Transfer Pricing in New Zealand

The legal framework

New Zealand's transfer pricing rules sit in subpart GC of the Income Tax Act 2007: sections GC 6 to GC 14 carry the general arm's length regime, sections GC 15 to GC 19 a separate restricted transfer pricing regime for inbound cross-border related borrowing. Section GC 6 substitutes an arm's length amount where net income is reduced by the conditions of a cross-border arrangement with an associated person, or by a cross-border related borrowing. The present architecture dates from the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018, effective for income years beginning on or after 1 July 2018.

The OECD Guidelines are law here, not persuasive commentary. Section GC 6(1B) requires sections GC 6 to GC 14 to be applied consistently with them, and section YA 1 pins the defined term to a named edition, currently January 2022, rather than importing OECD revisions as they appear. Where a double tax agreement applies, the Article 9 equivalent governs and is read ambulatorily.

Scope is wide: associated persons under section YA 1, broadly 50 percent common ownership between companies and 25 percent for a non-corporate holder; members of a non-resident owning body holding 50 percent or more of a New Zealand company, aimed at private equity and coordinated investor groups; and cross-border related borrowings defined in section GC 6(3B). Section GB 2 can pull unrelated parties into sections GC 7 to GC 10 where a collateral arrangement such as market-sharing or back-to-back supply exists.

Section GC 13 demands arm's length conditions, not merely a price: margin, profit split and non-financial terms all count, a drafting choice Inland Revenue traces to the Australian Chevron litigation. Section GC 13(1B) imports accurate delineation from Chapter I section D.1, so conduct beats contract, and GC 13(1C) imports section D.2, allowing a commercially irrational arrangement to be disregarded and, where appropriate, replaced. A transaction disregarded without replacement is void for income tax, but section GC 12 keeps the withholding consequences alive.

Methods, comparables and benchmarking

Any of the five OECD methods, or a combination, may be used under section GC 13(2), with comparability performed as Chapter III requires. There is no hierarchy; section GC 13(1)(c) asks only for the method giving the most reliable measure. Inland Revenue does not require the New Zealand entity to be the tested party, but warns it will generally test from the New Zealand side, so a foreign tested party should be corroborated locally.

Comparables are governed by a same or similar market principle, which in practice means Australasian data. Australia is accepted as the closest reference economy; European or North American sets are tolerated only where regional data is unavailable, and then with scepticism about scale and distribution costs.

There is no interquartile range convention, and practitioners arriving from jurisdictions that have one should not assume it. The question is whether the comparables are reliable, not where in a range the tested result falls. Pooled ranges treating each annual observation as a separate data point are rejected, as are industry data dumps dressed up with statistics.

Three simplification measures remove benchmarking entirely: low value-adding intra-group services at cost plus 5 percent, the former NZ$1 million cap having gone on 1 April 2021; cross-border associated party loans of NZ$10 million or less across the group priced at an accepted spread, currently 225 basis points to 30 June 2030; and foreign-owned wholesale distributors under NZ$30 million turnover reporting weighted average EBITE of 3 percent or better.

Documentation: what Inland Revenue expects

There is no statutory master file or local file obligation, and therefore no monetary threshold. Inland Revenue endorses the three-tiered approach and expects master and local files prepared in line with Chapter V and Annexes I and II of the July 2022 Guidelines, with no added local content requirements. Nothing is filed with the return; documentation is produced on request in risk review or audit.

The sanction for having none is evidential rather than penal. Since 1 July 2018 the general onus in section 149A(2)(b) of the Tax Administration Act 1994 applies to transfer pricing, so it is the taxpayer who must displace the conditions the Commissioner proposes. Inland Revenue's expectations are specific: a functional analysis attentive to intangibles, an industry analysis identifying profit drivers, each category of related-party transaction treated separately, a fully explained comparable search, and the intercompany agreements. Group documentation lifted from head office without New Zealand adaptation, and files compiled years earlier, are named failings.

Business records under section 22 of the Tax Administration Act 1994 must be kept seven years, in New Zealand and in English or Maori unless the Commissioner approves otherwise. Production runs through section 17B notices, with Operational Statement OS 25/05 allowing at least 21 days. For a large multinational group, section 17E(2) deems information held anywhere in the group to be in the New Zealand member's control, so an offshore parent's central file is reachable.

Disclosure itself is thin. The IR4 company return contains no transfer pricing schedule. Country-by-country reporting under section 78G binds only groups whose ultimate owner is New Zealand resident, filed through myIR in OECD XML within 12 months of year end. For everyone else the annual International Questionnaire, issued to foreign-owned groups with turnover generally above NZ$30 million, is the de facto disclosure; the 2025 income year edition issued in January 2026 for return by 29 April 2026.

