New Zealand


  • Service: Tax
  • Type: Business and industry issue
  • Date: 30/07/2014


 John Cantin

John Cantin

Partner, Tax

+64 4 816 4518

Submission - QWBA Tax Avoidance Scenarios 

We welcome the release of draft practical guidance by the Commissioner of Inland Revenue (“the Commissioner”) on her view of the tax avoidance rule (section BG 1). We consider it important for the Commissioner to state her views so that taxpayers can make informed decisions. However, particularly with respect to the Commissioner’s analysis of Parliament’s contemplation, that the “line drawing” by the Commissioner is a partial rather than objective conclusion. Although we appreciate that the exercise does require judgement we consider the Commissioner is straying to “legislative gap filling” rather than demonstrating a logical and commercially and technically sensible conclusion as to what Parliament contemplated.


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In our view, there has been a noticeable tendency on the part of the Commissioner in recent times to apply the tax avoidance provisions when she is uncomfortable with the legislative outcomes. In doing so, we believe the Commissioner has been selectively picking and choosing provisions in the Act, while ignoring others, to support her propositions around Parliamentary contemplation. The draft statement unfortunately continues this trend. 


In our view, the analysis in the scenarios, illustrates the significant difficulties of a test which requires determination of what a notional Parliament would contemplate as being an appropriate outcome. It reinforces our view that the Courts’ approach to interpreting section BG 1 places a very high requirement that tax policy and legislation is appropriately developed and clear in its objectives. This is particularly the case for a number of the scenarios as we consider it very unlikely that Parliament (real or notional) would have contemplated that these arrangements are tax avoidance.


The scenarios also illustrate the difficulty for taxpayers from applying the Parliamentary contemplation test in practice. If there is no specific rule, which allows or prevents a particular action, there is no clear way to determine whether the result of the action is a standard design feature of the rules or one to which section BG 1 should apply. Taxpayers and Inland Revenue can both construct perfectly rational answers of what Parliament contemplated. This imposes a real standard of care on the Commissioner to ensure that her view of what Parliament contemplated does not adversely affect normal commercial transactions.


Disappointingly, the conclusions in the draft QWBA suggest that a taxpayer cannot have due regard to the tax consequences of their actions when determining what to do. In fact, it suggests taxpayers must take the course of action which results in the highest tax payable, or risk the Commissioner arguing that the result is outside Parliament’s contemplation (despite there being valid business and commercial reasons). This is a significant change in approach. If the draft statement is finalised “as is”, we consider urgent law changes will be required to allow normal commercial transactions to proceed.

Tax submissions - Submissions on draft tax legislation, Government discussion documents and issues papers, & various tax interpretation statements released by the New Zealand Inland Revenue. 

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