Archive | Tax

Supreme Court rejects new Russell bid to appeal $139 million-plus tax bill

Published 13 August 2012

The Supreme Court has refused John Russell leave to appeal against the Court of Appeal’s rejection of his objection to a tax assessment, which on judgment in 2010 had reached $139 million.

Mr Russell, 77, has been battling authority, and Inland Revenue in particular, ever since the 1976 collapse of the Securitibank finance group he headed. Court findings that his template was set up for tax avoidance date back to 2001.

Inland Revenue assessed Mr Russell’s tax liability on the basis that he’d entered a tax avoidance arrangement. Both the Taxation Review Authority and the High Court reached the same conclusion, followed by the Court of Appeal, and the Supreme Court said Mr Russell hadn’t shown Inland Revenue’s reconstruction was wrong, let alone by how much.

Mr Russell lost a major round in his long-running battle with Inland Revenue in 2010, with a High Court judgment against him for $139 million of back taxes, interest & penalties for the period 1985-2000. Mr Russell claimed his earnings were below $300,000, but Inland Revenue claimed that without tax-avoidance arrangements the figure should have been $15.75 million. Mr Russell remains director of a long list of companies, including Commercial Management Ltd & Downsview Nominees Ltd.

The Court of Appeal gave Mr Russell leave in April to advance a point he’d expressly not taken in the High Court, the effect of section 99(4) of the Income Tax Act, although arguments over section 99 have been part of the battle for a good 10 years.

The Court of Appeal upheld the 2010 High Court judgment and added that the overall scheme was the means by which profits were laundered without income tax being paid. The Court of Appeal concluded that the income was to be attributed to Mr Russell because he was the governing mind of the template arrangements, which were designed to shelter the income earned.

An Inland Revenue summary of the Court of Appeal’s April decision says that court concluded that the income was to be attributed to Mr Russell because he was the governing mind of the template arrangements, which were designed to shelter the income earned.

Link: Court of Appeal confirms commissioner’s broad powers of reconstruction

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Attribution: Court judgment, Inland Revenue case notes, story written by Bob Dey for the Bob Dey Property Report.

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Westpac appeals $918 million tax avoidance ruling

Published 3 November 2009

Westpac Banking Corp said today it had appealed Justice Rhys Harrison’s High Court finding that the bank had engaged in tax avoidance in structured finance transactions.

 

Justice Harrison found in Inland Revenue’s favour in a $918 million decision against the bank on 4 representative transactions. The judgment was released on 8 October. Westpac NZ Ltd chief executive George Frazis said the appeal was unlikely to be heard before the last quarter of 2010. Earlier story:

9 October 2009: IRD wins $918 million avoidance case against Westpac

 

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Attribution: Bank release, story written by Bob Dey for the Bob Dey Property Report.

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IRD wins $918 million avoidance case against Westpac

Published 9 October 2009

Inland Revenue has won its second huge tax-avoidance case against a major bank, this time Westpac for a total $918 million. The previous decision was against the Bank of New Zealand, for $654 million.

 

The BNZ filed an appeal in August and Westpac also came out fighting yesterday, indicating 3 options. One is that the bank’s lawyers presented its case so badly that the judge completely misunderstood it. A second is that the judge was absolutely hopeless – but, unless he’s had a brain explosion recently, Justice Rhys Harrison isn’t hopeless. And the third is that the judge got it right.

The Westpac proceedings concerned tax assessments for 9 structured finance transactions undertaken between 1998-2002, in which the bank challenged amended assessments in respect of Westpac’s tax treatment.

 

Justice Harrison found in Inland Revenue’s favour on 4 representative transactions. Westpac said that when all 9 transactions were taken into account, the financial cost of the judgment would be $918 million, made up of core tax of $586 million & interest of $332 million. Westpac NZ chief executive George Frazis said: “The length of the trial, the time taken to consider arguments and the time taken to get to this stage clearly demonstrate the complexity of the issues being contested. "We have always believed that the transactions were commercially justified and complied with the law. This is particularly so because Westpac obtained a ruling in 2001 from Inland Revenue in respect of a similar transaction, which confirmed Westpac’s view that a transaction of this type satisfied all tax laws and, in particular, was not tax avoidance. We are very disappointed with this decision.” Westpac will review appropriate provisions as part of its 2009 results, to be announced on Wednesday 4 November: “Should Westpac increase its existing tax provisions relating to this matter to $918 million, this would impact Westpac’s tier 1 capital ratio by about 25 basis points. Any change in provisions will not be included in cash earnings. “The Westpac Group maintains a tier 1 ratio well above its target range and is able to meet any additional tax that may be payable as a result of the judgment. This judgment will not impact our day to day operations in any way,” Mr Frazis said. ANZ Banking Group Ltd said after the decision was released it would review the implications for its tax provisions.

 

ANZ has previously disclosed a contingent liability related to the tax treatment of structured finance transactions in New Zealand undertaken by ANZ & the National Bank of New Zealand between 2000-05.

 

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Attribution: Judgment, bank releases, story written by Bob Dey for the Bob Dey Property Report.

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$900 million bank tax case back in court

Published 5 July 2009

A potential tax bill for Westpac Banking Corp – exceeding $500 million 5 years ago – has climbed, with interest, to $900 million as the argument over it returns to the Auckland High Court.

 

Westpac sought a judicial review of a decision by Justice Rhys Harrison on the validity of assessment, but the Court of Appeal threw that application out in February and the Supreme Court affirmed that conclusion on April.

 

The hearing, back before Justice Harrison, opened on 30 June and is scheduled to run for 7 weeks. Brendan Brown QC is leading the case for Inland Revenue, Jim Farmer QC for the bank.

 

The case concerns structured finance transactions dating back to 1999, which Inland Revenue reviewed, resulting in amended assessments for 1999-2005 in relation to 9 transactions between 1998-2002. Inland Revenue argued the transactions were devoid of purpose other than to avoid tax.

The overall primary tax in dispute is $586 million. Interest (up to March 2009, net of tax) increases that to about $903 million. Westpac is disputing the assessments, arguing the transactions were genuine financing arrangements with substantial corporate customers. The bank said it obtained a ruling from Inland Revenue on another similar transaction in 2001 and the principles underlying the ruling were applicable to the disputed transactions.

 

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Attribution: Westpac releases, Supreme & Appeal Court judgments & releases, story written by Bob Dey for the Bob Dey Property Report.

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