Latest NZ transfer pricing documentation requirements

Latest NZ transfer pricing documentation requirements

Our summary of the transfer pricing documentation requirements after New Zealand’s recent BEPS tax legislation.

Kim Jarrett Michael

Partner - Global Transfer Pricing Services

KPMG in New Zealand


The most important element of transfer pricing compliance is for taxpayers to prepare robust transfer pricing documentation which demonstrates that their cross-border related party transactions are arm’s length for a given period.

Our New Zealand clients and overseas colleagues often ask - what are the transfer pricing documentation requirements in New Zealand? There isn’t an easy answer to this question since New Zealand’s transfer pricing legislation isn’t clear on what is required.

As part of the recent New Zealand BEPS legislation, Inland Revenue has provided further guidance on the transfer pricing documentation requirements, which we have summarised below.

General requirements

Taxpayers in New Zealand are required to determine an arm’s length amount of consideration for their transfer pricing arrangements and keep sufficient records to support their tax positions. Inland Revenue expects taxpayers to prepare adequate transfer pricing documentation to demonstrate their compliance with these requirements. Transfer pricing documentation should be prepared in accordance with the 2017 OECD Guidelines, New Zealand tax legislation and New Zealand transfer pricing guidance.

It is the responsibility of local management to ensure a company’s transfer prices are in accordance with the arm’s length standard. Inland Revenue considers that local management are best placed to review and confirm the accuracy of local transfer pricing documentation. This step is considered essential where a report has been prepared by an overseas entity.

Transfer pricing is an ongoing process, not a one-time documentation exercise. Taxpayers should not rely on transfer pricing documentation compiled years ago. Regular re-evaluation of both the facts and transfer prices is required to determine whether they continue to be arm’s length.

Transfer pricing enforcement

Inadequate documentation is more likely to lead to a transfer pricing audit. Since the burden of proof for transfer pricing sits with the taxpayer, a lack of adequate documentation may make it difficult for the company to rebut an alternative arm’s length price proposed by Inland Revenue. Transfer pricing adjustments that are proposed due to a lack of adequate documentation are also likely to result in penalties.

While there is no explicit contemporaneous documentation requirement, a “lack of reasonable care” penalty of 20% may be applied by Inland Revenue to incorrect transfer pricing positions taken by taxpayers who have not adequately documented their transfer pricing positions at the time those tax positions were taken.

Failure to prepare adequate transfer pricing documentation or the acceptance of pricing that is incorrect can result in a 40% shortfall penalty for gross carelessness, if identified as part of an Inland Revenue audit.

There is no requirement to submit transfer pricing documentation to Inland Revenue unless it is requested as part of a risk review or audit. Taxpayers are required to provide documentation on request. However, typically taxpayers will be given a period of one month from the receipt of the request by which they must provide documentation.

Inland Revenue generally has four years from the end of the tax year in which a taxpayer files its income tax return to amend the tax positions taken. Upon notification within the four year period, this can be extended by Inland Revenue to a seven year time bar for transfer pricing arrangements.

Extent of documentation and format

In practice, the actual level of documentation required to demonstrate compliance with the New Zealand transfer pricing rules depends on the complexity and risk profile of the relevant transfer pricing arrangements. It is considered that taxpayers are best placed to exercise their own judgement and prepare documentation that manages their associated transfer pricing tax risks.

Generally, New Zealand endorses and follows the master file and local file transfer pricing documentation approach outlined in the 2017 OECD Guidelines.

For New Zealand transfer pricing purposes, the economic substance and actual conduct of parties has priority over the legal terms and a transfer pricing arrangement must be shown to be commercially rational.

Separate consideration should also be given to adapting documentation for New Zealand’s special cross-border related party financing rules for determining how cross-border related borrowings are priced. The rules can require certain adjustment to be made to the credit rating of the borrower and conditions of the cross-border financing arrangement before the general transfer pricing rules apply.

In the case where transfer pricing documentation has been prepared by an overseas entity, it may require further work to adapt or add to the information that is included for New Zealand to ensure that it accurately reflects the reality of the market place in which the company is operating.

Further commentary and practical guidance on New Zealand documentation requirements is provided by Inland Revenue here.

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