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Unexplained tax losses remain a current focus and are reviewed consistently with the OECD's guidance on losses contained in Chapter 1, Section D.3 of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations - July 2017.

Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD)


Transfer pricing concerns about losses apply to both foreign-owned multinationals operating in New Zealand and New Zealand-owned multinationals with loss-making associates abroad. A constant period of losses may suggest commercially unrealistic transfer pricing policies. Care should be exercised with losses arising in any jurisdiction, not just New Zealand.

We recommend that the reasons behind a loss are documented simultaneously, along with the strategies taken to overcome the problems. Following this process will demonstrate the legitimacy of losses, and should, in fact, be part of normal risk management.

The pursuit of certain strategies, such as the following, can also contribute to a loss result:

  • a deliberate market penetration strategy
  • a new business line
  • heavy involvement in research and development.

Most business strategies are geared to making operations more efficient and/or competitive with an aim of increasing profitability in the medium term. If poor management is the cause for losses, we would not expect to find executives being rewarded with increased salaries and bonuses.