New tax disclosures under revised overseas investment regime now in effect

From 5 July 2021, overseas investors looking to acquire significant New Zealand business assets must make new tax disclosures as part of their application under the Overseas Investment Act 2005.

As signalled in an earlier alert, these requirements are intended to provide Inland Revenue with the information it considers necessary or relevant to the administration or enforcement of the Income Tax Act 2007.

We explain these requirements below.

What is required?

Following the recent enactment of the Overseas Investment Amendment Act 2021 and accompanying Regulations, Inland Revenue has now published a form prescribing the tax information required from overseas investors.  This form (numbered IR1245) functions as a separate section of the investor’s application to the Overseas Investment Office (OIO) and must be supplied at the time the application is made.

The IR1245 form is available on Inland Revenue’s website, here.

The OIO has indicated that an applicant’s completed IR1245 form will not be taken into account in its decision making.  Instead, Inland Revenue will need to review the form and confirm it is complete before the OIO will begin assessing an application.

What needs to be disclosed?

While the IR1245 form appears short, the nature of the questions included are relatively technical requiring applicants to:

  • provide a description of their plan for the significant business assets, including details of any significant capital expenditure likely to be made over a three-year period;
  • detail their tax residence, and that of any holding companies;
  • provide information about the capital structure for the investment, including debt and equity funding and the possible involvement of any hybrid arrangements;
  • indicate the likely nature and extent of any transfer pricing arrangements;
  • state whether any double tax agreements are relevant; and
  • indicate whether the applicant is likely to apply to Inland Revenue for a ruling or advance pricing agreement with respect to any aspect of the investment.

The IR1245 form adds to the existing OIO tax disclosure requirements.  In particular, applicants are already required to advise the OIO if they have been liable in the preceding 10 years to pay a penalty in respect of any abusive tax position, evasion or similar act under the Tax Administration Act 1994 (or equivalent enactment in any other jurisdiction).

Our view

The IR1245 is relatively broad in its enquiries.  In the absence of any related guidance from Inland Revenue, it is not clear how detailed an investor’s response will need to be and the circumstances in which partial responses may be acceptable.

We recommend seeking specific tax input when preparing an application to the OIO in connection with an investment in significant New Zealand business assets, noting that:

  • Early thought will need to be given to the applicant’s New Zealand tax position, and the information that needs to be disclosed in the IR1245 form.
  • In some instances, depending on the nature of the business assets being acquired, an investor may need to engage with the vendor of those assets in order to obtain the information needed to complete the form.  This would require a degree of co-operation between the parties and should be considered when negotiating the transaction documents.
  • While we are not expecting Inland Revenue to substantively engage with the contents of an IR1245 form as part of the OIO process, the information disclosed may be relevant to an applicant’s future interactions with Inland Revenue.

Please get in touch with one of our experts if you would like to discuss these requirements further.

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