NEW ZEALAND GAZETTE

No. 3

146

payment of the Principal Amount by the Deemed Borrower to the Deemed Lender on the Maturity Date:

(i) the payment of the Principal Amount made by the Deemed Lender to the Deemed Borrower, on the Effective Date;

(ii) the payment of the Principal Amount made by the Deemed Borrower to the Deemed Lender on the Maturity Date; and

(iii) payments of all other amounts that are payable by either party to the other under the terms of the swap contract, and that relate to the relevant side of the swap, on the dates on which they are specified to be payable in the swap contract.

(b) Where the terms of the swap provide for the payment of the Principal Amount by the Deemed Lender to the Deemed Borrower on the Effective Date, and no payment of the Principal Amount by the Deemed Borrower to the Deemed Lender on the Maturity Date:

(i) the payment of the Principal Amount made by the Deemed Lender to the Deemed Borrower, on the Effective Date;

(ii) a deemed payment of the Principal Amount made by the Deemed Borrower to the Deemed Lender on the Maturity Date; and

(iii) payments of all other amounts that are payable by either party to the other under the terms of the swap contract, and that relate to the relevant side of the swap, on the dates on which they are specified to be payable in the swap contract.

(c) Where the terms of the swap provide for no payment of the Principal Amount by the Deemed Lender to the Deemed Borrower on the Effective Date, but a payment of the Principal Amount by the Deemed Borrower to the Deemed Lender on the Maturity Date:

(i) a deemed payment of the Principal Amount made by the Deemed Lender to the Deemed Borrower, on the Effective Date;

(ii) the payment of the Principal Amount made by the Deemed Borrower to the Deemed Lender on the Maturity Date; and

(iii) payments of all other amounts that are payable by either party to the other under the terms of the swap contract, and that relate to the relevant side of the swap, on the dates on which they are specified to be payable in the swap contract.

(d) Where the terms of the swap do not provide for the payment of the Principal Amount by the Deemed Lender to the Deemed Borrower on the Effective Date, or for payment of the Principal Amount by the Deemed Borrower to the Deemed Lender on the Maturity Date:

(i) a deemed payment of the Principal Amount made by the Deemed Lender to the Deemed Borrower, on the Effective Date;

(ii) a deemed payment of the Principal Amount made by the Deemed Borrower to the Deemed Lender on the Maturity Date; and

(iii) payments of all other amounts that are payable by either party to the other under the terms of the swap contract, and that relate to the relevant side of the swap, on the dates on which they are specified to be payable in the swap contract.

(6) Subject to sub-clause 6 (4) above, apply the following provisions for the purpose of calculating the income derived and expenditure incurred by a party to a swap:

(a) Subject to paragraphs (b), (c) and (d) below, apply the accrual provisions and any relevant determinations to each of the deemed loans described in sub-clause 6 (5) above.

(b) Although both parties to the swap will be “holders” under the swap, in relation to each of the deemed loans treat a party as either a “holder” or an “issuer” in accordance with the terms of the loan (as described in sub-clause 6 (5) above) and the definitions of “holder” and “issuer” in section 64B.

(c) Where—

(i) a deemed loan is denominated in a currency other than New Zealand Dollars and Determination G9A would be applied to calculate the income and expenditure under the deemed loan, and

(ii) there is no actual payment of the Principal Amount on the Maturity Date, and

(iii) either paragraph (b) or paragraph (d) of sub-clause 6 (5) of this Determination applies to deem amounts to be paid or payable on the Maturity Date,

then [notwithstanding the requirements of Determination G9A and the terms of paragraphs (b) and (d) of sub-clause 6 (5) of this Determination] apply Determination G9A in respect of that deemed loan on the basis that any actual or deemed payment of the Principal Amount on the Effective Date is not included as “consideration given” for the purposes of items b and d in the formula contained in sub-clause 6 (1) of that Determination G9A and items f and h in the meaning of “closing tax book value” in clause 5 of that Determination.

(d) Take into account any Fee Amount payable in relation to the swap (reduced by the amount of item z in section 64BA (2) or 64BA (3) of the Act), any Compensatory Amount payable, and any Assignment Amount payable to or by a party as the assignee of the swap, as an amount or amounts subject to the yield to maturity or other method of calculating income or expenditure applicable under the actual provisions or determinations made thereunder. However, apply each such amount to only one of the two loans the swap is deemed to comprise. You must elect which of the loans is to be treated in this way.

(7) Where the terms of a swap are varied after the date it was entered into, and that variation alters the amounts payable (or the basis upon which the amounts payable are to be calculated) under the swap, or the dates upon which they are payable, apply Determination G25: Variations In The Terms of a Financial Arrangement (in combination with this determination) as if the corresponding variation and alterations occurred with respect to the deemed loans described in sub-clause 6 (5) above.

7. Examples

(1) Example 1—Deemed Loans

Background Information

This example illustrates the method outlined in sub-clause 6 (3) of this determination. The swap is treated as if it comprised two simultaneous loans from each party to the other. Income derived or expenditure incurred is then calculated in accordance with the Act and relevant determinations.

In this example, there is a 3 year interest rate and currency swap from 15 September 1993 to 15 September 1996 between—

(a) A New Zealand corporate borrower who has arranged a floating loan in United States dollars, with interest at LIBOR plus a margin, payable semi-annually on 15 March and 15 September; and

(b) A counterparty who has a fixed rate loan in New Zealand dollars, with interest at 12.5% payable semi-annually on 15 March and 15 September.

The swap involves the LIBOR interest only, not the margin.