Defensive rule (section FH 9) The defensive rule mirrors the primary rule. It is applied by a foreign resident operating in New Zealand through a branch or a New Zealand hybrid entity in the same control as a foreign The defensive rule does not apply where the country of that foreign resident has enacted the primary rule. The rule applies when expenditure of the hybrid entity/branch is deductible in New Zealand and the country of the foreign resident also allows that expenditure as a deduction for the foreign resident. Proposed section FH 9(2) provides that the hybrid entity or foreign resident through its branch has a mismatch amount for the expenditure it incurs in New Zealand. A deduction is denied for this mismatch amount unless and until it is set off against surplus assessable income under proposed section FH 12. Example 3 Jefferson Co., a foreign company in Washington Country (a foreign jurisdiction) owns 100 percent of Hamilton Co., an unlimited liability company resident in New Zealand. Hamilton Co. is a hybrid entity (see below for commentary as to the definition of this term). Hamilton Co. incurs various expenses in carrying out its business. These expenses are deductible in New Zealand and are treated as deductible against the income of Jefferson Co. under the tax laws of Washington Country. Washington Country has not enacted hybrid rules. Under section FH 9(2), Hamilton Co. has a mismatch amount for its incurred expenditure. This expenditure will be non-deductible, except as provided for in section FH 12. This denial is intended to ensure that the expenses incurred by Hamilton Co. cannot be used to offset income which is taxable in New Zealand but is not taxable to Jefferson Co. in Washington Country. (Clause 30, section FH 10) Summary of proposed amendments Proposed section FH 10 implements recommendation 7 of the OECD Hybrid Report. It is a rule designed to deal with companies that are resident in two countries and which produce double deduction (DD) outcomes. New Zealand tax law already prevents a dual resident company from grouping its losses or forming a tax consolidated which are two ways that dual resident company losses can be offset against income that is not taxed in both countries. This rule will more thoroughly prevent this outcome by removing the ability of a dual
Defensive rule (section FH 9) The defensive rule mirrors the primary rule. It is applied by a foreign resident operating in New Zealand through a branch or a New Zealand hybrid entity in the same control as a foreign The defensive rule does not apply where the country of that foreign resident has enacted the primary rule. The rule applies when expenditure of the hybrid entity/branch is deductible in New Zealand and the country of the foreign resident also allows that expenditure as a deduction for the foreign resident. Proposed section FH 9(2) provides that the hybrid entity or foreign resident through its branch has a mismatch amount for the expenditure it incurs in New Zealand. A deduction is denied for this mismatch amount unless and until it is set off against surplus assessable income under proposed section FH 12. Example 3 Jefferson Co., a foreign company in Washington Country (a foreign jurisdiction) owns 100 percent of Hamilton Co., an unlimited liability company resident in New Zealand. Hamilton Co. is a hybrid entity (see below for commentary as to the definition of this term). Hamilton Co. incurs various expenses in carrying out its business. These expenses are deductible in New Zealand and are treated as deductible against the income of Jefferson Co. under the tax laws of Washington Country. Washington Country has not enacted hybrid rules. Under section FH 9(2), Hamilton Co. has a mismatch amount for its incurred expenditure. This expenditure will be non-deductible, except as provided for in section FH 12. This denial is intended to ensure that the expenses incurred by Hamilton Co. cannot be used to offset income which is taxable in New Zealand but is not taxable to Jefferson Co. in Washington Country. (Clause 30, section FH 10) Summary of proposed amendments Proposed section FH 10 implements recommendation 7 of the OECD Hybrid Report. It is a rule designed to deal with companies that are resident in two countries and which produce double deduction (DD) outcomes. New Zealand tax law already prevents a dual resident company from grouping its losses or forming a tax consolidated which are two ways that dual resident company losses can be offset against income that is not taxed in both countries. This rule will more thoroughly prevent this outcome by removing the ability of a dual
2017-commentary-nbeps-bill.docx