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2005 media releases

High Wealth programme brings in millions of extra tax dollars
11 October 2005

Nearly $36 million worth of additional tax has been identified, assessed and paid during the past year, thanks to Inland Revenue's High Wealth Individual programme.

A further $102 million has been assessed and is under dispute, said Inland Revenue's Group Manager, Corporates Spyros Papageorgiou, while another $100 million in potential tax risks has also been identified and is under active examination.

The high-wealth programme is designed to draw together a range of initiatives to improve both compliance and Inland Revenue's understanding of leading-edge commercial and tax planning approaches, including national and international business and investment structures, and financing products.

The programme is co-ordinated by the High Wealth Individual (HWI) unit, which gathers information and undertakes risk analysis. "We are increasingly moving to a global tax compliance model, and are looking to build on the experience of other jurisdictions in this new environment," said Mr Papageorgiou. "In line with international best practice, the research and analysis is allowing Inland Revenue to gain a better understanding of high-wealth individuals, their business and financial affairs, and tax planning techniques. We want to ensure they are paying their fair share of tax on time, every time."

The current focus is on 100 individuals and the entities controlled by them. "We have found that these people tend to be associated with highly complex structures," said Mr Papageorgiou.

"For example, the average number of associated entities is 37 and the highest number of entities associated with one individual is 155. We are always willing to assist these individuals, to help them comply with their tax obligations."

The HWI unit has identified a range of common tax risks associated with the individuals it is working with, including:

  • Residency - determining the country where HWI and their entities are to be taxed.
  • Trusts - use of such vehicles to divert taxable income.
  • Management fees - payments to loss-making associates.
  • Disposal of assets - businesses selling "investment" assets.
  • Property dealings - examining capital/revenue issues.
  • Lifestyle assets - luxury assets being shown as business assets, together with the costs.
  • Tax losses - entering into arrangements that generate tax losses.
  • Transfer pricing - transferring profits to associated offshore entities.
  • Avoidance schemes - entering into schemes specifically designed to avoid tax.

Because of the complexity of both the structures and the issues involved - particularly when several tax jurisdictions are involved - cases can take several years to finalise.  "Some of these issues go back several years. In one case dating back to the 1990s, for example, the Taxation Review Authority recently ruled in Inland Revenue's favour, deciding that an insurance premium of $6 million paid to a captive insurance company in Bermuda was a sham. Inland Revenue will be pursuing $35 million in tax and penalties in this case," said Mr Papageorgiou. The taxpayer is appealing the decision.

Individuals under scrutiny in the HWI programme have generally been co-operative, he said."This programme is about ensuring that this group are aware of their tax obligations, helping them meet those obligations, and ensuring they are aware of the consequences if they choose not to comply."

What is a High Wealth Individual?

Inland Revenue's High Wealth Individual (HWI) unit is focusing on about 100 high-wealth individuals or groups and the entities they control, such as companies, trusts and partnerships. Generally these individuals or groups control wealth of more than $50 million, or more $20 million where the high-wealth individual or group:

  • controls companies administered by Inland Revenue's Corporates sector (ie, those with revenue of more than $100 million)
  • has substantial wealth in property development
  • has complex business structures or pay little tax relative to the level of perceived wealth
  • is currently or has recently been involved in tax arrangements considered aggressive by Inland Revenue.

How did Inland Revenue identify the top 100?

The top 100 have been identified from both internal and external resources including Companies Office information, land searches, asset registers, information from overseas revenue authorities and media reports. Research, maintenance and comparison of database information is ongoing.

What have you been doing about this taxpayer group up until now?

The department has had a range of initiatives which are being drawn together under the HWI programme. The 100 list will include some taxpayers currently under review - current work will continue but is being incorporated into the high wealth programme.

What other compliance activity is Inland Revenue currently involved in?

  • A key outcome of Inland Revenue's business plan is implementing a compliance model, which promotes a more tailored, responsive approach to taxpayers and recognises the external factors that influence taxpayer compliance.
  • As part of implementing the model we have developed the Industry Partnership Strategy. The purpose of the strategy is:
    • to work together with industries to find ways to make it easier for their members to meet their tax obligations
    • To increase tax compliance within those industries.

Statistics

Up until 30 June 2005:

  • 29 risk analyses completed
  • 35 risk analyses in progress
  • 5 comprehensive audits completed, plus many specific issues audits of entities
  • 14 comprehensive audits in progress, plus specific issues audits on some entities
  • one tax-aggressive scheme identified
  • $35.9 million in discrepancies assessed and paid
  • $97 million discrepancies assessed and under dispute
  • $100 million potential tax risks identified
  • $4 million in extra tax payable per annum identified in one transfer pricing case
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Corporate Affairs
Inland Revenue

To make a media query:
Phone 04 890 1698 or email mediaqueries@ird.govt.nz
Please note, the email address is only for enquiries from the news media. It is monitored during normal business hours 8am - 5pm Monday to Friday.

P O Box 2198
Wellington 6140
New Zealand


Date published: 11 Oct 2005

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