21 Dec 2011

Clarity on tax avoidance rules welcomed

7:08 am on 21 December 2011

Tax practitioners are welcoming clearer signs from Inland Revenue on how tax avoidance rules will be applied.

IRD has put out a draft paper on tax avoidance for public consultation after a series of court decisions in its favour, including cases involving major banks and orthopaedic surgeons Ian Penny and Gary Hooper.

PricewaterhouseCooper chairman John Shewan says the current policy has just had its 21st birthday and is "spectacularly out of date". He says it's a "bit of a mystery" why the Commissioner hasn't withdrawn it years ago.

Mr Shewan says the Commissioner has won every tax avoidance case IRD has taken in the past five years and the rule book has changed "significantly" in the years since the original guidelines were drawn up, causing a lot of uncertainty and angst for the business community.

He's welcoming the 116-page draft paper which he says does a good job in setting out the Commissioner's views and spends some time talking about the new test that is being applied - known as parliamentary contemplation.

Mr Shewan says that means asking the question: if parliament had foreseen a particular transaction when the provision was being passed, would it have viewed that transaction as being within Parliament's contemplation?

He says that is a very difficult test and he is disappointed the Commissioner has not seen fit to help taxpayers by giving a series of practical examples.

"I think that would have given real life to what is going to be the central turbine of tax avoidance interpretation."

Public feedback on the document is due at the end of March 2012.