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QB 23/02 Income tax: scenarios on tax avoidance – 2023 No 2

03 Feb 2023 Questions we've been asked / 2023

This Question we’ve been asked (QWBA) is one of two QWBAs that updates tax avoidance scenarios from earlier QWBAs that have become outdated. The earlier QWBAs were based on the Commissioner’s statement on tax avoidance published in 2013 (IS 13/01).

IS 13/01 has been replaced by IS 23/01: “Tax avoidance and the interpretation of the general anti-avoidance provisions sections BG 1 and GA 1 of the Income Tax Act 2007”.

This item replaces: QB 15/11 (scenario 1) and (scenario 3)

QB 23/01 Income tax: scenarios on tax avoidance - 2023 No 1

03 Feb 2023 Questions we've been asked / 2023

This Question We’ve Been Asked (QWBA) updates tax avoidance scenarios from earlier publications that have become outdated. The earlier publications include QWBAs that were based on the Commissioner’s statement on tax avoidance published in 2013 (IS 13/01).

IS 13/01 has been replaced by IS 23/01: “Tax avoidance and the interpretation of the general anti-avoidance provisions sections BG 1 and GA 1 of the Income Tax Act 2007”.

This item replaces: QB 14/11 (scenario 1) and QB 15/11 (scenario 2)

IS 23/01 FS Information about the Commissioner’s Interpretation Statement on tax avoidance (fact sheet)

03 Feb 2023 Fact sheets / 2023
This Fact Sheet accompanies the Commissioner’s Interpretation Statement IS 23/01 Tax avoidance and the interpretation of the general anti-avoidance provisions sections BG 1 and GA 1 of the Income Tax Act 2007.

IS 23/01 Tax avoidance and the interpretation of the general anti-avoidance provisions sections BG 1 and GA 1 of the Income Tax Act 2007

03 Feb 2023 Interpretation statements / 2023

The statement explains the Commissioner’s view of the law on tax avoidance in Aotearoa New Zealand.  It is based on and reflects the view of the Supreme Court as set out in Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, and applied in Penny v CIR [2011] NZSC 95 and Frucor Suntory New Zealand Ltd v CIR [2022] NZSC 113

The statement sets out the Commissioner’s approach to applying section BG 1. The statement also explains how the Commissioner, under section GA 1, may counteract any tax advantage that a person obtains from or under a tax avoidance arrangement. 

The statement is also relevant to the general anti-avoidance provision in the Goods and Services Tax Act 1985 (section 76).

This item replaces IS 13/01: Tax avoidance and the interpretation of ss BG 1 and GA 1 of the Income Tax Act 2007.

Vol 35 No 1 TIB - February 2023

01 Feb 2023 TIB / Volume 35 - 2023

New legislation

  • SL2022/295 - Order in Council – Tax Administration (Regular Collection of Bulk Data) Regulations 2022
  • SL2022/306 - Order in Council – Income Tax (Fringe Benefit Tax, Interest on Loans) Amendment Regulations (No 2) 2022
  • SL2022/315 - Order in Council – Taxation (Use of Money Interest Rate) Amendment Regulations (No 3) 2022
  • SL2022/316 - Order in Council – Student Loan Scheme (Repayment Threshold for 2023–24 Tax Year and Subsequent Tax Years) Regulations 2022
  • SL2022/342 - Order in Council – Tax Administration (Extension of Deadline for Research and Development Loss Tax Credit Statements) Order 2022

Ruling

  • BR Prd 22/14: Bank of New Zealand

Determination

  • TRU 22/01: Variation to s 59BA(2) of the Tax Administration Act 1994 for trustees of certain trusts that derive a small amount of income

Revenue alert

  • RA 22/01: Consequences of acquiring, possessing or using electronic sales suppression tools

Questions we've been asked

  • QB 22/10: Can a close company deduct interest on a shareholder loan account where the amount is not known until after balance date?

Technical decision summaries

  • TDS 22/20: GST – taxable activity
  • TDS 22/21: Whether subdivision was a profit-making undertaking or scheme and a taxable activity

Legal Decisions - case summaries

  • CSUM 22/05: Supreme Court confirms Frucor’s tax avoidance and finds shortfall penalties apply
  • CSUM 22/06: Court of Appeal confirms High Court order that backdating of child support liability was invalid

CSUM 22/06 Court of Appeal confirms High Court order that backdating of child support liability was invalid

31 Jan 2023 Case summaries / 2022

This was an appeal by the Commissioner of Inland Revenue (the Commissioner) of the High Court decision which upheld Mr Lindsay’s judicial review, making a declaration that the child support assessment dated 23 November 2017 was invalid to the extent that it imposed backdated liability to 2003. The Commissioner also appealed the High Court’s 10% uplift award of costs.

