New Zealand Transfer Pricing
New Zealand’s current transfer pricing focus, as of May 14, 2008, addresses four transfer-pricing related issues: royalties, business restructuring, private equity, and intangible asset impacts. The taxpayer should view the New Zealand Transfer Pricing Guidelines as supplementing the OECD guidelines rather than superseding them. In addition to reliance on the OECD, the New Zealand transfer pricing rules make specific reference to guidelines issued by the Australian Tax Office and to guidelines issued by the US IRS. The parties can split the profit based on an “economically valid basis” approximating the division of profits that would have been anticipated and reflected in agreement made at arm’s length.The New Zealand Inland Revenue looks to the transfer pricing method that will “provide a more reliable result” than others.
The New Zealand Inland Revenue in recommends that taxpayers apply the profit split method when intangibles apply. The taxpayer should determine the aggregate profit from the transaction, and divide this aggregate profit from the transaction between the parties on their relative economic contributions. The Guidelines eschew formulary apportionment because this method “is determined without considering what the parties are actually contributing.” The New Zealand Transfer Pricing Guidelines favor the residual profit split analysis if the parties are to split profits.
The New Zealand Transfer Pricing Guidelines provide that “the profit split method might be a useful alternative approach (italics ours) for providing an analysis. In stark contrast, the OECD Guidelines provide that “the profit split may be relevant (italics ours) although there may be practical problems in its application.” Despite the OECD’s cautious approach to the profit split method, New Zealand’s Inland Revenue “considers the profit split method could represent a useful tool.”
New Zealand’s Inland Revenue may apply a number of factors in evaluating a taxpayer’s claim that it is following a market penetration strategy. New Zealand’s Inland Revenue imposes a contemporaneous documentation requirement, taking an aggressive contemporaneous documentation approach that the taxpayer must bring this documentation into existence close to the time the transaction occurs. The New Zealand Transfer Pricing Guidelines provide that the primary determinant as to whether Inland Revenue will examine the taxpayer’s transfer price in detail is the extent to which Inland Revenue perceives that the transfer prices present a “risk to the revenue.”