New Zealand’s Inland Revenue on April 11 issued a special report providing guidance on new withholding tax rules for interest paid to foreign related-party lenders.
Changes to these rules were made in the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017.
The tax authority explained that the law needed to be modified to ensure that non-resident withholding tax liability arises on interest on related-party debt at about the same time that an income tax deduction is available to the borrower for that interest.
Taxpayers have been using structures to either delay or remove the 15 percent withholding tax (typically reduced to 10 percent through tax treaties) on interest or replace it with the approved issuer levy, Inland Revenue said.
Additional guidance on the new rules will be published in the June edition of the Tax Information Bulletin, Inland Revenue said.