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Fast tracked changes to New Zealand's foreign investment consent rules include tax measures

Home Insights Fast tracked changes to New Zealand's foreign investment consent rules include tax measures

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Contributed by: Brendan Brown and Matt Woolley

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Published on: June 04, 2020


Tax measures previously proposed in the Overseas Investment Amendment Bill (No 2) have been fast tracked through inclusion in the Overseas Investment (Urgent Measures) Amendment Act 2020 ("Urgent Measures Act") which has received Royal Assent this week. We summarise the tax measures in this article. Our summary of the Urgent Measures Act more generally can be found here.


Previously, New Zealand's foreign investment consent rules did not expressly provide for tax matters to be taken into account when screening foreign investment. The April 2019 Consultation Document on reforming the Overseas Investment Act, however, noted a concern about "overseas persons acquiring sensitive New Zealand assets and not paying enough tax in New Zealand" and that "[t]his could be viewed as contrary to the [Overseas Investment] Act's purpose, which recognises that it is a privilege for overseas persons to own or control such assets."

The Government's in principle decisions following consultation included a decision to require certain tax-related matters to be taken into account as part of the investor test, and to require disclosure to Inland Revenue of certain details regarding the proposed investment structure and its expected tax consequences. Initially, both measures were included in the Overseas Investment Amendment Bill (No 2), introduced in March. 

In light of the economic fallout from COVID-19, however, the Government decided to fast-track some of the measures included in that Bill. The tax measures fast-tracked include the changes to the investor test. The new requirement to disclose details about the investment structure has not been fast-tracked, but the Treasury has released a summary of the information it expects will be required to be disclosed once that requirement comes into force.

Consideration of tax compliance history as part of investor test

New Zealand's overseas investment regime requires overseas persons to obtain consent from the Overseas Investment Office prior to investing in significant business assets or sensitive land. To obtain consent to invest in either category of sensitive asset, the overseas person (or the individuals with control, defined broadly to include shareholders with 25% or more ownership, directors, or in some cases senior management) must meet the "investor test".

Currently the scope of the investor test is broad, including a good character test that requires consideration of any offences or contraventions of the law, and any other matters that reflect adversely on a person's fitness to have the particular overseas investment.

Amendments in the Urgent Measures Act replace the good character test with a more targeted list of factors that decision-makers considering an application for investment consent should take into account. The scope of offences or contraventions to the law that are considered will be narrowed to convictions (or allegations where formal proceedings have commenced) in relation to certain serious criminal offences or civil contraventions.

The proposed new investor test will also specifically provide for consideration of:

  • a penalty imposed within the preceding 10 years for taking an abusive tax position (defined under New Zealand law as an unacceptable tax position taken with, or in relation to an arrangement that has, a dominant purpose of avoiding tax) or for tax evasion or a similar act, or penalty equivalent to the civil penalty for taking an abusive tax position or for evasion, imposed by a foreign jurisdiction within that period; and

  • outstanding unpaid tax at the date on which the application is made of NZ$5 million or more, or equivalent in a foreign currency.

These special rules in respect of tax-related issues reflect the fact that in some jurisdictions (including New Zealand) the tax authority itself (without needing to secure a conviction or judgment of a court) can impose material civil penalties (such as penalties for tax evasion).

New requirement to disclose tax information

The proposed new power for the making of regulations requiring a prospective investor to disclose certain tax-related information is not one of the tax measures being fast tracked, but is now being progressed through inclusion in the Overseas Investment Amendment Bill (No 3). 

The table below, reproduced from a document prepared by the Treasury for the Finance and Expenditure Select Committee, sets out the tax information that the regulations, once made, are expected to require a prospective investor to disclose (at page 15):

Description of activities


A short description of the investor's plan for the asset over the next three years (ie, maintain status quo, expand or pivot), including any details of significant capital expenditure over that period.


Tax residence of the investor entity, its holding company and ultimate holding company.

Capital structure for the investment


Equity funding for the investment.


Debt funding for the investment.


Use of a hybrid instrument or hybrid entity for the investment.

Cross border related party transactions


The nature and likely extent of any cross border related party transactions.


Expected sales from New Zealand to non-New Zealand related parties.


Expected breakdown as to the purchases of goods, services, royalties, interest/guarantee fees or any other charges to non-New Zealand related parties.



Any relevant double taxation agreements.


Whether an application to Inland Revenue will be made for a ruling or advance pricing agreement in respect of any aspect of the investment.

While the provision of some of the information listed above should be straightforward for a prospective investor, other required disclosures will require careful consideration of New Zealand's tax laws. For example, New Zealand's anti-hybrid mismatch rules would need to be considered in order to determine whether the proposed investment structure uses a hybrid instrument or hybrid entity. The anti-hybrid mismatch rules are complex and disclosure may require consideration of the up-stream ownership or financing structure of the investor. 

The Treasury has stated that the disclosed information would not be used in deciding whether consent should be granted, but would be provided to Inland Revenue to monitor the person's compliance with New Zealand tax law and to help Inland Revenue's broader policy and audit functions. Inland Revenue already has the power to collect (and often does collect) such information, and accordingly, one may question whether the compliance costs of tax disclosures, as part of the application for consent, are warranted. 

Next steps

The new investor test (which includes consideration of a prospective investor's tax compliance history) will come into force on the later of a date to be appointed by Order in Council and one year following enactment of the Urgent Measures Act.  

Submissions to the Finance and Expenditure Select Committee on the Overseas Investment Amendment Bill (No 3) (which includes the proposed tax disclosures regulation-making power) close on Monday 31 August 2020. New Zealand has a general election scheduled for 19 September and accordingly this Bill is not expected to be enacted until the new Parliament sits following the election.

This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.

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