Transfer pricing

Transfer pricing only applies if your business involves international trade or investment with associates. Over two-thirds of world trade involves multinational enterprises (MNEs). Well over 60% of world trade comprises associated party transactions. MNEs are a significant force in New Zealand’s economic environment.  

When one legal entity within your company group interacts with another, you need to set a transfer price for the transaction.  

We aim to help companies manage risks associated with an Inland Revenue transfer pricing audit, by providing advice surrounding the use of appropriate transfer pricing methodologies, tailored to your specific business. We can also assist with the preparation of appropriate Transfer Pricing Documentation, one of the first things Inland Revenue will request should they decide to conduct a review on your cross-border transactions. There is no statutory requirement for taxpayers to prepare this documentation, however the burden of proof is on the taxpayer to demonstrate that the ‘transfer price’ is consistent with the arm’s length principle. 

In the eyes of Inland Revenue, the ‘transfer price’ needs to be at ‘arm’s length’ to ensure that the New Zealand taxpayer profits fairly from the cross-border intragroup transactions. At arm’s length means that the price a company pays to purchase goods or services from a related company entity should be the same as if the two entities were unrelated. 

Many MNEs rank transfer pricing as the most important international issue they face. Tax authorities around the world are implementing and updating their rules and regulations on international transactions as well as increasing their audit activity.  

The structure and operations of MNEs continuously evolve, often with a consequential impact on the income recognised in some countries. Such changes may be perfectly legitimate. Identifying which pricing practices are legitimate and which are not is a difficult process.  

There are several different transfer pricing methods that can be used. The five main ones include; 

  1. Comparable uncontrolled price (CUP) method 
  2. Resale price method 
  3. Cost plus method 
  4. Transactional net margin method (TNMM) 
  5. Transaction profit split method 
  6. Contribution analysis 
  7. Residual analysis 

These transfer pricing methods are the ones favoured by the Organisation for Economic Co-operation and Development (OECD), and it all depends on which one fits your situation. When deciding which one is best, you should consider: 

  • The amount of relevant comparable data this is available 
  • The level of comparability of the uncontrolled and controlled transactions in a question 
  • Whether a method is appropriate for the nature of a particular transaction 

The Inland Revenue provide three questionnaires that can be used to self-assess your transfer pricing compliance risk: foreign-owned multinationals, New Zealand multinationals and New Zealand branches. 

New Zealand’s transfer pricing rules have always been about striking a balance between protecting the tax base and containing compliance costs. There are a range of simplification measures targeted at reducing compliance costs in situations that are likely to present a low transfer pricing risk. 

But if all of this seem overwhelming, or if you’re not sure that your specific situation is being catered to, please do not hesitate to get in touch here, or fill out the form below.

  • This field is for validation purposes and should be left unchanged.

As a client Gilligan Sheppard you will have access to international networks and resources to enable optimal outcomes for your business / trust / transaction. xero logo It’s small business accounting software that’s simple, smart and occasionally magical. Log in online anytime, anywhere on your Mac, PC, tablet or phone to get a real-time view of your cash flow. 
As a client Gilligan Sheppard you will have access to international networks and resources to enable optimal outcomes for your business / trust / transaction. tax traders logo Tax Traders allows you to buy someone else’s tax to settle your account with Inland Revenue, as well as save on interest and late payment penalty charges.
As a client Gilligan Sheppard you will have access to international networks and resources to enable optimal outcomes for your business / trust / transaction. smart ar logo Astute cash flow management is essential for operating a small business.
As a client Gilligan Sheppard you will have access to international networks and resources to enable optimal outcomes for your business / trust / transaction. myob logo Trusted by 1.2 million businesses, myob is New Zealand’s largest accounting solutions provider. The platform is equipped to support the needs of New Zealand organisations.
As a client at Gilligan Sheppard you will access to international networks and resources to enable optimal outcomes for your business/trust/transaction.  accountancy insurance logo Tax Audit Insurance specifically designed for accountants in public practice. This provides cost effective protection and peace of mind against the substantial cost that may be incurred should IR or other government authorities conduct a random review, investigation or audit.
As a client Gilligan Sheppard you will have access to international networks and resources to enable optimal outcomes for your business / trust / transaction. cpa logo A CPA is a finance, accounting and business professional with a specific qualification. It indicates a soundness in depth, breadth and quality of accountancy knowledge and gives you competitive advantage over your peers.
As a client Gilligan Sheppard you will have access to international networks and resources to enable optimal outcomes for your business / trust / transaction. agn international logo AGN International is a worldwide asociation, composed of four regions, of independent accounting and advisory businesses.
Disposal of Land – to be taxed or not to be taxed? Part six
This final article, in a series of six on the various land tax provisions contained within the Income Tax Act 2007 (“the Act”), will focus on the potential application of the associated [...]
A flexible workplace: how to make hybrid working work for everyone
Working outside of the office has changed the way people think and work. We’ve discovered that it’s doable, and the benefits are actually worthwhile. And for the foreseeable future, it’s clear [...]
Society of Trust and Estate Practitioners 2023 Asia Conference Insights
Society of Trust and Estate Practitioners (STEP) was founded in 1991 and has since grown into a globally recognised organisation with 22,000 members across 200 countries. Its members include lawyers, [...]
Forming a company in New Zealand
If you’re thinking of starting a business in New Zealand, you might want to consider setting up a company. It’s the most common entity for a few good reasons… Limited liability With [...]
Tax Updates: 16 November 2023
Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any [...]
Tax Updates: 6 November 2023
Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion [...]
Tax Updates: 30 October 2023
Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion [...]
Tax Updates: 24 October 2023
Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion [...]
Tax Updates: 16 October 2023
Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion [...]
Caught up in a fast-paced world
Monday morning begins. The predictable annoyance of the alarm clock melody pulls me out of bed, and muscle memory takes charge. There’s no time to spare. Two outfit changes and a coffee down the [...]

Click here for details.

We are recognised as authorities in our specialised fields. We publish newsletters with informed opinions that are free for you to subscribe to.

Click here for details.

Richard Ashby (our tax specialist) provides advice, comments and updates on what’s been happening in the world of tax each week.