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Determination G22A released

26 September 2006

An Inland Revenue determination released today confirms the proper application of the rules on financial arrangements to optional convertible notes, especially in relation to those issued between members of the same wholly owned group of companies. It replaces the earlier Determination G22. For more information see the media statement and "Determination G22A: Optional convertible notes denominated in New Zealand dollars".


Robin Oliver
Deputy Commissioner, Policy
Inland Revenue

MEDIA STATEMENT

New determination on optional convertible notes

An Inland Revenue determination released today confirms the proper application of the rules on financial arrangements to optional convertible notes, replacing an earlier determination on the matter.

Optional convertible notes are financial instruments that allow the holder to choose to convert the debt owed to it into shares in the company that issued the note.

"New Determination G22A comes in response to Inland Revenue concerns that group companies have attempted to use the previous G22 in such a way as to obtain tax deductions for which there was no real expense," says Robin Oliver, Deputy Commissioner, Policy.

"The new G22A prevents that practice and confirms the correct application of the financial arrangements rules, particularly in relation to optional convertible notes issued between members of the same wholly owned group of companies.

"The new determination also has an extended scope, applying also to so-called 'American-style' optional convertible notes, which allow the holder to exercise the option to settle for shares at any time.

"The previous determination applied solely to 'European-style' optional convertible notes, which allowed for conversion only on maturity," he says.

The text of "Determination G22A: Optional convertible notes denominated in New Zealand dollars" will be published in The Gazette on 28 September and is available at www.taxpolicy.ird.govt.nz.