Transfer of Property and Whether Income Arises

1. the transfer of shares in Company A by a non-resident Applicant to limited partnership B as a capital contribution (the First Transfer), and
2. a simultaneous transfer of a percentage of its interest in B to 2 LPs equally as a capital contribution (the Second Transfer).

The interests in A had been held for long-term investment by the Applicant, and the transfers were to be undertaken due to regulatory requirements in a foreign jurisdiction.

The Tax Counsel Office (TCO) concluded, amongst other things, that:

• The First Transfer (the Applicant’s transfer of interests in A to B) did not give rise to income of the Applicant under sections CA 1, CB 1, CB 3-CB 5
• The Second Transfer (the Applicant’s transfer of interests in B to the 2 LPs) gives rise to income to the Applicant under CB 4 equal to the value of the interests in A on the day of transfer
• The Applicant is allowed a deduction equal to the value of the interests in A on the day it acquires the interests in B under DB 23 (revenue account property)
• The transfer of the interests in B by the Applicant to the LPs does not give rise to “net income” or “net loss” (under s BC 4) in the year of the transfer (as the income and deduction of the Applicant are for the same amount).

It is noted that Technical Decision Summaries are not official IRD guidance and are provided as information only. The tax outcome of each transaction will depend on the particular facts and circumstances.

It is generally best to seek tax advice before any significant transactions. If you have any questions regarding your circumstances, please get in touch with one of the team.