Section HD 15 — Income Tax Act 2007: Asset stripping of companies

HD 15 Asset stripping of companies When this section applies (1) This section applies when— (a) an arrangement has been entered into in relation to a company; and (b) an effect of the arrangement is that the company cannot meet a tax liability (the tax obligation ) whether existing at the time of the arrangement or arising after that time, for— (i) income tax: (ii) a civil penalty, as defined in section 3(1) of the Tax Administration Act 1994: (iii) an amount payable under Part 7 of that Act; and (c) it is reasonable to conclude that— (i) a purpose of the arrangement is to have the effect described in paragraph (b); and (ii) if a director of the company at the time of the arrangement made reasonable inquiries, they could have anticipated at the time that the income tax liability would, or would likely, be required to be met. When this section does not apply (2) This section does not apply to an arrangement if— (a) the Commissioner is a party to the arrangement: (b) the tax obligation is no more than an amount of income tax that arises as a direct result of the performance of the arrangement, and that obligation has been met: (c) at the time of the arrangement, the company was under statutory management under the Reserve Bank of New Zealand Act 1989 or the Corporations (Investigation and Management) Act 1989 . Director’s liability (3) All persons who are directors of the company at the time the arrangement is entered into are treated as agents of the company in relation to the tax obligation, and the liability is joint and several. But a director has no liability if— (a) they do not derive a benefit from the arrangement, and at the first reasonable opportunity after becoming aware of the arrangement, or the aspects of the arrangement that cause this section to apply to it, they record formally their dissent in relation to the arrangement with the company and with the Commissioner; or (b) they were not at the relevant time involved in the executive management of the company and had no knowledge of the arrangement, or the aspects of the arrangement that cause this section to apply to it. Shareholder’s liability (4) A person who is a controlling shareholder or an interested shareholder at the time of the arrangement is treated as an agent of the company in relation to the tax obligation other than penalties and interest but, despite section HD 3(2) , the liability is limited to the greater of— (a) the market value of the person’s direct and indirect shareholding in the company at the time of the arrangement; and (b) the value of the benefit that the person derives from the arrangement. Shareholder’s liability for penalties and interest (5) A person who is a controlling shareholder or an interested shareholder at the time of the arrangement is treated as an agent of the company in relation to penalties and interest in proportion to their liability for the tax obligation under subsection (4). Company liquidations (6) In order to give effect to this section, if a company has been liquidated, the Commissioner may at any time after the liquidation make an assessment of a company for an income tax liability of the company as if it had not been liquidated. The time bar applies, but this subsection overrides other provisions in this Act and the Tax Administration Act 1994 . Agents for purposes of notification or objection procedures (7) In making an assessment under subsection (6), the Commissioner must nominate 1 or more persons as having the tax obligation set out in the assessment. The nominated person or persons are treated as agents of the company in relation to any notification or objection procedure concerning the assessment. When liability does not arise (8) No liability arises under this section for a tax year in relation to which— (a) a company has provided returns within the time allowed by section 37 of the Tax Administration Act 1994 for providing returns for the tax year in which the company is liquidated; and (b) the Commissioner has not issued a notice of assessment of the company for the tax year before the end of 4 years following the end of the tax year in which the company is liquidated. Some definitions (9) In this section,— controlling shareholder , for a company, means— (a) a person whose voting interest or market value interest in the company at the time of the arrangement, together with any interests of an associated person, is 50% or more; and (b) if the person or associated person is a company, the voting interest or market value interest of the person or associated person is calculated as if they were not a company and as if sections YC 4 (Look-through rule for corporate shareholders) and YC 6 (Disregarding certain securities) did not apply director means,— (a) a person who occupies the position of director, whether or not the position has that title: (b) for an entity that is treated as a company under this Act, a person who acts in the same or similar way as a director would if the entity were a company incorporated in New Zealand under the Companies Act 1993 interested shareholder means a person who, at the time the arrangement is entered into, has a voting interest or market value interest in the company, calculated in either case if the person is a company as if the person were not a company, and because of the size of the benefit that the person derives from the arrangement, it is reasonable to conclude that the person is a party to the arrangement penalties and interest means a civil penalty or amount payable under Part 7 of the Tax Administration Act 1994 that is part of the tax obligation. Defined in this Act: agent , amount , arrangement , assessment , associated person , Commissioner , company , controlling shareholder , director , income tax , income tax liability , interested shareholder , liquidation , market value , market value interest , New Zealand , notice , notify , penalties and interest , return of income , tax , tax year , time bar , voting interest , Compare: 2004 No 35 s HK 11