Chapter 6 - Reporting Income on a Comparative-Value Basis
6.1 Non-Resident Companies
6.2 Non-Resident Trusts
6.3 Beneficial Interests in Discretionary Non-Resident Trusts
6.4 Changing from Comparative-Value to Branch-Equivalent Basis
6.1 Non-Resident Companies
6.1.1 Overview
Under the comparative-value basis, a taxpayers includes in his or her income for a year any change in the market value of an interest in a non-resident company. The change in value will be calculated by comparing the market value of the taxpayer's interest in a company at the end of the taxpayer's income year and the value of that interest at the beginning of the year. Where market values cannot be determined by reference to the traded price of an interest, the market value of a taxpayer's interest in a non-resident company will be determined at the end of the company's accounting year.
Subject to provisions to prevent avoidance, where an interest in a non-resident company is acquired during a year, the amount included in assessable income will be the difference between the cost of the interest and its market value at the end of the year. Similarly, where an interest is disposed of during a year, the amount included in assessable income will be the difference between the market value at the beginning of the year and the proceeds of disposition.
In general, taxpayers will be required to value interests in non-resident companies by reference to the traded prices of the interests, if such prices are available and provide a reliable indication of market value. Otherwise, taxpayers will be required to compute the market value of their interests in accordance with appropriate valuation techniques. Where the traded price of an interest is unavailable or unreliable and the compliance costs of establishing market values by any other methods are excessive, the taxpayer may use an imputed rate of return method of valuation to determine the value of the interest. Where the Commissioner of Inland Revenue is not satisfied that the values reported by a taxpayer accurately reflect market values, he may use the imputed-return method to determine the market value of the taxpayer's interest.
Where the market value of an interest has not been determined by reference to the traded price of the interest, and the market value of an interest at the end of a taxpayer's income year or the proceeds of disposition exceed the last-reported value by more than 30 percent, a post facto adjustment will be made to recoup any tax-deferral benefits which the taxpayer has enjoyed, unless the taxpayer is able to demonstrate the accuracy of the previously reported market value.
The method for computing foreign income under the comparative-value basis is summarised in the following formula:
Y = (E + S) − (B + P)
where:
Y = annual accrued gain or loss in respect of an interest in a non-resident company.
E = market value of the interest at the end of the taxpayer's income year.
S = proceeds from the disposition of all or part of the interest in the non-resident company during the taxpayer's income year.
B = market value of the interest at the beginning of the taxpayer's income year (this will be the market value of the interest at the end of the immediately preceding year).
P = the cost of any interest acquired by the taxpayer in the non-resident company during the income year.
All amounts must be calculated in New Zealand dollars in accordance with the rules for converting foreign currency denominated values contained in section 6.1.2.
The annual accrued gain or loss from interests in non-resident companies must be calculated separately for each non-resident company in which a taxpayer has an interest. Any losses so calculated may be used to offset branch-equivalent or comparative-value income in respect of interests in other non-resident companies in the current year or may be carried forward to offset such income in future years. Such losses may not be used to offset a taxpayer's other assessable income. However, where the taxpayer is a company within a group of companies (as defined in section 191 of the Income Tax Act), these losses may be transferred to other companies in the group for offset against branch-equivalent or comparative-value income.
6.1.2 Market Value of an Interest in a Non-Resident Company
The market value of an interest in a non-resident company is the highest price obtainable for the interest in a transaction between non-associated persons who are under no compulsion to buy or sell and who have full knowledge of all the relevant facts.
Methods that may be used to determine the market value of an interest in a non-resident company are outlined below.
a Valuation by Reference to Traded Price
The best indication of the market value of an interest in a non-resident company will be the observable traded price of the interest. Where an interest is traded on a public exchange, its market value will be determined by reference to the reported traded price of the interest computed on the following basis:
- where buy and sell offers are recorded on the exchange for the five working days prior to the end of the taxpayer's income year (referred to as the taxpayer's balance date), market value is the average of the close-of-trading prices recorded during that period;
- where for any day within the five day period no transactions in the interest are recorded, the market value shall be the mid-point of the close-of-trading buy and sell offers reported; and
- where neither buy nor sell offers are recorded during the last five trading days prior to the taxpayer's balance date, market value is the average of the mid-point of buy and sell offers reported in the most recent three days of the 30 working days immediately preceding the taxpayer's balance date.
