This week IRD published an issues paper on purchase price allocation. As mundane as this sounds, if implemented, it is likely to have huge implications for anyone buying or selling a business.

IRD have a concern that buyers and sellers in some transactions are adopting different allocations of the purchase price for tax purposes and this is eroding the tax base.

The issues paper proposes to legislate how the vendors and purchasers must treat the transaction for tax purposes. In the first instance it is proposed that if the vendor and purchaser agree on the allocation (presumably in the contract) then both must file a tax return using that allocation. If the parties have not agreed in the contract, it is proposed that the purchaser must use the vendors allocation together with a requirement for the vendor to disclose that allocation to the purchaser. Finally it is proposed if the vendor fails to provide an allocation the purchaser may make an allocation and this must be adopted by the vendor.

In all cases there is a desire that the allocation be based on market values and also a desire to ensure that both the vendors and purchaser are using the same values.

Submissions are invited on the proposals with a closing date of 14 February 2020 and we expect a tax Bill to be introduced in the first half of next year including any proposed changes.