Questions we've been asked: General issues
Records for controlled foreign companies or foreign investment funds to be available in English
We have been asked to clarify Inland Revenue's position as to whether taxpayers are required to provide financial and other underlying records including evidence of foreign tax paid, in English for any controlled foreign companies ("CFCs") or foreign investment fund ("FIFs") they may hold when using the branch equivalent tax calculation method.
Background
There have been a number of instances when verification by the Commissioner of branch equivalent tax calculations has been affected by taxpayers not being able to provide the underlying records in English. This issue has highlighted that some taxpayers are not aware of their obligation, to keep in New Zealand, sufficient records in the English language to enable the Commissioner to readily ascertain their attributed income.
Practice
The legislation requires that any taxpayer that holds interests in any CFC or FIF, where the branch equivalent tax calculation method is adopted, has an obligation to provide upon request financial and other underlying records, for that entity, in English.
| Application of Section 22 of the Tax Administration Act (TAA) 1994 | ||
| Section 22 (2) of the TAA states as follows: | ||
| "...every person who - | ||
| (a) | Carries on any business in New Zealand: | |
| (b) | Carries on any other activity (not being the carrying on of employment as an employee) in New Zealand for the purpose of deriving assessable income;... | |
| (d) | Makes, holds, or disposes of, for the purpose of deriving assessable income, any investment;... | |
| (f) | Is a company that is... a branch equivalent tax account company... | |
| shall keep in New Zealand sufficient records in the English language to enable the ascertainment readily by the Commissioner, or any officer authorised by the Commissioner in that behalf, of - | ||
| (g) | The assessable income derived by that person from the carrying on of that business, or the carrying on of that other activity, or the making or holding or disposing of that investment; and | |
| (h) | The allowable deductions of that person in the carrying on of that business, or the carrying on of that other activity, or the making or holding or disposing of that investment; and ... | |
| (k) | Every credit and debit to the...branch equivalent tax account;... | |
| and shall retain in New Zealand all such records for a period of at least 7 years..."(emphasis added) | ||
The Commissioner's position is that should the records of the various CFCs and FIFs not be provided in the English language, the attributed CFC or FIF income (being assessable income) or attributed CFC or FIF losses (being allowable deductions) cannot be readily ascertained. Nor is the Commissioner in the position of being able to readily ascertain the accuracy in such situations of the resulting entries to the branch equivalent tax account.
Where the financial and other underlying records, including evidence of foreign tax paid, are not maintained in English, the Commissioner considers that upon request there is a requirement for taxpayers to provide such information in English in a timely manner, to ensure the Commissioner can readily ascertain the matters referred to above.
Exception
The exception to such a requirement is under section 22(2) of the TAA 1994:
"... the Commissioner may, on application in writing being made to the Commissioner in that behalf, authorise any such person, by notice, to keep and retain outside New Zealand or as the case may be, in a language other than the English language, such of those records as the Commissioner determines".
Such applications will be considered on a case by case basis, taking into account the degree of difficulty which maintaining records in a language other than English would cause for Inland Revenue, the compliance history of the taxpayer, whether alternative sources of relevant information are available and the relative cost to the taxpayer in meeting their obligation.
Other pages in: General issues
- QB 09/05: Residential investment property or properties in Australia owned by New Zealand resident - NRWT treatment of interest paid to Australian financial institution
- QB 09/03: Decisions on application of CA 1(2) - common law interest and income under ordinary concepts
- QB 09/02: Holiday houses - income tax treatment
- QB 09/01: Payments made in addition to financial redress under Treaty of Waitangi settlements - income tax treatment
- QB 08/04: Income Tax Act 2007: research and development credits (subpart LH) - tax avoidance (section BG1)
- Kiwisaver - creditable membership
- QB 08/03: Application for a private ruling or product ruling on an issue dealt with in a mutual agreement made under a Double Tax Agreement - Tax Administration Act 1994, sections 91E(4)(D)(ii) and 91F(4)(D)
- QB 08/02: Commissioner's power to issue a replacement ruling that operates retrospectively
- QB 08/01: Tax Administration Act 1994 - Section 91E(4)(f) and self-assessment
- QB 07/05 - Ability to rule where the Commissioner is auditing or investigating - whether the Commissioner has a discretion to rule or is prohibited
- QB 07/02 - Whether The Minor Beneficiary Rule Exemption In Section HH 3B Applies On A $1,000 "Per Beneficiary" Or On A $1,000 "Per Beneficiary Per Trust" Basis.
- Tax treatment of wooden scaffolding planks
- Exemption from gift duty for dispositions of property made by or under an order of the Court: section 75(A) Estate and Gift Duties Act 1968
- Private and product binding rulings - to whom do they apply?
- Bankrupt's ability to carry forward accumulated losses
- Website expenditure - deductibility
- Qualifying foreign private annuity exemption from the Foreign Investment Fund regime
- Tourism service providers' payments made to tour guides or drivers - the income tax liability of those parties and the tour operator employing the guide or driver
- Managing communications associated with a dispute referred to the Adjudication Unit
- When does derivation occur in relation to land sales with a deferred settlement, by business taxpayers who provide vendor finance?
- Section 108 Tax Administration Act 1994 (TAA) - commencement of four year statutory period (November 2002)
Date published: 07 Mar 2006
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