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11.1 31%2c32%2c33%20Tax%20Planning%2cavoidance%2cattribution


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ACIS 254 – 28 MAY 2009 LECTURES 31, 32 AND 33: TAX AVOIDANCE (CONTINUED), THE ATTRIBUTION RULE, TAX EVASION Readings for lectures 29 To 33: New Zealand Taxation 2009 Ch 21, paras 21.1 – 21.13.2. (Also Master Tax Guide 2009 Chapter 33: paras 33-010 to 33-345, and Chapter 23, paras 23-160 to 23-175). TAX AVOIDANCE (CONTINUED) A Recap - Case Law (prior to 2000) A summary of some important points from case law prior to 2000 on section 99 (s BG 1) follows: 1. Tax mitigation as a legitimate method of limiting a taxpayer's liability to tax may not have universal application. 2. Transactions with contrived or artificial aspects that have the dominant purpose of tax avoidance and no real business or commercial purpose have fallen foul of the general anti- avoidance section. 3. Where the taxpayer attempts to gain a tax advantage not available to other taxpayers of the same class, there is a good case of tax avoidance. 4. Where the taxpayer attempts to gain a tax advantage through a legitimate way of doing business that is available to all taxpayers, there is less of an argument for tax avoidance. 5. Not every case involving tax avoidance will lead to the application of the general anti- avoidance section. 6. The purpose or effect of an arrangement must be determined objectively. The taxpayer's motives for entering into a particular arrangement are not decisive. 7. The existence of a legitimate business or family purpose within an arrangement may mean that any tax avoidance purpose or effect is merely incidental and therefore s 99 (s BG 1) does not apply. 8. The amount of tax saved by the arrangement is a factor relevant to the existence of a tax avoidance purpose or effect. Case Law CIR v BNZ Investments Ltd (2001) 20 NZTC 17,103 (CA) [NZT 21.2, 21.8.6; MTG 33-080-33-110] Summary of decision: It was a fundamental prerequisite to the use of s 99 ITA 1976 [s BG 1] against a taxpayer that there had been a contract, agreement, plan or understanding in which the taxpayer was a participant. This state of affairs cannot have existed for the taxpayer unless there had been formally or informally - even if unenforceably - a consensus between the taxpayer and another or others as to what, in general terms, would occur pursuant to the arrangement. Facts
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The respondent taxpayer (BNZI), funded by share capital taken up by BNZ and a series of redeemable preference share (RPS) investments in entities provided by CML, a member of the Fay Richwhite Group (FRG). Funds were received through nine transactions. The basic structure of the nine transactions was of two types: (1) the MCN transactions (MCN1 and MCN2); and (2) the Alasdair/Fenstanton transactions (AF1 and AF2). Each type of transaction involved BNZ funding BNZI subscription to RPS investments from CML or affilliates, against appropriate indemnities and securities. CML then invested the funds downstream through a series of further transactions and received a return. CML and FRG extracted various fees along the way. The interest earned was repatriated to BNZI as exempt dividends.
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