Interests in unit trusts that are not traded but are redeemable at call or upon notice by the unit holder at prices set by the trust fund managers may be valued by reference to the most recently quoted redemption price in the 30 days immediately preceding a taxpayer's balance date. The redemption price may be a daily, weekly, or monthly price quoted in accordance with procedures adopted by the managers of the unit trust.
The market value of an interest in a non-resident company determined on the basis of its traded price or redemption price must be computed in New Zealand dollars using the close-of-trading spot exchange rate on the balance date of the taxpayer. Taxpayers will be required to disclose the name of the public exchange and the dates of the traded prices used to establish the market value of their interest (disclosure requirements are discussed further in Chapter 8).
b Other Valuation Methods
Where traded prices are not available, or do not provide a reliable indication of the market value of a taxpayer's interest in a non-resident company, the market value of the interest must be determined in accordance with other valuation methods provided that they conform to commercially acceptable valuation methods.
Under these valuation methods, the market value of an interest in a non-resident company will reflect:
i the shareholders' funds of the non-resident company, provided that all assets and liabilities of the company are included in the company's balance sheet at their market values; and/or
ii the net (after-tax) earnings of the non-resident company. One common method used to determine market value is based on the present value of future cash flows of a company. Alternatively, a value may be obtained by multiplying current or projected annual earnings by a price/earnings ratio. The discount rate or the price/earnings ratio should take account of the risk and returns typical of the industry in which the non-resident company operates.
Other valuation methods or variants of the above methods may be employed provided that they conform with commercially acceptable valuation methods.
Where interests in a non-resident company are not traded on a public exchange, but that company's assets can be valued by reference to traded prices, the market value of an interest in the first company should be determined by reference to the traded prices of its assets.
If the market value of an interest can be determined by reference to traded prices, it will be valued at the end of the taxpayer's income year. If the market value of an interest is determined on some basis other than the traded price of the interest, it will be computed at the end of the non-resident company's accounting year. The market value of the interest at the end of the taxpayer's income year will be considered to be the value computed on the last day of the non-resident company's previous accounting year. However, if the last day of the non-resident company's accounting year is before 1 April 1988, taxpayers will be required to value their interest as at 1 April 1988.
The market value of an interest in a non-resident company determined at the end of the company's accounting year must be converted to New Zealand dollars using the close-of-trading spot exchange rate on the last day of the company's accounting year.
c Valuation by Reference to an Imputed Return
Where the traded price of an interest is unavailable or unreliable and the compliance costs of establishing market values by any other methods are excessive, the taxpayer may compute the value of the interest at the end of an income year by an imputed return method. This will be based on a rate of return equal to a yield of 5 percent above the yield on five-year New Zealand Government stock. The annual imputed rate applicable to this method will be published each year by the Inland Revenue Department.
A taxpayer will compute the value of an end-of-year interest on an imputed-return basis by multiplying the opening value of the interest by the appropriate imputed rate and adding the result to the opening value. The same calculation is done for interests acquired during the taxpayer's income year except that the imputed return is pro-rated to reflect the portion of the taxpayer's income year during which the asset is owned.
When a taxpayer uses the imputed return method for calculating comparative-value income, he or she may deduct from the value of the interest at the end of the income year any dividend received from the non-resident company during the income year. This provision for dividends paid is only necessary where an end-of-year value is determined using the imputed-return method. The market value of an interest computed on any other basis will reflect any dividends paid by a non-resident company.
Once taxpayers have an end-of-year interest in a non-resident company computed on an imputed-return basis they will not be able to alter the basis upon which the interest can be valued for a further period of four income years. This provision is necessary so that taxpayers cannot choose the method of valuation each year depending on whether income computed by reference to the actual market value of the interest or the imputed-return method results in lower assessable income.
At the end of a five-year period, if the taxpayer wishes to continue to use the imputed return method, he or she will be required to compute the market value of his or her interest on the basis of the rules set out in section 6.1.2(a) or (b) above. When a taxpayer changes at the end of a five-year period from the imputed-return method to any other method of valuing an interest, the market value of the interest at the beginning of the year must be equal to its market value under the imputed-return method at the end of the previous income year. Where a taxpayer changes from another method of valuation to an imputed-return method, the imputed-return method will be applied to the market value of the interest at the beginning of the taxpayer's income year. In the case of valuations which are not based on traded prices, the value of an interest at the beginning of a taxpayer's income year is deemed to be the market value at the end of the last accounting year of the non-resident company. The imputed return will be pro-rated to reflect the portion of the taxpayer's income year represented by the period between the end of the non-resident company's accounting year and the taxpayer's balance date.
d Market Value of an Interest on the Date of Commencement of these Rules
The date of the implementation of these rules is 1 April 1988. The market value of an interest in a non-resident company at the beginning of the first income year this regime applies will be the market value of the interest on that date. This ensures that only accrued gains and losses derived after 1 April 1988 will be included in the assessable income of a taxpayer.
