cheap lenses australia

Alesco tax avoidance test case going to Supreme Court

The Supreme Court has granted leave for Alesco New Zealand Limited (Alesco NZ) to appeal the Court of Appeal’s decision, which considered an optional convertible notes (OCNs) financing arrangement, as tax avoidance. See Alesco New Zealand Limited v Commissioner of Inland Revenue [2013] NZSC66 [9 July 2013]. The development is significant given there are a number of companies who have utilised similar funding structures and now face potential tax liabilities.

Background

In 2003, Alesco NZ purchased two other New Zealand companies. This was funded by its Australian parent, Alesco Corporation (Alesco), which used OCNs to advance purchase monies of $78m to its New Zealand subsidiary.

From 2003 to 2008, Alesco NZ claimed deductions for amounts treated as interest liabilities on the notes in accordance with relevant accounting standards and Determination G22 (a financial arrangement determination issued by the Commissioner under the Tax Administration Act 1994) against its liability to be taxed in New Zealand.  The Commissioner did not allow Alesco the interest deductions and considered that the OCNs were arrangements entered into for the purpose or with the effect of tax avoidance.

Alesco NZ challenged the Commissioner’s view.  In 2011 the High Court upheld the Commissioner’s treatment of the OCN funding as a tax avoidance arrangement, a finding that was subsequently upheld by the Court of Appeal.  Alesco NZ then applied successfully for leave to appeal to the Supreme Court.

Approved grounds of appeal

The approved grounds of appeal were whether, in light of the principles laid down by the Supreme Court in Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2009] 2 NZLR 289 and other cases on tax avoidance:

  • the structure used by the applicants for funding the transactions is a tax avoidance arrangement
  • the  Commissioner’s application of shortfall penalties was a proper exercise of the relevant statutory powers, and
  • the Commissioner’s reassessments were a proper exercise of the relevant statutory powers.

No Responses

Be the first to leave a comment!

Write a Comment

Take a moment to comment and tell us what you think. Some basic HTML is allowed for formatting.

*

Recent comments

  • Peter: When you have more than one job all your income is added up and you pay tax on the total income amount. For...
  • Joanne Martin: Hi Would you be able to email me to discuss a small company that is an LTC which I need some advice on...
  • Rizwana Saheed: You are on the right track that there is an exemption when employees work overtime but whether or not...
  • bryan: as a group of employees we get paid meal money if we exceed 11hrs on any day. Employer says he wants to tax...
  • linda: My mother is 94 and has dementia. With govt assisted carers she is still living in a home gifted within the...
  • Sharon: Hi Daniel, Can you please advise how owners of a profit-making LTC pay themselves? The owners used to pay...
  • Another Anne: My Dad is in care on full subsidy. I am EPOA. Are we able to gift some money to my brother in UK so...
  • Twagilayesu Isaya: I agree with the author of this article that Inland Revenue Department need to provide clear...
  • Quinn: Hi. I would like some clarification regarding the valuation of the investments component of the owners basis...
  • QROPS Pensions: Interesting piece of writing, you always write the most useful content & TalkTax is no exception...

Upcoming Events

  • No events.

Poll

In the past 12 months, do you think the amount of IRD investigations being undertaken has?

View Results

Loading ... Loading ...

Authors

    For the moment, we have no authors