Tax avoidance – pays to check out the rules first

The Inland Revenue Department has spelled out its final view on what constitutes tax avoidance for the first time in 13 years, in a 135-page document.

The last time a final determination on tax avoidance was released was in 1990, and the publication of new finalised guidelines has been delayed by a string of wins in the courts for the IRD over the last five years, which have fundamentally changed the way tax avoidance is defined.

In simple terms, in the past tax avoidance was judged on the basis of whether the arrangement in question met the letter of the law.  However, recent court victories have created a new bedrock question for tax avoidance.  That is: Was the arrangement in line with what Parliament intended when it passed the law?

However, many commentators say it is very difficult to ascertain what parliament had in mind years ago when an act was passed.  So it remains an area fraught with risk.

In recent times, the IRD has won a series of big cases on tax avoidance and we would urge clients to contact your Moore Stephens Markhams advisor before undertaking any major restructuring.

Published Spring 2013.

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