6.1.3 Proceeds of Disposition of an Interest in a Non-Resident Company
When a taxpayer disposes of an interest in a non-resident company, the taxpayer must include in his or her assessable income the difference between the market value of the interest at the beginning of the year and the proceeds of disposition. The determination of the time of disposition of an interest is dealt with in section 6.1.6.
A special rule is necessary where a taxpayer has valued his or her interest at the end of a non-resident company's accounting year pursuant to the rules set out in section 6.1.2(b) and the interest is disposed of after the end of the non-resident company's accounting year. The amount included in the taxpayer's income will be the difference between the proceeds of disposition and the deemed market value of the interest at the beginning of the taxpayer's income year.
a Arm's-Length Dispositions
Proceeds of disposition will be defined to include all amounts received or receivable in consideration for the interest. Proceeds will be valued in New Zealand dollars using the close-of-trading spot exchange rate applicable on the date of disposition of the interest.
b Dispositions Not at Market Value
A taxpayer who disposes of an interest in a non-resident company by way of testamentary or inter vivos gift, or for less than its market value, will be deemed to have received proceeds of disposition equal to the market value of the interest at the time of the disposition. As a result of this deemed disposition at market value, the taxpayer will be required to include in assessable income any change in the market value of the interest from the last time it was valued for the purposes of these rules.
6.1.4 Acquisition of an Interest in a Non-Resident Company
When a taxpayer acquires an interest in a non-resident company, the market value of the interest is added to the market value of the taxpayer's interest in that company, if any, at the beginning of the income year for purposes of computing his or her annual accrued gain or loss pursuant to the formula set out in section 6.1.1 above. An interest acquired during a taxpayer's income year may be taken into account in this manner provided it is acquired on or before the actual date when the value of the interest at the end of the taxpayer's income year is determined.
For example, if the market value of the taxpayer's interest at the end of the year is determined by reference to the traded price of the interest, any interests acquired during the taxpayer's income year will be taken into account (the value of an interest computed by reference to traded prices being determined at the end of the taxpayer's income year). This includes interests acquired during an income year when the taxpayer switches from a method of valuation based on the accounting year of the non-resident company to a method based on the traded price of the interest. If the market value is determined at the end of the non-resident company's accounting year, only those interests acquired by the taxpayer prior to the end of the non-resident company's accounting year (on which date the interest is valued) may be taken into account. Interests acquired after the end of the non-resident company's accounting year will be taken into account in determining the value of the interest in the taxpayer's next income year.
a Arm's Length Acquisitions
The market value of an interest acquired by a taxpayer in an arm's length transaction will be the cost of the interest to the taxpayer.
b Acquisitions Not at Market Value
Taxpayers who acquire an interest in a non-resident company by way of testamentary or inter vivos gift or for more than market value, will be deemed to have acquired the interest at a cost equal to its market value at the time of the acquisition.
This provision will ensure that the value of a gift is not subject to income tax under these rules. However, any subsequent increase in the market value of the interest will be taxable. This deeming provision complements a similar provision described in section 6.1.3(b) which deems the donor of an interest in a non-resident company to have disposed of the interest for its market value at the time of the gift.
The rules for computing the market value of interests in non-resident companies acquired by gift or for excessive consideration will be identical to those set out in section 6.1.2. The determination of the time of acquisition of an interest is dealt with in section 6.1.6.
The cost of acquisitions in a non-resident company will also be defined to include disguised acquisitions. For example, property transferred to, or services performed for a company directly or indirectly by a taxpayer or an associated person of the taxpayer will be deemed to be an acquisition of an interest in the company by the taxpayer. The cost of the interest acquired would be the difference between the market value of the property transferred or service performed and the market value of the consideration received in respect of the service or property.
6.1.5 The Post Facto Adjustment
The post facto adjustment is an adjustment to a taxpayer's tax liability on income computed on a comparative-value basis where the annual accrued gain for the preceding year has been significantly under-estimated. The adjustment is designed to counteract taxpayers gaining an advantage from the deferral of New Zealand tax by under-reporting the market value of an interest. By removing the advantage of deferral, this adjustment will also encourage taxpayers to value interests in non-resident companies as accurately as possible.
