An officials’ issues paper, Review of the thin capitalization rules, released on 14 January 2013, invites public submissions on proposed changes to the thin capitalization rules as part of a continuing improvement to the international tax rules.

The proposed changes include:

• Extension of the thin capitalization rules to apply not only to investments controlled by single non-residents, but also to groups of non-residents, provided that those investors are acting together either specifically by agreement or by coordination by a party, e.g., a private equity manager.
• Exclusion of related-party debt from the debt-to-asset ratio of a multinational’s worldwide group for the purposes of the thin capitalization calculations. Debt from third parties would not be affected.
• Extension of the current rules applying to a resident trustee where more than 50% of settlements on the trust are made by a non-resident, to include settlements made by a group of non-residents acting together, or another entity which is subject to the rules.
• Exclusion of capitalized interest from assets when a tax deduction has been taken in New Zealand for the interest.
• Consolidation of individual owners’ interests with those of an outbound group.
• Exclusion of increased asset values as a result of internal sales of assets, with the exception of internal sales that are part of the sale of an entire worldwide group.

The closing date for submissions is 15 February 2013.

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