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2007 media releases

Inland Revenue welcomes 'Trinity' court ruling
13 June 2007

Inland Revenue said today it is pleased that two judgments released by the Court of Appeal this week have upheld Inland Revenue's approach to the "Trinity" forestry investment scheme.

Karen Whitiskie, Director Litigation, says the judgments send a clear message that investors should not enter investment schemes principally looking for tax benefits above business purposes.

The first judgment (CA21/05) dismissed the appeal and ordered the appellants to pay to the Commissioner of Inland Revenue total costs of $30,000.

The second judgment (CA32/06), about the Commissioner's ability to settle tax litigation with taxpayers, was also dismissed and total costs of $6000 were awarded against the taxpayers.

Karen Whitiskie said that up to $3.7 billion dollars of tax revenue was at risk if the scheme had run its 50-year course.

"The Court of Appeal has now upheld the earlier High Court finding that the scheme was tax avoidance," she said.

"The clear message to investors is that if something sounds too good to be true and is offering fantastic tax benefits.......... think twice.

"The taxpayers in the test cases will not only have to pay the tax, but also interest on that tax, and 100% shortfall penalties."

The scheme involved 200-300 taxpayers, from which a small number were selected as test cases.

The Court of Appeal judgment acknowledges that the Trinity scheme is clever........."But this cleverness should not be allowed to obscure the reality that this particular emperor has no clothes....  It is clear that the real purpose of the arrangement is not the conduct of a forestry business for profit, but rather generation of spectacular tax benefits."

Ms Whitiskie said investigations and litigation staff at Inland Revenue are delighted with the result as it endorses their hard work over almost 10 years, which has potentially saved the New Zealand tax base billions of dollars.

It is not yet known whether the taxpayers will seek leave to appeal to the Supreme Court.

 

Background

The case was heard by the Court of Appeal from 4 - 8 September 2006. 

The Trinity scheme - named after the companies associated with the scheme - was  Inland Revenue's largest-ever tax litigation success, eclipsing the $226 million ACTONZ software scheme case, which Inland Revenue won in 2003. 

Investors in Trinity bought a 50-year licence to grow Douglas fir trees on land owned by the Trinity Foundation companies, and agreed to pay a licence fee of $2 million a hectare, in 2047 when the trees were harvested.  Investors depreciated the $2 million a hectare fee, a claim challenged by Inland Revenue.  The scheme also involved an insurance policy with a British Virgin Islands-based company, the cost of which was also claimed as an upfront deduction.

The case was litigated in the High Court in 2004. In his judgment released on 20 December 2004 Justice Venning stated that, "the dominant purpose of the arrangement was tax avoidance". He also supported Inland Revenue's position on shortfall penalties, saying these had been "properly imposed...on the basis the plaintiffs took an abusive tax position."

 

Ends

 

Contact:

 Alison Welch

(04 890 1698)

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Communications and Inquiry
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: 13 Jun 2007

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