A post facto adjustment will be required when the proceeds of disposition of an interest in a non-resident company or the market value of the interest at the end of the taxpayer's income year plus any dividends received exceeds the market value of the interest at the end of the immediately-preceding income year by more than 30 percent. However, such an adjustment will not be required if the taxpayer has valued his or her interest at the end of the immediately-preceding income year by reference to traded prices, or can demonstrate the accuracy of the previously reported value, or can demonstrate the accuracy of the previously reported value.
The taxpayer (or the Inland Revenue Department where it has undertaken a revaluation of a taxpayer's interest) will determine an adjusted tax liability in accordance with the following steps:
Step 1: compute the amount which determines whether the post facto adjustment is triggered:
a + b − c − d
where:
a = proceeds of disposition and/or on the market value at the end of the taxpayer's income year; and
b = dividends paid by the non-resident company in the income year in respect of which the post facto adjustment applies and received by the taxpayer or by a non-resident company or trust in respect of which the taxpayer reports income on a branch-equivalent basis;
c = reported market value at the end of the immediately preceding income year; and
d = the cost of an interest acquired by the taxpayer during the income year.
Step 2: if the amount computed in step 1 is greater than 30 percent of the reported market value at the end of the immediately preceding income year, the post facto adjustment must be undertaken. The amount subject to adjustment is that computed in step 1, less an amount equal to 30 percent of the reported market value at the end of the immediately preceding income year. This amount is referred to as the post facto adjustment balance (PFAB).
Step 3: if the taxpayer is a resident individual or a company portfolio investor with less than 10 percent of the paid up capital of the non-resident company, the dividends and gains in the value of the interest are both assessable. A single post facto adjustment calculation will suffice. If, on the other hand, the taxpayer is a resident company which is not a portfolio investor, the dividends are exempt but the company will be required to collect a withholding payment at a rate equal to the personal tax rate. The taxpayer will therefore need to apportion the PFAB between that part attributable to the gain in the value of the interest and that part attributable to dividends. The portion of the PFAB attributable to the gain in the value of the interest is referred to as the income adjustment balance (IAB) and the remainder is referred to as the dividend adjustment balance (DAB). The PFAB will be allocated first to the IAB with any remainder being allocated to the DAB. A separate post facto adjustment will be required for each balance. The adjustment to the IAB will be taxed at the company tax rate. The adjustment to the DAB will be subject to a withholding payment at the personal tax rate.
Step 4: spread the amount subject to the post facto adjustment computed in step 3 evenly across the lesser of:
- the period over which the interest was held subsequent to 1 April 1988; or
- the period since the market value of the interest was last valued by reference to traded prices.
The shortfall will be spread on the basis of each complete month of the relevant period.
Step 5: calculate the increased annual tax liability (or the adjusted withholding payment) for each income year the interest was held during the relevant period described in step 4;
Step 6: determine the total adjusted tax liability or withholding payment amount. This will be the cumulative amount of increased tax or withholding payment recomputed for previous income years calculated on a year-on-year compounding basis using interest rates for each year published by the Inland Revenue Department applicable to tax in dispute. The interest levied to adjust tax payable or withholding payments to current values will not be deductible.
Step 7: where the post facto adjustment applies to the income adjustment balance (the IAB) compute net tax to pay on total assessable income by adding the tax payable on income that has been subject to the post facto adjustment to tax payable on other income (that is, tax on other assessable income excluding the amount subject to the post facto adjustment). Where the post facto adjustment applies to the dividend adjustment balance (DAB), compute the withholding payment due by adding the withholding payment on dividends that have been subject to the post facto adjustment to withholding payments due on other dividends received (that is, payments due on dividends received excluding the dividends subject to the post facto adjustment).
EXAMPLE:
A corporate taxpayer X sells a 20 percent interest in non-resident company Y for $435,000 on 30 September 1990. The reported value of the interest at the end of the taxpayer's previous income year (31 March 1990) was $360,000. During the income year to 31 March 1991, the taxpayer received $73,000 in dividends from company Y. The taxpayer originally purchased the interest in company Y on 1 June 1985.
Step 1: Compute the amount which determines whether the post facto adjustment is triggered:
= proceeds of disposition + dividends received − reported value at end of previous year.
