Bell Gully scores major tax-avoidance win in the High Court

Bell Gully has helped score a rare win for a taxpayer facing tax-avoidance allegations in New Zealand.

The firm represented Frucor Suntory New Zealand in Frucor Suntory New Zealand Limited v Commissioner of Inland Revenue. The firm said that the High Court’s decision in the case will have far-reaching effects on future tax-avoidance cases.

The firm and barrister Lindsay McKay successfully struck down the claim that Frucor Suntory avoided paying taxes by using convertible note financing to fund its New Zealand business.

“In recent years taxpayers have had limited success in resisting tax-avoidance allegations, and this decision may be the first step in rebalancing the position,” Bell Gully said.

Partner Mathew McKay, who acted on the matter, said Justice Matthew Muir’s judgment is “logical and insightful” and is “founded on a firm understanding of the relevant tax principles.” He said that High Court’s decision is a reminder to the IRD that tax-avoidance allegations must be based on “rational argument that pays attention to existing policy and legislative design.”

Bell Gully said that the judgement “accepts that Parliament would have contemplated that tax​payers would ordinarily be entitled to interest deductions on debt instruments, if set at an arm’s-length rate.”

It also “confirms that the presence of unorthodox features in an internal arrangement between group companies will not necessarily be regarded as ‘artificial’ features in a tax-avoidance analysis – it is the tax outcomes that must be considered,” the firm said.

The judgment “reinforces the traditional separate legal entity approach in an international tax context” as well as “provides an indication that shortfall penalties will not automatically follow a finding of tax avoidance.”