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.


The key to long-term success after weight-loss surgery
107438 2019-06-26 00:00:00Z Health

The key to long-term success after weight-loss sur…

by Nicky Pellegrino

Weight-loss surgery is becoming more common, but lifestyle and attitude changes are needed for long-term success.

Read more
Matariki feast: Kasey and Karena Bird's family recipes
107605 2019-06-25 11:39:22Z Food

Matariki feast: Kasey and Karena Bird's family rec…

by Lauraine Jacobs

Māori food champions Kasey and Karena Bird share traditional family recipes that are ideal for Matariki.

Read more
Julie Anne Genter on bicycles, babies and what's going to make a better world
107579 2019-06-25 00:00:00Z Profiles

Julie Anne Genter on bicycles, babies and what's g…

by Emma Clifton

The MP made world headlines when she cycled to hospital to give birth. She talks about how this put her and what she stands for in the spotlight.

Read more
Toy Story 4: The beloved franchise reaches a Forky in the road
107472 2019-06-25 00:00:00Z Movies

Toy Story 4: The beloved franchise reaches a Forky…

by Russell Baillie

The fourth Toy Story instalment is clever, enjoyable and refreshingly weird.

Read more
Mitre 10 living wage ruling sets precedent for retail staff - union
Apple set to offer sign-in service to rival Facebook and Google
107596 2019-06-25 00:00:00Z Tech

Apple set to offer sign-in service to rival Facebo…

by Peter Griffin

In the wake of data-privacy scandals, Apple is beefing up protection for owners of its devices.

Read more
Understanding New Zealanders' attitudes to paying tax
107563 2019-06-24 16:28:59Z Business

Understanding New Zealanders' attitudes to paying…

by Nikki Mandow

We are pretty good about paying our taxes here, so why would we willingly go along with avoiding GST?

Read more
Border tax rort: Could you be caught by a Customs crackdown?
107530 2019-06-24 10:19:12Z Business

Border tax rort: Could you be caught by a Customs…

by Nikki Mandow

New Zealand retailers hit by a GST rort that has been going on for at least two years hope officials, Trade Me, ministers and even customers will...

Read more