= $435,000 + $73,000 − $360,000
= $148,000
Step 2: Compare the amount computed in step 1 to the reported market value at the end of the previous income year:
= $148,000/$360,000 = 41%
Therefore post facto adjustment is activated.
Compute the amount subject to the post facto adjustment:
= $148,000 minus an amount equal to 30 percent of reported market value at end of previous income year.
= $148,000 − $108,000
= $40,000
In this example, the PFAB (ie $40,000) is less than the gain in the value of the interest in the company, $75,000 (ie $435,000 minus $360,000). Thus, the PFAB is only allocated to the IAB. The DAB is zero. If, on the other hand, the PFAB were $85,000 which exceeded the gain in the value of the interest in the company (viz $75,000), the remainder (ie $10,000) would be allocated to the DAB.
Step 4: Spread the IAB subject to the post facto adjustment across the period the interest was held from 1 April 1988.
| Complete Months | |
| 2 complete income years 1988–89 to 1989–90 | 24 |
| 6 months in 1990-91 income year | 6 |
| Total | 30 |
Shortfall per month = $40,000/30
= $1,333,33
Step 5: Recomputation of tax liability
| Year End 31/3 | Adjusted Annual Income | Adjusted Annual Tax @ 30% (say) | Annual Tax Int. Rate (say) | Adjusted Tax at Start of year | Adjusted by Int. Rate | Plus Adjusted Tax for Year | Equals Year-End Tax Liability |
|---|---|---|---|---|---|---|---|
| $ | $ | % | $ | $ | $ | $ | |
| 1989 | 16,000 | 4,800 | 15 | 0 | 0 | 4,800 | 4,800(1) |
| 1990 | 16,000 | 4,800 | 13 | 4,800 | 5,424(2) | 4,800 | 10,224(3) |
| 1991 | 8,000 | 2,400 | 10 | 10,224 | 10,724(4) | 2,400 | 13,124 |
(6 months)
Notes
(1) This figure is the underpaid tax for the 1989 income year.
(2) This is the underpaid tax for 1989 compounded up by the tax in dispute rate for the 1990 income year.
(3) This is equal to $5,424 plus the underpaid tax for the 1990 income year (ie $4,800).
(4) For six months @ 10% p.a.
Figures rounded to nearest dollar for illustrative purposes.
Step 6: Adjusted Tax Liability on the income adjustment balance (IAB) subject to post facto adjustment = $13,124
6.1.6 Time of Acquisition or Disposition of an Interest in a Non-Resident Company
In general, a taxpayer will be considered to have acquired an interest in a non-resident company when the taxpayer acquires legal title in the interest from the seller. Similarly, a taxpayer will be considered to have disposed of an interest in a non-resident company when title in the interest passes to the purchaser.
6.2 Non-Resident Trusts
6.2.1 Overview
The comparative-value basis of reporting foreign income will apply to resident settlors who are deemed to hold an interest in a non-resident trust pursuant to the rules set out in section 4.3.1 and who do not qualify for, or choose not to use, the branch-equivalent basis (see section 5.3).
The measurement of the annual accrued gain or loss in an interest in a non-resident trust will be similar to the measurement of the annual accrued gain or loss in an interest in a non-resident company. The annual accrued gain or loss in respect of a taxpayer's interest in a non-resident trust is the difference between the market value of the interest at the end of the taxpayer's income year and its market value at the beginning of the income year.
The method for computing annual accrued gains or losses is summarised in the following formula:
Y = E − (B + P)
where:
Y = annual accrued gain or loss in respect of an interest held by a New Zealand resident settlor in a non-resident trust.
E = market value of a settlor's interest in a non-resident trust at the end of the settlor's income year. This will be deemed to be the market value at the end of the non-resident trust's accounting year.
B = market value of a settlor's interest in a non-resident trust at the beginning of the settlor's income year.
P = market value of contributions to the non-resident trust by the settlor during the trust's accounting year.
All amounts must be calculated in New Zealand dollars in accordance with the procedures set out in section 6.2.2(b).
Losses from an interest in a non-resident trust must be carried forward and will offset only comparative-value or branch-equivalent income from the trust in future years.
6.2.2 Valuation of a Settlor's Interest in a Non-Resident Trust
a Market Value of an Interest at the End of a Taxpayer's Income Year
The market value of an interest in a non-resident trust will be determined at the end of the trust's accounting year and that amount will be the market value of the interest at the end of the taxpayer's income year (the taxpayer's balance date). The market value of an interest at the beginning of any income year will be the market value of the interest reported on the last day of the taxpayer's immediately preceding income year.
