New Zealand: New tax disclosure requirements for overseas investment
Greg Neill and Isabelle Collins of Russell McVeagh explain why investors should take care in providing tax disclosures.
The New Zealand government has enacted new tax disclosure requirements as part of the consent process for overseas investment in certain New Zealand-based assets. Two tax-relevant law changes have become effective in 2021: a reworked ‘investor test’ for overseas investors in sensitive assets and a tax information disclosure requirement for overseas investors investing in significant business assets.
Who must gain consent before investing in New Zealand?
The overseas investment regime exists to manage risks associated with overseas investments in New Zealand. The rules require prospective investors to apply for consent to invest in a significant business asset or sensitive land or fishing quota (collectively, ‘sensitive assets’) in New Zealand from the Overseas Investment Office (OIO).
A business asset is generally deemed significant if it is worth more than NZ$100 million (approximately US$71 million). This threshold may be higher where amended by a fair-trade agreement.
‘Investor test’ for investments in sensitive assets
The 'investor test' must be met in order for OIO consent to be granted for investment in sensitive assets and determines whether prospective overseas investors are unsuitable to own or control sensitive New Zealand assets. The investor test forms part of the assessment of most consent applications and assesses the possible risks of the investor investing in New Zealand based on their character and capability.
The reformulated investor test regarding capability includes two tax-specific disclosure requirements relating to the investor's taxpaying history in New Zealand and in overseas jurisdictions:
Whether the investor has been liable, in the preceding 10 years, for a penalty in respect of an abusive tax position or evasion under New Zealand law or an equivalent rule in an overseas jurisdiction; and
Whether the investor has outstanding unpaid tax of NZ$5 million or more due and payable in New Zealand or an equivalent amount due and payable in another jurisdiction.
Investors who answer affirmatively to either of those disclosures will need to provide the OIO with evidence as to why they are still suitable to control or own sensitive New Zealand assets.
Disclosure of tax-related information for investments in significant business assets
Overseas investors intending to invest in significant business assets in New Zealand are now required to provide certain tax information in their consent application to the OIO.
The tax information is collected by the OIO in Form IR1245 prior to its commencement of the substantive consent process and is passed directly to the New Zealand Inland Revenue. The information is not strictly used by the OIO in its own consent assessment but is considered necessary for Inland Revenue's task of monitoring all large-scale overseas investments in New Zealand. Once Inland Revenue has assessed the tax disclosure information, the OIO will process the investment application.
Information now required to be disclosed to Inland Revenue as part of the overseas investment consent application process includes:
A high-level overview of the investor's plan for the significant business assets over a three-year period (starting when the investment will be given effect to), including details of significant capital expenditure;
The investor's tax residence, and that of the investor's holding company (if applicable);
The investment's capital structure, including the likely percentages of equity and debt funding;
The likelihood the investment will use a hybrid arrangement; and
Any likely transfer pricing arrangements.
While only high-level information is required to be included in Form IR1245, the required disclosures will require an understanding of the application of complex areas of New Zealand tax law. In addition, Form IR1245 is still relatively new and does not seamlessly apply to all relevant overseas investment transactions. Investors should take care in providing the tax disclosures and seek specialist New Zealand advice where necessary.
Partner, Russell McVeagh
Law clerk, Russell McVeagh