A cross appeal of the High Court decision to only award Mr Lindsay a 10% uplift in costs was undertaken by Mr Lindsay.

The Court of Appeal dismissed the Commissioner’s substantive appeal and upheld the High Court’s declaration that the child support assessment which backdated Mr Lindsay’s liability to 2003 was invalid. However, the Court of Appeal allowed the Commissioner’s costs appeal and set aside the 10% uplift awarded by the High Court.

Mr Lindsay’s cross appeal asking for an increase in uplift from 10% was dismissed.

Tax Information Bulletin Vol 35 No 1, February 2023

 

FDR 2023/01 A type of attributing interest in a foreign investment fund for which a person may use the fair dividend rate method (Units in the Plato Global Macro Equity Fund– Class Z)

25 Jan 2023 Determinations / International tax / Foreign investment funds / 2023

Any investment by a New Zealand resident investor in units in the Plato Global Macro Equity Fund– Class Z, (previously Two Trees Global Equity Macro Fund -Class Z) to which none of the exemptions in section EX 29 to 43 of the Income Tax Act 2007 apply, is a type of attributing interest for which the investor may use the Fair Dividend Rate method to calculate Foreign Investment Fund income for the interest.

Note: This Determination is a variation of Determination number 2022/01 previously issued to “Two Trees Global Equity Macro Fund”. There are no material changes to the Discussion and Scope previously published, other than the name change.

This item will appear in the Tax Information Bulletin March 2023.

Guidelines for pre-lodgement meetings

10 Jan 2023 Web page

The following guidelines expand on the information contained in the Binding rulings (IR715) guide. They cover the purpose of a pre-lodgement meeting (PLM), information you need to provide beforehand, who should attend, timeframes, location, agenda, delays, and how to contact us.

CSUM 22/05 Supreme Court confirms Frucor’s tax avoidance and finds shortfall penalties apply

15 Dec 2022 Case summaries / 2022

The Commissioner of Inland Revenue (Commissioner) disallowed interest deductions claimed by the predecessor of Frucor Suntory New Zealand Limited (Frucor) in respect of a tax-driven structured finance transaction it entered into in March 2003 involving associated companies and the Deutsche Bank.

The Commissioner contended that the funding arrangement was a tax avoidance arrangement in terms of s BG 1 of the Income Tax Act 2004 (ITA) and denied a portion of Frucor’s claimed interest deductions in the 2006 and 2007 income tax years. The Commissioner also contended that Frucor took an unacceptable tax position and an abusive tax position such that shortfall penalties should be imposed.

Frucor challenged the assessments and was successful in the High Court, with that Court holding that the funding arrangement was not a tax avoidance arrangement. The Commissioner’s assessments for 2006 and 2007 were thereby cancelled.

The Commissioner appealed and the Court of Appeal allowed the appeal, set aside the orders of the High Court, reinstated the Commissioner’s assessments based on tax avoidance with regards to the disallowed deductions but held that shortfall penalties did not apply.

Frucor appealed the finding on tax avoidance and the Commissioner cross-appealed the finding that shortfall penalties did not apply.

The Supreme Court dismissed Frucor’s appeal, finding there was tax avoidance and allowed the cross-appeal, finding shortfall penalties for taking an abusive tax position also applied.

Tax Information Bulletin Vol 35 No 1, February 2023

RA 22/01 Consequences of acquiring, possessing or using electronic sales suppression tools

13 Dec 2022 Revenue alerts / 2022

This Revenue Alert sets out the Commissioner’s response to a threat arising from Electronic Sales Suppression (ESS) tools. These tools are used for the purposes of evading tax by altering point-of-sale data collected by businesses to understate or completely conceal revenue. The Revenue Alert sets out a number of new measures that have been introduced to discourage the use and spread of these ESS tools within New Zealand.

Tax Information Bulletin Vol 35 No 1, February 2023

More
Reference Title Closes
PUB00443 Foreign investment fund (FIF) default calculation method 10 February 2023
PUB00392 Charities – business income exemption 17 February 2023

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PUB00443 Foreign investment fund (FIF) default calculation method closes 10 February 2023

PUB00392 Charities – business income exemption closes 17 February 2023

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