Wins for the taxpayer

by Pattrick Smellie / 01 April, 2016

Help us find and write the stories Kiwis need to read

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

With friends like Donald Trump, who needs enemies?
93834 2018-07-21 00:00:00Z World

With friends like Donald Trump, who needs enemies?…

by Paul Thomas

The US President treats his Western allies to a tongue-lashing while cosying up to Vladimir Putin, causing alarm at home and around the world.

Read more
Who Is America? is predictably alarming – and scarily relevant
93831 2018-07-21 00:00:00Z Television

Who Is America? is predictably alarming – and scar…

by Diana Wichtel

Only Bernie Sanders comes out unscathed in Sacha Baron Cohen’s absurdist new series Who Is America?

Read more
Organic wine is getting bigger in New Zealand. These are our top picks
93885 2018-07-21 00:00:00Z Wine

Organic wine is getting bigger in New Zealand. The…

by Michael Cooper

Quality rather than quantity drives New Zealand's organic wine producers.

Read more
Killer robots: The question of how to control lethal autonomous weapons
93876 2018-07-20 08:23:45Z Tech

Killer robots: The question of how to control leth…

by Peter Griffin

The computer scientist who has become a leading voice on the threat posed by killer robots describes himself as an “accidental activist”.

Read more
The man who's making sure performing artists are seen in the regions
93813 2018-07-20 00:00:00Z Theatre

The man who's making sure performing artists are s…

by Elisabeth Easther

For 35 years, Steve Thomas has been at the helm of Arts On Tour, taking musical and theatrical acts from Kaitaia to Stewart Island.

Read more
The Eco Economy: Millennials, money and saving sustainably
93645 2018-07-20 00:00:00Z Economy

The Eco Economy: Millennials, money and saving sus…

by Sharon Stephenson

Millenials are leading the rise of the eco economy.

Read more
Cuba Libre is a new Caribbean-influenced restaurant-bar in Ponsonby
93862 2018-07-19 15:05:51Z Auckland Eats

Cuba Libre is a new Caribbean-influenced restauran…

by Kate Richards

Rum, cigars and Cuban sandwiches are on the menu at new Ponsonby restaurant, Cuba Libre.

Read more
Our plastic recycling efforts will go nowhere without the right information
93822 2018-07-19 00:00:00Z Environment

Our plastic recycling efforts will go nowhere with…

by The Listener

If turns out that some plastics marketed as eco-friendly degrade only to a certain point and often outlive their human recyclers.

Read more