6 Mar 2013

IRD eyeing $300m in tax and penalties

8:14 pm on 6 March 2013

More than $300 million in tax and penalties from a number of corporates is in the sights of Inland Revenue after the Court of Appeal dismissed an appeal against a landmark tax avoidance case.

Kitchenware supplier Alesco had challenged a 2011 High Court decision that found the firm owned $8.6 million in avoided tax by using a form of an interest-free loan from its Australian parent in the early 2000s, called optional convertible notes, to buy two businesses.

The notes were a common cross-border way to convert debt to equity and minimise tax.

The Court of Appeal backed the High Court's view, saying the only reason Alesco advanced $78 million to its New Zealand unit interest free for 10 years under the convertible notes was to avoid tax by claiming expense deductions for interest payments that did not occur.

Some 16 foreign firms also used the notes and the IRD estimates more than $300 million is involved.

WHK tax principal Craig Macalister said the courts have sent a clear signal about how they view avoidance.