IR has issued updated guidance on Transfer Pricing Documentation and Thin Capitalisation Rules, replacing earlier versions from 2025 and 2021, and introducing a stricter compliance stance alongside a new infrastructure exemption from the 2027 income year.
New Zealand’s Inland Revenue (IR) has issued updated guidance on Transfer Pricing Documentation and Thin Capitalisation Rules on 31 March 2026, replacing earlier versions from 2025 and 2021.
The transfer pricing (TP) documentation guidance introduces a stricter compliance stance. IR now states that where documentation is inadequate and a TP adjustment is made, “penalties will most likely be incurred”, replacing the previous wording that penalties “may be subject to penalties”. It also changes its position on master and local file requirements, stating “We expect documentation to be prepared in accordance with the guidelines” instead of merely accepting OECD-aligned documentation.
IR warns that inadequate documentation or clearly inappropriate pricing may lead to a 40% shortfall penalty for gross carelessness. It highlights frequent errors such as incomplete identification of transaction parties, misunderstanding contracts, weak agency analysis, poorly supported risk allocation, reliance on narrow comparable searches, omission of local facts in group-prepared documentation, and failure to consider foreign exchange risk.
The authority also stresses that financial ratios must reconcile with financial statements, past-year documentation is not sufficient on its own, and a guaranteed return does not automatically mean a low-risk entity.
For thin capitalisation rules, IR introduces a new infrastructure exemption from the 2027 income year. Eligible businesses involved in qualifying New Zealand infrastructure assets will not be subject to safe-harbour limits, allowing interest deductions regardless of thresholds. The existing safe-harbour ratios remain 60% for foreign-controlled New Zealand taxpayers and 75% for New Zealand-owned groups with offshore investments. Taxpayers must opt in via myIR by the income tax return due date for each year the exemption is claimed.