The market value of an interest in a non-resident trust will be computed by multiplying the market value of the net assets of the trust (being assets of the trust that are not indefeasibly vested in beneficiaries, less the trust's liabilities) as at the end of the trust's accounting year by the settlor's interest in the trust, determined in accordance with the rules in section 5.3.2. The market value of an interest must be reported in New Zealand dollars converted at the close-of-trading spot exchange rate on the last day of the non-resident trust's accounting year.
b Valuing an Interest Using the Imputed Return Method
If a resident settlor has insufficient access to the financial information of a non-resident trust to compute the market value of an interest in the trust by reference to the net assets of the trust, the market value will be the market value of the interest at the beginning of the settlor's income year in New Zealand dollars adjusted by an imputed return. As for valuing interests in non-resident companies, the imputed rate of return will be equal to a rate 5 percent above the yield on five-year New Zealand Government stock. The annual imputed rate applicable will be the same as that applying to the valuation of interests in non-resident companies. The same calculation will be made for contributions to a non-resident trust during the taxpayer's income year except that the imputed return will be pro-rated.
Once the market value of a settlor's interest in a non-resident trust has been determined on an imputed-return basis, it must continue to be valued on that basis for a further period of four income years. When taxpayers move from the imputed-return method to the net assets method of valuing an interest, the market value of their interest at the beginning of the year must be equal to its market value under the imputed-return method. When taxpayers move from the net assets method of valuation to the imputed return method, the imputed-return method will be applied to the market value of the interest at the end of the last accounting year of the non-resident trust.
c Market Value of an Interest in a Non-Resident Trust on the Date of Commencement of These Rules
Settlors of non-resident trusts who adopt the comparative-value method of reporting income will be required to value their interests as at 1 April 1988, the date of implementation of the regime.
Where a taxpayer is unable to compute the market value of an interest in a non-resident trust by reference to the market value of the net assets of the trust, the market value of the interest will be computed as the market value, at the time of the contribution, of all property contributed to the trust to 31 March 1988 adjusted on a year-on-year compounding basis by the annual interest rate published for each income year by the Inland Revenue Department.
6.2.3 Valuation of Property Contributed to a Non-Resident Trust
Property contributed to a non-resident trust by a resident settlor during an income year must be valued at market value. Procedures for valuing gifts and transfers for inadequate consideration will be the same as those set out in section 6.1.4(b).
Whenever additional property is contributed to a trust, it will be necessary to recompute the settlor's interest in the trust pursuant to the rules set out in section 5.3.2.
Where the value of a settlor's interest at the end of his or her income year is computed by reference to the net assets of the non-resident trust, only contributions made prior to the end of the trust's accounting year (on which date the interest is valued) may be taken into account. Otherwise, gifted property contributed during a taxpayer's income year may be taken into account in determining the market value of an interest at the beginning and end of the taxpayer's income year.
6.2.4 Post Facto Adjustment
A post facto adjustment to a settlor's tax liability for prior income years will be triggered where the market value of a settlor's interest in a non-resident trust at the end of any income year exceeds the reported value of the interest at the end of the immediately preceding income year by more than 30 percent. A post facto adjustment may be triggered by the taxpayer or as a result of a revaluation of the settlor's interest by the Inland Revenue Department.
The post facto adjustment will be identical to that in respect of interest in non-resident companies. The post facto adjustment is described in greater detail in section 6.1.5.
6.3 Beneficial Interests in Discretionary Non-Resident Trusts
Taxpayers who acquire through purchase a beneficial interest in a discretionary non-resident trust will be taxed on such an interest on the same basis as any interest held by resident settlors described in section 6.2. The opening value of an interest in the non-resident trust will be the cost of the interest or market value if this is greater.
6.4 Changing from Comparative-Value to Branch-Equivalent Basis Reporting.
A taxpayer may only change the basis of reporting income earned through a non-resident company or trust from the comparative-value basis to the branch-equivalent basis from the beginning of a non-resident entity's accounting year. The taxpayer must notify the Commissioner of Inland Revenue of the change before the beginning of the accounting year in respect of which the change is to be effective. The Commissioner may require taxpayers to continue to use the comparative-value basis where their access to the financial information of the foreign entity is insufficient to permit branch-equivalent basis reporting.