accounting standard. Formula (5) The amount that determines whether the CFC is a non-attributing active CFC is calculated using the formula— reported passive + added passive – removed passive reported revenue + added revenue – removed revenue. Definition of items in formula (6) The items in the formula are defined in subsections (7) to (12). Reported passive (7) Reported passive is the total amount of— (a) income from a dividend: (b) income from interest: (c) income from a royalty: (d) income from rent: (e) income, other than rent or interest, from a finance lease or operating lease: (f) income or loss from a financial asset, other than a derivative as defined in NZIAS 39 or a share that is not revenue account property, in the form of— (i) a change in the reported fair value of the asset: (ii) a gain or loss on the derecognition, as defined in NZIAS 39, of the asset: (iii) a foreign exchange gain or loss on the asset: (g) income or loss from a derivative instrument, as defined in NZIAS 39, and included in the CFC's statement of income— (i) if the instrument is held in the course of a business of the CFC for the purpose of dealing with the derivative instrument: (ii) if the instrument is not entered in the ordinary course of a business of the CFC: (iii) to the extent to which the income or loss is from a hedging relationship, of a type referred to in NZIAS 39, with an amount that would change the numerator of the formula in subsection (5) or with a transaction producing such an amount of income or gain: (h) income or gains from a business of insurance, including income or gains from property used to back insurance assets. Added passive (8) Added passive is the total of amounts not included in the item reported passive for the accounting period that are 1 or more of the following: (a) income from a life insurance policy that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(g) : (b) income from the disposal of revenue account property that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(k) , if the property is— (i) not a share, financial arrangement, or life insurance policy; and (ii) used by the CFC in a way giving rise to income or gains that increase the numerator of the formula in subsection (5): (c) income from a supply of services performed in New Zealand that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(l) : (d) income from a supply of telecommunications services that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(m) or (n): (e) attributed PIE income that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(o) . Removed passive (9) Removed passive is zero if the interest holder does not choose to include an amount for this item or is the total of amounts that are included in the item reported passive or added passive for the accounting period and are in a category included in categories chosen by the interest holder from the following: (a) a dividend that is not included in the attributable CFC amount for the accounting period under section EX 20B(3)(a) to (c) : (b) a royalty that would be included in the attributable CFC amount for the accounting period but for section EX 20B(5)(a) to (d) : (c) rent that would be included in the attributable CFC amount for the accounting period but for section EX 20B(7)(a) to (c) : (cb) gain or loss from a financial asset that is a financial arrangement or agreement referred to in section EX 20B(12) : (d) the cost of revenue account property producing an amount (the included amount ) included in the attributable CFC amount under section EX 20B(3)(k) to the extent, not exceeding the included amount, to which— (i) the cost would be a deduction of the CFC in the accounting period if the CFC were a resident of New Zealand; and (ii) the deduction would exceed the amount of any income arising under subpart CH (Adjustments) relating to the deduction. Reported revenue (10) Reported revenue is the total amount that is— (a) included under the applicable accounting standard in— (i) operating revenue, if the applicable accounting standard is generally accepted accounting practice without IFRS; or (ii) revenue, if subparagraph (i) does not apply: (ab) income from rent: (b) income, other than rent, from a finance lease or operating lease: (c) a gain or loss on a financial asset, other than a derivative as defined in NZIAS 39 or a share not on revenue account, in the form of— (i) a change in the reported fair value of the asset: (ii) a gain or loss on the derecognition, as defined in NZIAS 39, of the asset: (iii) a foreign exchange gain or loss on the asset: (d) a gain or loss from a derivative instrument, as defined in NZIAS 39, and included in the CFC's statement of income— (i) if the derivative instrument is held in the course of a business of the CFC for the purpose of dealing with the derivative instrument: (ii) if the derivative instrument is not entered in the ordinary course of a business of the CFC: (iii) to the extent to which the gain or loss is from a hedging relationship, of a type referred to in NZIAS 39, with an amount that would change the denominator of the formula in subsection (5) or with a transaction producing such an amount of income or gain: (e) income or a gain from a business of insurance, including from property used to back