International Tax and Cross-Border Transactions
Core framework
New Zealand taxes residents on worldwide income and non-residents on New Zealand-sourced income. Candidates must know the controlled foreign company (CFC) rules, foreign investment fund (FIF) rules, transfer pricing, and double tax agreements (DTAs).
Key concepts: CFC attribution of income to New Zealand residents; the FIF rules (attributable FIF income, comparative value, fair dividend rate); transfer pricing between associated parties at arm's length; withholding tax on dividends, interest, and royalties paid to non-residents; and DTA relief from double taxation.
Traps
- Assuming foreign income is tax-free because it was earned offshore; residents are taxed on worldwide income.
- Forgetting the FIF de minimis threshold (generally 10% or less of the total shares, with a $50,000 cost threshold).
- Ignoring transfer pricing adjustments for related-party transactions.
- Confusing withholding tax rates with the final tax liability; DTAs may reduce rates.
Worked example
A New Zealand resident owns 5% of a foreign company worth $40,000. The FIF de minimis may apply because the cost is $50,000 or less, so the investment may be outside the FIF rules. If the cost exceeded $50,000, FIF income would need to be calculated.
Rule of thumb
Determine residence, source, and the applicable regime (CFC, FIF, transfer pricing), then apply any DTA relief.