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Our goal

Over two-thirds of world trade involves multinational enterprises (MNEs). Well over 60% of world trade comprises associated party transactions which must be transfer priced for taxation purposes. MNEs are a significant force in New Zealand's economic environment.

The overall goal of our transfer pricing compliance programme is to maintain New Zealand's share of multinational tax in accordance with our tax law, acceptable income recognition principles and best international practices.


New Zealand's tax system operates on a self-assessment basis, where the taxpayer is expected to keep sufficient records to support its tax position. Consistent with this, for income years beginning on or after 1 July 2018, the burden of proof for transfer pricing matters rests with the taxpayer. Historically, the burden of proof had been on the Commissioner. 

You do the math

To assist taxpayers to better understand their risk profile we have provided a series of risk indicators. Draw a high-level risk picture by using the following simple checklist. If one (or more) of the risk indicators listed below is present, then don’t be surprised if we ask you for additional information. 

Risk checklist

  • 2 consecutive years of tax losses
  • Negative earnings before interest and tax (EBIT)
  • Cost plus margin on service charges is less than 5% 
  • Distributor earnings before interest, tax and exceptional items (EBITE) are less than 3%
  • Retailer EBITE is less than 5%
  • Manufacturer EBITE is less than 7%
  • Royalties are greater than 33% EBITE 
  • Interest is greater than 20% earnings before interest, tax, depreciation and amortisation (EBITDA)
  • Debt is greater than 40% (assets minus non-debt liabilities)
  • Purchases and other operating expenses are greater than $20 million (involving low/no tax jurisdiction) 

Balancing compliance costs

New Zealand's transfer pricing rules have always been about striking a balance between protecting the tax base and containing compliance costs. Our rules are to be applied consistently with the OECD's Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations - July 2022.

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, we have not implemented specific rules for the maintenance or filing of local file and master file documentation.

We have implemented a range of simplification measures targeted at reducing compliance costs in situations that are likely to present a low transfer pricing risk.

Simplification measures for transfer pricing

Current focus

Our compliance programme is based on maintaining a broad coverage of MNEs who engage in significant cross-border transactions, supported by a specific focus on high risk transfer pricing transactions and structures. We continue to cover the full range of both inbound and outbound associated party transactions.

Our top priority is the Significant Enterprises segment. These taxpayer groups present the highest risk as to profit shifting due to the extent of their international transactions. We will continue to refine our risk assessments of all significant enterprises informed through analysis of annual basic compliance packages (financial statements, tax reconciliations and corporate structures) supplemented by questionnaires.

In regard to issues across all segments of the corporate population, we will maintain a special focus on:

  • unexplained tax losses returned by foreign-owned groups
  • loans in excess of $10 million principal and guarantee fees
  • payment of unsustainable levels of royalties and/or service charges
  • material associated party transactions with no or low tax jurisdictions, including the use of offshore hubs for marketing, logistics and procurement services
  • appropriate booking of income arising from e-commerce transactions
  • supply chain restructures involving the shifting of any major functions, assets or risks away from New Zealand
  • any unusual arrangements or outcomes that may be identified in controlled foreign company disclosures.

We will continue to monitor the profitability of foreign-owned wholesale distributors (for example, firms that purchase and on-sell goods to other firms without significant transformation). They are the most common multinational business form encountered in New Zealand. 

For smaller wholesale distributors (those under $30 million in annual turnover), we will seek explanations for any performance resulting in a weighted average earnings-before-interest-tax-and-exceptional-items of less than 3%.

Remember, it is the responsibility of local management to ensure a company's transfer prices are in accordance with the arm's length standard and adequate supporting documentation is maintained in support of positions taken.

Last updated: 31 Mar 2023
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