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.

THE BANK "REPO" CASES


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%.

TRANSTASMAN HYBRID CASES


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.

Latest

PM announces ban on all military-style semi-automatic weapons and assault rifles
103805 2019-03-21 00:00:00Z Crime

PM announces ban on all military-style semi-automa…

by RNZ

Ms Ardern pledged the day after the terrorist massacre that "gun laws will change" and would be announced within 10 days of the attack.

Read more
No mention of right-wing extremist threats in 10 years of GCSB & SIS public docs
103770 2019-03-21 00:00:00Z Politics

No mention of right-wing extremist threats in 10 y…

by Jane Patterson

There is not one specific mention of the threat posed by white supremacists or right-wing nationalism in 10 years of security agency documents.

Read more
Deirdre Kent: The woman who faced down the wrath of Big Tobacco
103798 2019-03-21 00:00:00Z Profiles

Deirdre Kent: The woman who faced down the wrath o…

by Joanna Wane

As the face of anti-smoking lobby group ASH, Deirdre Kent played a vital role in the smokefree New Zealand movement.

Read more
Māori leaders say acts of terror nothing new in NZ
103766 2019-03-21 00:00:00Z Currently

Māori leaders say acts of terror nothing new in NZ…

by Leigh-Marama McLachlan

Māori leaders are calling on New Zealanders to reject the notion that 'this is not us' in the wake of the Christchurch mosque attacks.

Read more
Cynthia Millar and the strange beauty of the ondes martenot
103723 2019-03-21 00:00:00Z Music

Cynthia Millar and the strange beauty of the ondes…

by Elizabeth Kerr

The sci-fi sound of the ondes martenot is playing a key part in the upcoming performance of an epic symphony.

Read more
Christchurch gunsmith warned police about white supremacists last year
103662 2019-03-20 00:00:00Z Crime

Christchurch gunsmith warned police about white su…

by RNZ

A Canterbury gunsmith living and working says he told police less than six months ago they needed to look at the rise of white supremacists with guns.

Read more
12 moments that show how New Zealanders have united in the face of terror
103665 2019-03-20 00:00:00Z Social issues

12 moments that show how New Zealanders have unite…

by Vomle Springford

In the following days after the Christchurch terror attacks, New Zealand has come together to support the victims of the shootings.

Read more
How modern art inspired the music of Anna Clyne's Abstractions
103649 2019-03-20 00:00:00Z Music

How modern art inspired the music of Anna Clyne's…

by The Listener

The works of the English contemporary composer feature in the NZSO’s forthcoming The Planets series.

Read more