Executive summary

On 31 March 2026, New Zealand's Inland Revenue (IR) updated its Transfer pricing documentation guidance (the Guidance). The Guidance has been strengthened to clearly state that taxpayers are expected to maintain sufficient transfer pricing documentation and outlines IR's expectations of "adequate" documentation, as well as the potential consequences if documentation is deemed to be inadequate.

It is not sufficient merely to have New Zealand transfer pricing documentation in place; rather, taxpayers are expected to maintain documentation that is appropriately tailored to the specific facts and circumstances of the New Zealand entity. Inadequate transfer pricing documentation will increase the likelihood of audit activity and, if transfer pricing adjustments are made, shortfall penalties of up to 40% will most likely apply.

The Guidance also states IR's expectations of what constitutes "good" transfer pricing documentation and highlights common errors observed in practice, most of which IR attributes to overreliance on centrally prepared documentation. IR reiterates its view that meaningful local involvement is necessary to ensure that analysis is sufficiently localized and accurately reflects the factual circumstances of the New Zealand entity.

Detailed discussion

The following sections outline the key updates, as well as continued areas of focus for IR.

Consequences of inadequate documentation

The Guidance outlines the potential consequences for taxpayers of not maintaining adequate New Zealand transfer pricing documentation, including increased likelihood of audits and the imposition of shortfall penalties. If IR deems documentation to be inadequate, it is more likely to take immediate enforcement action rather than grant extensions of time for supplementary documentation to be prepared.

If a taxpayer's documentation inadequately explains why its transfer prices are considered to be consistent with the arm's-length principle, IR has clearly stated that it is more likely to audit those transfer prices in detail. As the burden of proof for transfer pricing matters now rests with the taxpayer, inadequate documentation undermines a taxpayer's ability to rebut an alternative transfer price that IR proposes.

The most meaningful change relates to the imposition of shortfall penalties from a transfer pricing adjustment. Previous guidance stated that transfer pricing adjustments "may" be subject to penalties if the associated transfer pricing documentation was deemed to be inadequate. The latest update strengthens this position, stating that if documentation is inadequate and a transfer pricing adjustment is made, penalties "will most likely" be imposed. This change reflects IR's increasingly strict stance on the quality of supporting analysis and underscores the real risk of penalties if adequate transfer pricing documentation is not in place.

If a transfer pricing adjustment is made, the quality of supporting documentation will itself be a key factor in determining whether penalties apply and, if so, the quantum of those penalties. Failure to prepare adequate transfer pricing documentation, or accepting pricing that is clearly inappropriate, may result in a shortfall penalty of up to 40% for gross carelessness, particularly if apparent issues involving material associated-party transactions are insufficiently addressed or effectively disregarded.

Centrally prepared documentation

IR has identified a number of common issues arising from the use of transfer pricing documentation that is centrally prepared by a parent company on a global basis, without adequate consideration of the specific facts and circumstances of the New Zealand subsidiary or the local market in which it operates. These include:

• Insufficient detail on the local business, including omitting key facts such as headcount and lines of key management and personnel
• Insufficient or inaccurate functional analysis, in which material local functions are omitted or materially differ from the position documented in the centrally prepared documentation
• Industry analyses that are based on noncomparable geographies or markets that are not reflective of the New Zealand operating environment
• The use of noncomparable geographies in benchmarking analyses, particularly the Asia-Pacific region, which is considered economically distinct from the New Zealand market and generally not accepted for benchmarking New Zealand entities

The Guidance also highlights potential risks associated with the application of centralized transfer pricing policies, stating that it is important to carefully assess the specific facts and circumstances of the New Zealand entity when determining whether a centralized policy is appropriate. Differences in functional profile, market conditions and local capabilities may mean that a uniform policy is not suitable for the New Zealand entity.

"Good" transfer pricing documentation

New Zealand's tax system continues to operate on a self-assessment basis, in which the taxpayer is expected to keep sufficient records to support their tax position. The burden of proof for transfer pricing matters rests with the taxpayer, meaning adequate supporting documentation is necessary to successfully rebut an alternative transfer price proposed by IR.

IR has set out its expectations of what should be included in New Zealand transfer pricing documentation for it to be considered adequate. While aligning to Organisation for Economic Co-operation and Development (OECD) requirements, IR emphasizes that good-quality documentation should include:

• A detailed functional analysis of the local entity, focusing in particular on intangibles
• A local industry analysis identifying the key value drivers and competitors
• Careful consideration of associated-party transactions (each category should be examined separately)
• A discussion of the efforts made to find internal comparables
• Full details on the comparables search undertaken (e.g., the database utilized, criteria employed, an accept/reject list including reasons for rejection)
• An analysis of why the companies selected qualify as comparables
• An unadjusted income statement for each comparable with adjustments detailed
• Conclusions, including "sanity checks" to demonstrate commercial realism
• Copies of all intercompany agreements and details on the local and global corporate structures

IR expects local management to be actively involved in the preparation and review of New Zealand transfer pricing documentation, particularly in relation to the functional analysis.

The Guidance also outlines common issues identified in IR's reviews of transfer pricing documentation, which IR attributes to centrally prepared or heavily templated documentation. These include:

• Confusion over whether the entity in focus was a subsidiary or a branch
• Failure to identify all parties to cross-border transactions
• Failure to read contracts or simply misunderstanding them
• Insufficient analysis of risk assumption
• Poor analysis of the nature of agency (in particular, the actions and contractual obligations of agent and principal)
• Incorrect functional characterization, particularly failure to ensure that centrally prepared documentation or standard templates are factually accurate and relevant to the New Zealand entity's specific circumstances.

Implications

The updated Guidance reinforces the need for multinational enterprises operating in New Zealand to not only have transfer pricing documentation in place, but also ensure that it is specific to, and factually accurate for, their New Zealand operations. Multinationals that rely on centrally prepared documentation with insufficient localization, can expect increased scrutiny and challenges from IR, with a much higher chance that shortfall penalties are imposed.

IR's stronger stance on adequate documentation outlined in the updated Guidance has been underscored already by increased enforcement activity, with greater incidences of shortfall penalties on transfer pricing adjustments. Now is the time for multinationals with New Zealand operations to ensure that contemporaneous transfer pricing documentation is maintained to an acceptable standard and with adequate local customization and review.