Wins for the taxpayer

by Pattrick Smellie / 01 April, 2016
Every year the IRD gets a boost to its budget to track down corporate tax avoiders. 
Photo/Getty Images/Listener Illustration
Photo/Getty Images/Listener illustration

It’s tempting to think that the taxpayer always loses when it comes to multinational corporate taxpayers, but in the past few years the Inland Revenue Department (IRD) has had a string of significant wins. And year after year, the IRD gets big increases in its enforcement budget, a no-brainer since every dollar spent on nailing tax avoidance yields a return to taxpayers of about $7.


Settled on Christmas Eve, 2009, for $2.2 billion and involving the country’s four largest foreign-owned banks – Westpac, ANZ, BNZ and ASB – this is still believed to be the largest commercial ­settlement in New Zealand. By agreeing to pay the equivalent of about 80% of the unpaid tax and interest in dispute, the banks avoided potentially large penalties if they lost in court. The case was notable for advice from a PwC senior partner at the time, John Shewan, that his client, Westpac, should be seen to be paying enough tax to satisfy public expectations. He suggested that should be about 15% of annual profits, compared with the corporate tax rate at the time of 30%. Westpac chose to pay at an effective tax rate of 6.5%.


A string of Australian-owned companies, including former KiwiRail owner Toll Holdings, Telstra and former TV3 owner Ironbridge Capital, used a simple tax-minimising trick to invest in New Zealand companies in the first half of the 2000s. Using either mandatory or optional convertible notes (MCNs and OCNs), they stacked the New Zealand entities with debt. The interest paid on that debt was deductible from New Zealand earnings, reducing the tax take on this side of the Tasman, while increasing earnings booked in Australia. The courts found much of that debt was loaded on to the Kiwi companies for tax rather than justifiable commercial reasons. As much as $300 million in unpaid tax, interest and penalties was at stake.

The IRD’s former head of policy, Robin Oliver, now in private practice, says corporate customers wouldn’t dream of such schemes today.

“With our anti-avoidance rules and the way the Supreme Court interprets them, it makes it a no-go area,” he says. “If someone came to us today and this is what they wanted to do, we’d look at them cross-eyed.”

More on tax avoidance: The missing billions of multinational tax

Follow the Listener on Twitter or Facebook.
MostReadArticlesCollectionWidget - Most Read - Used in articles
AdvertModule - Advert - M-Rec / Halfpage


Watch: The top 10 moments Winston was Winston
81778 2017-10-19 09:48:34Z Politics

Watch: The top 10 moments Winston was Winston

by Noted

We've compiled our favourite clips of interviews and moments when Winston Peters was at his glorious best (and worst).

Read more
Women-led seed capital fund SheEO to be offered in New Zealand
81773 2017-10-19 05:29:52Z Business

Women-led seed capital fund SheEO to be offered in…

by Nona Pelletier

A group of women business leaders and other investors have launched a capital fund designed to support new ventures led by female entrepreneurs.

Read more
Which way will Winston go? Even National and Labour are in the dark
81767 2017-10-19 05:11:08Z Politics

Which way will Winston go? Even National and Labou…

by Sarah Robson

Winston Peters is set to announce whether NZ First will support National or Labour to lead the government - but will he tell the main parties first?

Read more
Trump troller Jemaine Clement scoops up a prestigious award
81653 2017-10-19 00:00:00Z Profiles

Trump troller Jemaine Clement scoops up a prestigi…

by Julie Hill

The comedian is on a roll - and has just been named one of the Arts Foundation's Arts Laureates for 2017.

Read more
Waru: The New Zealand film you need to see
81698 2017-10-19 00:00:00Z Movies

Waru: The New Zealand film you need to see

by India Hendrikse

Eight Māori wahine directors present eight different takes on a confronting issue.

Read more
Mountain – movie review
81727 2017-10-19 00:00:00Z Movies

Mountain – movie review

by Peter Calder

This high-altitude doco is more eye-popping showreel than interesting film.

Read more
Quid Pro Quo: What the Romans Really Gave the English Language – book review
81591 2017-10-19 00:00:00Z Books

Quid Pro Quo: What the Romans Really Gave the Engl…

by Mark Broatch

The story of English is one of plundering words from far and wide and ipso facto from the Romans.

Read more
Many people think about killing – why do only a few act on it?
81723 2017-10-19 00:00:00Z Psychology

Many people think about killing – why do only a fe…

by Marc Wilson

Many of the mass killings since Trump’s election involve male perpetrators estranged from their families.

Read more