insurance assets, if the applicable accounting standard is not generally accepted accounting practice without IFRS. Added revenue (11) Added revenue is zero if the interest holder does not choose to include an amount for this item or is the total of amounts that are not included in the item reported revenue for the accounting period and are either or both of the following: (a) income from a life insurance policy that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(g) : (b) income from the disposal of revenue account property that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(k) , if the property is— (i) not a share, financial arrangement, or life insurance policy; and (ii) used by the CFC in a way giving rise to income or gains that increase the numerator of the formula in subsection (5). Removed revenue (12) Removed revenue is the total of amounts that are included under the applicable accounting standard in the item reported revenue or added revenue for the accounting period and are 1 or more of the following: (a) an amount included in the item removed passive under subsection (9)(d): (b) a dividend to the extent to which it is included in the item removed passive, under subsection (9)(a): (c) income from a supply of personal services that is included in the item reported revenue, and in the attributable CFC amount for the accounting period under section EX 20B(3)(h) : (d) income or loss from a share that is not revenue account property under this Act in the form of— (i) a change in the reported fair value of the share: (ii) income or loss on the derecognition, as defined in NZIAS 39, of the share: (iii) a foreign exchange gain or loss on the share: (e) income derived from another CFC that— (i) is subject to the laws of the country or territory under which the CFC is liable to income tax on the CFC's income because of the CFC's domicile, residence, place of incorporation, or centre of management; and (ii) is liable to tax on its income in that country or territory because of its domicile, residence, place of incorporation, or centre of management; and (iii) could be consolidated with the CFC for the purposes of this section if appropriate audited accounts were prepared: (f) if the applicable standard is generally accepted accounting practice without IFRS, income from a liability, other than income derived in the normal course of business from a sale or supply of services, in the form of— (i) a reduction in the liability: (ii) a gain on the disposal or other derecognition of the liability: (iii) a foreign exchange gain on the liability: (g) if the applicable standard is generally accepted accounting practice without IFRS, income from an asset that is not a financial asset under NZIAS 32 and not revenue account property as defined in section YA 1 (Definitions) in the form of— (i) an increase in the fair value of the asset: (ii) a gain on the disposal of the asset: (iii) a foreign exchange gain on the asset. Compliance with accounting standards (13) If accounts meet the requirements of section EX 21C for the relevant accounting standard— (a) the accounts are treated as complying with the relevant accounting standard for the purposes of subsection (2): (b) amounts drawn from the accounts, or from information that is used to prepare the accounts and is consistent with them, are treated as complying with the relevant accounting standard for the purposes of subsection (4) if the Commissioner does not have reasonable grounds to suspect— (i) fraudulent activity by the interest holder, the CFC, a CFC in the CFC's test group, or the auditor: (ii) preparation of the accounts with an intent to mislead: (iii) incompetence of the auditor. Defined in this Act: accounting period , associated non-attributing active CFC , attributable CFC amount , CFC , company , dividend , financial arrangement , finance lease , group of companies , IFRS , income , life insurance policy , non-attributing active CFC , operating lease , premium , revenue account property , royalty , taxed CFC connection Section EX 21E: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EX 21E(2)(b): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 27(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34). Section EX 21E(7)(g)(iii): amended (with effect on 30 June 2009), on 7 December 2009, by section 28(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63). Section EX 21E(8)(e): added, on 29 August 2011, by section 38 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63). Section EX 21E(9)(cb): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 27(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34). Section EX 21E(9)(d): amended (with effect on 30 June 2009), on 7 December 2009, by section 28(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63). Section EX 21E(10)(ab): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 27(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34). Section EX 21E(10)(d)(iii): amended (with effect on 30 June 2009), on 7 December 2009, by section 28(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63). Section EX 21E list of defined terms taxed CFC connection : inserted (with effect on 1 July 2009), on 7 May 2012, by section 27(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).