Ngā tikanga whakamāmā mō ngā utu whakawhiti Simplification measures for transfer pricing

Learn about our simplification measures aimed at reducing compliance costs in situations that are likely to present a low transfer pricing risk.

Reducing compliance costs 

New Zealand's transfer pricing rules have always been about striking a balance between protecting the tax base and containing compliance costs. 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.

Low value-adding intra-group services 

The Organisation for Economic Co-operation and Development (OECD) has introduced an elective, simplified approach for pricing low value-adding intra-group services.

We have adopted this simplification measure for qualifying low value-adding intra-group services. We initially applied a threshold for this measure of $1 million.  The threshold requirement has been removed for income years commencing on or after 1 April 2021.

Qualifying services may be priced at cost plus a 5% mark-up without the need to provide benchmarking. Detailed guidance on the definition of low value-adding intra-group services, the internationally agreed simplified charging mechanism, and documentation expectations are contained in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, Chapter VII Special Considerations for Intra-Group Services, Section D.

Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations - OECD

In summary, qualifying services: 

• are supportive in nature 
• are not part of the core business activity of the multinational group 
• do not involve unique and valuable intangibles, or the assumption or control of significant risk by the service provider.

The approach is not applicable where the services are also provided to unrelated customers.

We will periodically review the application threshold for this simplification measure.

Application of New Zealand's interest limitation rules to outbound loans

New Zealand's interest limitation rules restrict interest deductions on cross-boarder related party borrowings by requiring certain related-party loans between a non-resident lender and a New Zealand-resident borrower to be priced using a restricted approach. Detailed guidance on the new approach is in Tax Information Bulletin Vol 31 No 3 (April 2019).

Tax Information Bulletin - Vol 31 No 3 - April 2019

Where New Zealand-resident lenders correctly apply the restricted approach to set the interest rate on their loans to related non-resident borrowers, we will consider the result to be arm's length. This is on the basis that the amount deducted by the non-resident borrower in the foreign jurisdiction does not exceed the amount returned as income by the New Zealand-resident lender.

Small value loans

For small value loans (that is, for cross-border associated party loans by groups of companies for up to $10 million principal in total), we consider 250 basis points (2.50%) over the relevant base indicator is broadly indicative of an arm's length rate for the year ended 30 June 2025, in the absence of a readily available market rate for a debt instrument with similar terms and risk characteristics.

Transactions priced in accordance with this simplification measure are likely to present a low transfer pricing risk and as such no further benchmarking is required.

For previous years, indicative rates for small value term loans have been as follow.

To simplify transfer pricing practices even further for such small value term loans, from 1 July 2025 to 30 June 2030, we consider 225 basis points (2.25%) over the relevant base indicator is broadly indicative of an arm's length rate, in the absence of a readily available market rate for a debt instrument with similar terms and risk characteristics.

Our next review of interest rates for small value term loans is scheduled for 30 June 2030 unless credit margins change rapidly and significantly. We will review the performance of credit markets on an annual basis and test whether margins have changed by over 100 basis points on a sustained basis from a year earlier which may then warrant a change from 225 basis points.

Small wholesale distributors 

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

For foreign-owned wholesale distributors with an annual turnover of under $30 million, we currently consider a weighted average earnings-before-interest-tax-and-exceptional-items (EBITE) ratio of 3% or greater is broadly indicative of an arm's length outcome, in the absence of readily available transactional data for that distributor's transfer pricing transactions or other comparable market data for distributors operating with similar risk characteristics. 

Transfer pricing outcomes in accordance with this indicative ratio are likely to present a low transfer pricing risk and as such no benchmarking is required to support the arm's length nature of the distributor's weighted average EBITE ratio. 

We will periodically review this simplification measure.

OECD/G20 Inclusive Framework on BEPS - Simplified and Streamlined Approach for Baseline Distribution Activities

New Zealand has opted not to apply the OECD/G20 Inclusive Framework on BEPS’s simplified and streamlined approach to in-country baseline marketing and distribution activities – formerly referred to as Amount B. As such, its introduction does not change our current rules or practice. The existing simplification measure for small foreign-owned wholesale distributors remains available and existing transfer pricing rules apply in all other cases.

The OECD/G20 Inclusive Framework on BEPS’s report on Amount B of Pillar 1 is on the OECD website.

Report on Amount B of Pillar 1 - OECD

Existing transfer pricing rules

Paragraph 43 of the approach confirms that the approach has no bearing on existing transfer pricing and does not change any existing OECD guidance. The methodology and guidance used in the approach, including all design elements and defined terms, are specific to the approach. No element or term should be construed as implying that it would be acceptable under existing transfer pricing rules. That is, existing transfer pricing rules must be applied without any reference to the approach.

Foreign-owned distributors operating in New Zealand

Arm’s length outcomes for foreign-owned distributors operating in New Zealand must be determined in accordance with existing transfer pricing approaches. 

In line with paragraph 6, New Zealand will not treat the approach as providing an arm’s length outcome (including for the purposes of Article 9 of the Model Tax Convention, and by extension Article 25). The conforming changes to the Model Tax Convention commentary provide tax certainty about this. This means foreign-owned distributors operating in New Zealand that use this approach:

• will not be considered compliant with New Zealand’s domestic transfer pricing rules
• will not discharge the taxpayer’s burden of proof concerning those rules
• will expose the taxpayer to shortfall penalties.

If double taxation arises from a transfer pricing adjustment, relief will not be provided based on the application of the approach. This is in line with paragraph 77 of the approach and the conforming changes to the Model Tax Convention commentary.

New Zealand-owned distributors operating offshore

A foreign jurisdiction may apply the approach to distributors operating in its jurisdiction. If a New Zealand-owned distributor operates in a jurisdiction that applies the approach and the jurisdiction is not a covered jurisdiction within the scope of the political commitment to the approach, it must still apply existing transfer pricing approaches to the transaction in respect of its New Zealand obligations.

If New Zealand has a treaty with the relevant jurisdiction, and a transfer pricing adjustment leads to double taxation, relief will not be provided based on the application of the approach. This is consistent with paragraph 77 of the approach and the conforming changes to the Model Tax Convention commentary. 

Further information on the OECD/G20 Inclusive Framework’s Two-Pillars Solution.

OECD/G20 Inclusive Framework Two-Pillars solution