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Global transfer pricing guide

Transfer pricing - New Zealand

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Introduction to New Zealand transfer pricing
Transfer pricing rules
  • NZ’s transfer pricing (TP) legislation is contained within section GC of the Income Tax Act 2007. In October 2000 the New Zealand Inland Revenue also released transfer pricing guidelines. These guidelines are not enforced by law in New Zealand and are intended to supplement the OECD guidelines by providing additional information on how to comply with New Zealand transfer pricing rules.
  • NZ’s TP rules are based on the arm’s length principle and follow the OECD guidelines principles.
  • The onus is on the taxpayer to demonstrate that transfer prices meet the arm’s length principle.
  • There is no statutory requirement for taxpayers to prepare transfer pricing documentation.
  • The filing of transfer pricing documentation with the IRD is not required, but because of the self-assessment regime, transfer pricing analysis and documentation is required to help protect against penalties. If the IRD requests transfer pricing documentation, the taxpayer would typically have a deadline of 30 days in which to respond.
  • The OECD’s Master File and Local File concept is regarded as best practice. In addition, for larger groups (over EUR750m) NZ has implemented CbCR (Country by Country Reporting).
OECD guidance
  • New Zealand is a member of the OECD and follows the provisions of the OECD Guidelines. As a member state, New Zealand bases its transfer pricing rules on the OECD Guidelines.
  • The IRD has also issued detailed Transfer Pricing Guidelines in October 2000, which have been amended as appropriate. The TP Guidelines are very closely based on the OECD Guidelines, but offer solutions to issues that are important in the New Zealand context and also cover areas not addressed by the OECD Guidelines. The TP Guidelines state that they should be read as supplementing the OECD Guidelines rather than superseding them.
Transfer pricing methods
  • The most appropriate pricing method should be selected, providing the most reliable measure of an arm’s length result in each case. New Zealand legislation provides five transfer pricing methods available to determine arm’s length consideration being, comparable uncontrolled price, resale price, cost plus, profit split, and the comparable profits method.
  • The legislation does not impose a hierarchy for the transfer pricing methods. Taxpayers must use the most reliable method. Certain methods are considered to provide a more reliable result than others, depending on the quality of available data, and the taxpayer's circumstances.
  • NZ has a self-assessment regime where the burden of proof to demonstrate that consideration is consistent with the arm’s length principle is on the taxpayer.
Transfer pricing documentation
Preparation of transfer pricing documentation
  • There is no statutory requirement for taxpayers to prepare transfer pricing documentation, however as noted above, the burden of proof is on the taxpayer to demonstrate that consideration is consistent with the arm’s length principle. Therefore, the Inland Revenue expects that taxpayers prepare some form of documentation in order to record how their transfer prices have been determined and how they apply the above principle, with the level of detail dependent upon the transfer pricing tax at risk.
  • However, taxpayers who fail to prepare documentation in line with legislation and guidelines expose the taxpayer to penalties if the tax authority takes exception to the pricing implemented.
  • If documentation inadequately explains why a taxpayer’s transfer prices are considered to be consistent with the arm’s length principle, the IRD are more likely to audit these taxpayers in detail. A lack of adequate documentation may make it difficult for the company to rebut an alternative arm’s length transfer price proposed by the tax authority.
  • Taxpayers are required to provide documentation on request, this may occur as part of an IRD risk review or audit.
Master and New Zealand local file
  • The IRD recognise there are considerable compliance cost benefits in aligning their practice with international standards and therefore accept documentation prepared in accordance with the OECD guidelines and have not imposed additional requirements.
  • In the IRD’s opinion, good documentation includes background to the company, industry analysis, analysis of functions, risks and assets, outline the key intercompany transactions under analysis, a discussion on efforts to find internal comparable, reasoning on the best pricing methods available, full details of the comparable search and analysis etc.
  • In NZ business records are required to be kept for a period of seven years after the end of the income year to which they relate, so transfer pricing documentation should be kept for this period.
  • New Zealand endorses the OECD approach to transfer pricing documentation and accepts local file and master file documentation prepared in accordance with this approach. In the interests of containing compliance costs, the IRD has not implemented specific rules for the maintenance or filing of local file and master file documentation.
  • Country-by-country (CBC) reporting requirements apply to corporate groups headquartered in NZ with annual consolidated group revenue of over EUR 750 million. Around 20 NZ headquartered corporate groups are affected. Each year the IRD contacts the corporate groups required to file the CBC report and provides them with the required templates and guidance notes (including both general and specific instructions) published by the OECD.
Some risk factors for challenge
