International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

New Zealand: Proposed reform of interest withholding tax rules


Rhonda Gregory

Inland Revenue and the Treasury have released an issues paper proposing to reform the way non-resident withholding tax (NRWT) applies to interest. Generally, under existing law, where New Zealand-sourced interest is paid to a non-resident lender that does not have a New Zealand branch, the borrower must withhold NRWT at the rate of 15% (although this is usually reduced to 10% under any applicable double tax agreement). In the case of interest paid to a lender that is not associated with the borrower, the rate of NRWT can be reduced to 0% by the borrower paying an approved issuer levy (AIL) of 2%.

Proposals regarding the scope of AIL

Currently, the only substantive limitation to applying the AIL regime is that the borrower and lender cannot be associated. There are various tests for determining when two parties will be associated. For companies, the main test is whether the two companies have common ownership to the extent of 50% or more.

The following proposals would further limit the scope of the AIL concession:

  • Amounts would be deemed to be paid to an associate in the case of a back-to-back arrangement under which a non-resident associate of the borrower provides funds directly or indirectly to a third party lender, so that those funds can be provided to the borrower.

  • The test for determining association between the borrower and lender will be broadened to include the concept of a group of (non-associated) persons acting together to lend to a New Zealand borrower, where that group would be associated with the borrower if the group were treated as a single entity. One consequence of this change will be to remove the AIL concession in the case of most lending by shareholders, even if the shareholder holds less than 50% of the borrower.

  • The AIL concession would be available only where it is expected that more than 75% of the borrowing will be from non-associates who are either financial institutions in the business of lending money to the public, or by 10 or more persons who are not associated with each other.

In one respect, the proposals would expand the scope of the AIL concession. Members of a banking group would be permitted to pay AIL (in lieu of NRWT) even if the interest is paid to an associated lender.

Proposals to link NRWT obligations to financial arrangements rules concepts

NRWT obligations are currently triggered by payment of interest in respect of money lent. However, whether a borrower is entitled to a tax deduction, and the amount of that deduction, is generally determined on an accruals basis in accordance with the financial arrangements rules.

Where the borrower and lender are associated, a number of proposals are made to link the imposition of NRWT to the concept of financial arrangements income and expenditure, as opposed to strict concepts of payment and money lent. Such proposals are not to apply in respect of New Zealand-registered banks.

This could result in NRWT being payable where no cash interest is actually paid.

Proposals regarding branches

A number of proposals are made to change the impact of branches on the application of the NRWT rules. Broadly:

  • Interest paid by an offshore branch of a New Zealand borrower would be treated as sourced in New Zealand, except where paid on money borrowed for the purpose of a business carried on outside New Zealand which does not involve lending to New Zealand residents. Now, withholding tax would not generally be applicable.

  • Interest sourced in New Zealand and paid to a non-resident lender with a New Zealand branch would only be exempt from NRWT where it is received in connection with the New Zealand branch. At present, such interest is not subject to NRWT regardless of whether the non-resident lender is acting through its New Zealand branch.

Rhonda Gregory (

Russell McVeagh

Tel: +64 9 367 8020


more across site & bottom lb ros

More from across our site

Two months since EU political agreement on pillar two and few member states have made progress on new national laws, but the arrival of OECD technical guidance should quicken the pace. Ralph Cunningham reports.
It’s one of the great ironies of recent history that a populist Republican may have helped make international tax policy more progressive.
Lawmakers have up to 120 days to decide the future of Brazil’s unique transfer pricing rules, but many taxpayers are wary of radical change.
Shell reports profits of £32.2 billion, prompting calls for higher taxes on energy companies, while the IMF warns Australia to raise taxes to sustain public spending.
Governments now have the final OECD guidance on how to implement the 15% global minimum corporate tax rate.
The Indian company, which is contesting the bill, has a family connection to UK Prime Minister Rishi Sunak – whose government has just been hit by a tax scandal.
Developments included calls for tax reform in Malaysia and the US, concerns about the level of the VAT threshold in the UK, Ukraine’s preparations for EU accession, and more.
A steady stream of countries has announced steps towards implementing pillar two, but Korea has got there first. Ralph Cunningham finds out what tax executives should do next.
The BEPS Monitoring Group has found a rare point of agreement with business bodies advocating an EU-wide one-stop-shop for compliance under BEFIT.
Former PwC partner Peter-John Collins has been banned from serving as a tax agent in Australia, while Brazil reports its best-ever year of tax collection on record.