Tax: NRS Media v. Inland Revenue

The High Court signalled general tax deductibility rules can apply for costs incurred by NZ registered companies having offshore subsidiaries.

Registered to a bucolic address in the quiet Wairarapa town of Greytown, NRS Media Holdings Ltd has world-wide interests facilitating sales of media space.  Deductibility of Sydney head office expenses was challenged by Inland Revenue: $1.7 million claimed for the financial year ended December 2010; $1.9 million for December 2011.  Corporate costs included rent, salaries for six staff plus the travel and accommodation costs for senior staff.  NRS Media said it could claim the benefit of a tax rule, since repealed, that allowed companies receiving an exempt dividend from foreign companies to deduct expenditure in deriving that dividend.  Director Doug Gold said head office ensured the value of its business and profitability was maximised by monitoring financial controls and management reporting at its overseas trading subsidiaries.

Justice Clark ruled these expenses were not deductible.  The primary reason for these expenses was to improve the subsidiary's performance and profitability.  A possible consequence of these expenses for NZ-based NRS Media was receipt of foreign dividends.  There was no direct link between this expenditure and the potential receipt of dividends from its subsidiaries sufficient to satisfy the now repealed tax provision.  
But deductions for expenditure monitoring offshore subsidiaries could fall within the broader general category of expenditure incurred ‘in the course of carrying on a business for the purpose of deriving income’ she said.  This broader general rule in the Income Tax Act does not require a direct positive link between expenditure incurred and income received.   

NRS Media Holdings Ltd v. Inland Revenue – High Court (1.12.17)

18.016