  • The NZ IRD considers transfer pricing to be one of the most important issues arising in international tax and therefore actively focus on this area. Audits or investigations may be performed specifically for transfer pricing issues or alternatively combined with normal tax audits. They maintain a special focus on:
  • Significant enterprises that target smaller subsidiary companies under the ownership of prominent multinational corporations. The Inland Revenue is likely to do an analysis of basic compliance packages (financial statements, tax reconciliations, and corporate structures) supplemented by questionnaires.
  • Unexplained tax losses returned by foreign-owned groups (two consecutive years of tax losses)
  • Loans in excess of NZD 10million principal and guarantee fees
  • Payment of unsustainable levels of royalties and/or service charges (royalties greater than 33% EBITE)
  • Material associated party transactions with no or low tax jurisdictions.
  • Supply chain restructures involving the shifting of any major functions, assets or risks away from NZ.
  • Any unusual arrangements or outcomes that may be identified in controlled foreign company disclosures.
  • Negative EBIT
  • Greater than 5% cost plus margin on service charges
  • Interest greater than 20% EBITDA
  • Debt greater than 40% (being assets less non-debt liabilities)
  • Purchases and other operating expenses of more than $20million involving low and no tax jurisdictions.
  • Small wholesale distributors with EBITE ratio of less than 3%
  • Retailers with EBITE less than 5%
  • Manufacturers with lower than 7% EBITE.
  • Penalties may be applied to adjustments arising from transfer pricing issues. The penalties can range from 20% up to 150% of the tax shortfall. Interest will also be charged on any tax shortfall and tax payments not made on time will also incur late payment penalties. For example, a 'lack of reasonable care' penalty of 20% may be imposed to incorrect transfer pricing positions taken but not adequately documented at the time the position was taken, whereas a 40% gross carelessness penalty may apply if failure to prepare adequate documentation or the acceptance of pricing that is incorrect is identified as part of an audit.
  • Determination of the penalties may reflect the level of co-operation by the taxpayer.
  • Transfer pricing adjustments can be assessed up to four years following the end of the tax year in which the tax return was filed but can be extended to seven years if an audit commences within the four-year statutory period.
Economic analysis and how to demonstrate an arm’s length result
  • The IRD will expect to see that efforts were made to find internal comparables before conducting an external search for comparables.
  • The NZ Inland Revenue will expect to see that a benchmarking exercise has been undertaken, using an independent firm as the benchmark for what would be expected of a firm seeking to earn a true return. The arm’s length range is often defined by the lower quartile and upper quartile for comparable transactions between comparable unrelated parties.
  • Under the simplification and other measures implemented by IRD, there are some situations where there is no need to complete a benchmarking analysis (for example, for low-value adding intra-group services with a total value below NZD 1million.
Advance Pricing Agreements (APAs), dispute avoidance and resolution
  • Advanced pricing agreements (APAs) are extremely useful as a robust upfront means of dealing with transfer pricing risk, especially the more complex issues that arise.
  • An APA is a written agreement between Inland Revenue and the taxpayer which confirms the basis for their international pricing. Taxpayers who complete an APA need to submit annual reports and supporting evidence to the IRD to confirm compliance with the agreement.
  • Unilateral APAs have been found to be successful in both inbound and outbound transfer pricing scenarios. There are especially viable where the amounts at stake are small and/or where most of the transfer pricing risk lies in NZ.
  • The IRD has completed 205 APAs as of 30 June 2019 and this is an area that the IRD is currently pushing.
  • The IRD aims to complete unilateral APAs within six months of the date of acceptance of a formal application. For bilateral negotiations, especially beyond Australia, these take considerably longer to conclude.
  • NZ has around 40 double tax agreements, each with an article establishing a mutual agreement procedure (MAP). The IRD aims to complete MAP cases within 12 months of receiving a request for assistance, however, the time taken to resolve will vary depending on the complexity of the matter in dispute.
  • NZ has opted to apply the MLI which introduces arbitration as a means of dispute resolution. If a solution cannot be reached under MAP, taxpayers have the ability to request unresolved issues be taken to arbitration.
  • There are no exemptions from transfer pricing rules in New Zealand.
Related developments
Transfer pricing simplification measures
  • NZ’s transfer pricing rules have always been about striking a balance between protecting the tax base and containing compliance costs. The IRD has implemented a range of simplification measures targeted at reducing compliance costs in situations that are likely to present a low transfer pricing risk.
  • These simplification measures include low-value-added intra-group services, restricted transfer pricing approach to outbound loans, small value loans, and small wholesale distributors.
  • With the impact of Covid-19 reverberating around the world, there is no question that organisations are being significantly impacted in many ways. Transfer pricing policies may need to be updated to reflect any commercially-driven changes to the global supply chain and changes of functions, assets, and risks across the group.

For further information on transfer pricing in New Zealand please contact:


Sam O'Connor.png

Sam O’Connor
 +64 4 495 1722
M +64 27 421 8550


Greg Thompson.png

Greg Thompson
+64 4 495 3775
M +64 21 281 7332