Audits, penalties and the enforcement climate

Inland Revenue publishes its tripwires, which is a gift to anyone running a pre-filing diagnostic: two consecutive loss years, negative EBIT, a services mark-up above 5 percent, distributor EBITE below 3 percent, interest above 20 percent of EBITDA, debt above 40 percent of assets less non-debt liabilities, and related-party dealings above 20 percent of gross revenue. Focus areas add unexplained losses, loans over NZ$10 million, guarantee fees, e-commerce allocation and supply chain restructures. Activity is real but selective: across 2020 to 2024 Inland Revenue reported 886 multinationals tax assured, 546 in compliance campaigns and 68 audits.

There is no transfer-pricing-specific penalty. The general scale applies: 20 percent for not taking reasonable care or an unacceptable tax position, 40 percent for gross carelessness, 100 percent for an abusive position, 150 percent for evasion, with a 25 percent uplift for obstruction. Section 139AB allows a penalty up to NZ$100,000 on a large multinational group member that fails to produce deemed information, after which the withheld material becomes inadmissible in later proceedings.

Two further points bite. The time bar is four years from the end of the tax year the return was filed, extended to seven under section GC 13(6) only if the Commissioner gives written notice of audit inside the four years. And the secondary adjustment operates automatically: Commissioner's Statement CS 24/02 confirms a transfer of value is a deemed dividend under subpart CD carrying 30 percent NRWT, subject to treaty relief, with imputation credits under section OB 62 or repayment under section CD 42 as the escape routes.

Dispute resolution and advance certainty

Certainty is available and comparatively quick. Inland Revenue offers unilateral advance pricing agreements, issued as binding private rulings on forms IR713 and IR713A, and bilateral or multilateral agreements under the mutual agreement article, with pre-application meetings requested on IR1137 or IR1138. The programme is mature, with 342 completed as at mid-2026, and the target is six months from acceptance for unilateral agreements and for bilaterals with Australia. A unilateral application attracts the published private ruling application fee set out in form IR713, payable on filing, and Inland Revenue recovers out-of-pocket overseas travel costs on an actual and reasonable basis; the standard term and any rollback are unpublished and negotiated case by case.

Forty double tax agreements carry a MAP article, alongside 11 tax information exchange agreements. Inland Revenue aims to complete cases within 12 months and resolved 36 in the year to 31 December 2025 at an average cycle time of 6 months, against 28 cases at 10 months in 2024. MAP may run alongside the domestic disputes process without prejudicing either, and collection is generally suspended while a valid case is live. New Zealand has adopted Part VI of the MLI, but no arbitration request has ever been made. Downward corresponding adjustments are given only through MAP; there is no unilateral route.

Domestically, disputes run from a Notice of Proposed Adjustment through a Notice of Response, a section 89M Disclosure Notice and exchanged Statements of Position, then the Disputes Review Unit, then the Taxation Review Authority or High Court. The Statement of Position is decisive, because the evidence exclusion rule confines each party to what it put there. One qualification matters. Frucor Suntory (2022, Supreme Court, where the Commissioner's cross-appeal secured a 100 percent abusive tax position penalty) and Alesco (2013, Court of Appeal) are routinely cited as New Zealand transfer pricing cases; both were decided under the general anti-avoidance rule in section BG 1. Subpart GC itself is essentially untested in the courts.

Pillar Two and what changes in 2026

Pillar Two is enacted. The Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024 inserted the applied GloBE rules and a multinational top-up tax; the income inclusion rule and undertaxed profits rule apply to fiscal years beginning on or after 1 January 2025, the domestic income inclusion rule from 1 January 2026. One designated New Zealand entity registers for the group through a myIR GloBE account within six months of the first applicable year end, so a December 2025 year end means 30 June 2026. The GloBE information return may be filed 18 months after the first year, though Inland Revenue recommends 15.

Amount B is the other 2026 story, and the answer is no. New Zealand has opted out, and Inland Revenue has spelled out the consequences: a distributor priced on Amount B is not compliant, has not discharged its onus, is exposed to shortfall penalties and will not obtain double tax relief on that basis. The domestic small wholesale distributor measure is the intended substitute, though New Zealand will accept an Amount B outcome applied by a covered jurisdiction.

Elsewhere, the Digital Services Tax Bill was discharged in May 2025 in favour of a multilateral outcome, and a thin capitalisation concession for infrastructure entities on limited-recourse third-party debt starts 1 April 2026. Neither touches subpart GC.

How practitioners should respond

Four practical moves follow. First, localise the file: central group documentation is the single most criticised item in Inland Revenue's published commentary, and with the onus on the taxpayer since 2018 a generic master file is not a defence. Second, run the published risk indicator list as an annual diagnostic before the return is filed, not after a questionnaire arrives; each ratio is a stated trigger and each has a documented answer if prepared in advance.

Third, price the withholding tax into every adjustment model. A transfer of value is a deemed dividend, so an income tax adjustment carries an NRWT tail, and since 2025 the consequential adjustments follow the seven-year window rather than the four. Fourth, use the certainty products: for financing above NZ$10 million, intangibles and restructures an advance pricing agreement is quicker here than in most comparable jurisdictions, and below the simplification thresholds take the safe harbour and spend the benchmarking budget where it matters.