Abstract
New Zealand is a common law system. Courts in New Zealand have defined tax avoidance as a reduction in tax in a way that complies with the letter of the law, but is contrary to the purpose of the legislation. New Zealand features possibly the oldest GAAR which dates back to 1878 and covered land tax. The modern version of the GAAR circa 2007 voids any tax avoidance arrangement for income tax purposes. Such an arrangement includes altering the incidence of tax, relieving any person from a present or potential tax liability, or postponing or reducing a present or potential liability. The GAAR covers a transaction only if tax avoidance motivates entry or tax avoidance is one of the non-incidental motivations even if there are business reasons. The taxing authority may adjust taxable income to counteract the avoidance. While the GAAR has had some success in deterring entry into tax avoidance schemes, the courts have continued to allow aggressive arrangements. This may cause some taxpayers to enter into a tax-minimizing transaction in the hope that a court will allow the tax advantages.
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Notes
- 1.
Law Commission Review of the Statutes Drafting and Compilation Act 1920 (NZLC R 107, Wellington, May 2009) recommendation 8, p 28.
- 2.
See IRD website: http://taxpolicy.ird.govt.nz/corporate/process.html (accessed 27 June 2009).
- 3.
If a taxpayer has furnished a return and made an assessment, the Commissioner may not amend the assessment to increase the amount assessed if 4 years have passed from the end of the income year in which the taxpayer provided the return: Tax Administration Act 1994, s 108, and for GST assessments, s 108A. The Commissioner is prevented from refunding amounts of overpaid income tax after 8 years from the end of the year in which the original assessment was made: Income Tax Act 1994, s MD 1(1). The Commissioner cannot refund amounts of overpaid GST after 8 years from the end of the taxable period in which tax was assessed: Goods and Services Tax Act 1985, s 45.
- 4.
Tax Administration Act 1994, s 108(2).
- 5.
Tax Administration Act 1994, s 89 N.
- 6.
Tax Administration Act 1994, s 89H(3).
- 7.
Tax Administration Act 1994, s 89 M(8).
- 8.
Tax Administration Act 1994, s 89 M(13).
- 9.
Tax Administration Act 1994, s 3.
- 10.
Tax Administration Act 1994, s 138G.
- 11.
The OCTC also houses the Taxpayer Rulings, Public Rulings and Escalation and Advising Units.
- 12.
“The Adjudication Unit – its role in the dispute resolution process” IRD Website http://www.ird.govt.nz/technical-tax/general-articles/ga-adjudication-unit.html (accessed 4 July 2009).
- 13.
[2008] NZSC 115.
- 14.
Challenge Corporation Ltd v Commissioner of Inland Revenue [1986] 2 NZLR 513 (PC).
- 15.
Mangin v Commissioner of Inland Revenue [1971] NZLR 591.
- 16.
Mangin v CIR, above, n 15, 598 Lord Donovan.
- 17.
Albert Venn Dicey Introduction to the Law of the Constitution (1885): “Parliament… has… the right to make or unmake any law whatever; and further, that no person or body is recognised by the law of England as having a right to override or set aside the legislation of Parliament. Parliament is not bound by its predecessor.”
- 18.
Challenge Corporation Ltd v CIR, above, n 14.
- 19.
Mangin v CIR, above, n 15.
- 20.
The Land Tax Act 1878, s 62: “Every covenant or agreement heretofore made or hereafter to be made between landlord and tenant, mortgagor and mortgagee, or between any other persons, altering or attempting to alter the nature of the estate in any land so liable to duty for the purpose of defeating or in any other manner evading the payment of land-tax imposed by this Act, or which shall be in any manner contrary to the true intent of this Act, or calculated to prevent its operation in any respect, shall, so far as regards any such covenant or agreement, be void and of no effect as between the parties thereto.”
- 21.
Property Assessment Act 1879, s 29: “No contract, covenant, or agreement touching the payment of taxes to be charged on their respective premises heretofore made, or hereafter to be made, between any persons which is contrary to the intent and meaning of this Act shall be binding on the parties.”
- 22.
Property Assessment Act 1885, wording unchanged from the 1879 version.
- 23.
The Land and Income Tax Assessment Act 1891, s 40: “Every covenant or agreement heretofore made or hereafter to be made between landlord and tenant, mortgagor and mortgagee, or between any other persons, altering or attempting to alter the nature of the estate or interest in any land or mortgage for the purpose of defeating or in any other manner evading the payment of tax imposed under this Act, or which shall be in any manner contrary to the true intent of this Act, or calculated to prevent its operation in any respect, shall, so far as regards any covenant or agreement, be void and of no effect as between the parties thereto.”
- 24.
Peterson v IRC [2006] 3 NZLR 423 (PC).
- 25.
Hadlee v CIR [1993] 2 NZLR 385 (CA).
- 26.
Penny v CIR; Hooper v CIR CIV-2007-409-1153, CIV-2007-409-1154 (High Court, Christchurch Registry, 19 March 2009) MacKenzie J.
- 27.
For instance: Ben Nevis Forestry Ventures Limited v CIR; Accent Management Limited v CIR [2008] NZSC 115 (Trinity).
- 28.
Trinity, ibid.
- 29.
Discussed in greater detail in John Prebble “Practical Problems from Publication of the Commissioner’s Interpretation Guidelines” (Working Paper No 8, Working Paper Series, Victoria University, Wellington, New Zealand, 2002).
- 30.
Tax Administration Act 1994, Part V.
- 31.
Taxpayer Information Bulletin, no 8, February 1990, appendix C.
- 32.
Miller v CIR [2001] 3 NZLR 316 PC.
- 33.
Tax Administration Act 1994, s 141A(2). The term “reasonable care” is not defined in the legislation.
- 34.
Tax Administration Act 1994, s 141B(4). The 20 per cent shortfall penalty will apply provided that the shortfall arising from the unacceptable tax position is more than both $50,000 and 1 per cent of the taxpayer’s total tax figure for the return period. A taxpayer takes an unacceptable tax position if, viewed objectively, the tax position fails to meet the standard of being about as likely as not to be correct (s 141B(1)).
- 35.
Tax Administration Act 1994, s 141C(2). Gross carelessness means doing or not doing something in a way that, in all the circumstances, suggests or implies complete or a high level of disregard for the consequences (s 141C(3)).
- 36.
Tax Administration Act 1994, s 141D(3).
- 37.
Tax Administration Act 1994, s 141E(4).
- 38.
Income Tax Act 2007, s BG 1.
- 39.
Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (made under Lawyers and Conveyancers Act 2006, ss 94 and 95).
- 40.
Tax Administration Act, s 34B(2)(a).
- 41.
Tax Administration Act, s 34B(2).
- 42.
Tax Administration Act, s 34B(1).
- 43.
Tax Administration Act, s 34B(8)(b).
- 44.
Tax Administration Act, ss 34B(9) and (10).
- 45.
Income Tax Act 2007 s DA 2(4).
- 46.
Ben Nevis Forestry Ventures Limited v CIR; Accent Management Limited v CIR [2008] NZSC 115 (Trinity).
- 47.
BNZ Investments LTD v CIR (HC WN CIV 2004-485-1059) [15 July 2009] (HC) Wild J.
- 48.
I McKay, A Molloy, J Prebble and J Waugh Tax Compliance ISBN 0-477-01857-2 (1999) i–xliii, 1–348.
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Prebble, Z., Prebble, J. (2012). New Zealand. In: Brown, K. (eds) A Comparative Look at Regulation of Corporate Tax Avoidance. Ius Gentium: Comparative Perspectives on Law and Justice, vol 12. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-2342-9_12
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