5 Mar 2013

Court dismisses appeal against tax avoidance case

9:20 pm on 5 March 2013

An appeal against a tax avoidance case has been dismissed by the Court of Appeal.

Inland Revenue won the case against Aleseco of Australia in the High Court in 2011, arguing that the kitchenware supplier avoided tax by using a form of interest-free loan from its parent in the early 2000s, called optional convertible notes.

The notes were a common cross-border way to convert debt to equity and minimise tax.

The High Court ordered Alesco to pay $8.6 million in tax and penalties.

The Court of Appeal has supported the High Court's view, saying the only reason Alesco advanced $78 million to its New Zealand unit interest-free for 10 years under the convertible notes was to avoid tax by claiming expense deductions for interest payments that did not occur.

The case is important because Inland Revenue is chasing a number of foreign firms that used the notes to fund their New Zealand operations, including Telstra, MediaWorks and Qantas.

The tax department estimates more than $300 million in tax and penalties is at stake.

WHK tax principal Craig Macalister says the outcome is not surprising.

"Recently, we've seen some fairly strong decisions from the Supreme Court where it has stamped its mark and its direction on the way that avoidance is to be considered and viewed.

"I think that in this case we see clearly the court's following and falling in behind that view."