Tax Avoidance: Causes and Solutions - Scholarly Commons Home

More documents

Recommendations

Info

understanding of the background in which it was made and to construe the transaction against this background. However, the Court emphasised that the factual matrix is admissible for the purpose of ascertaining the surrounding circumstances to understand the setting in which the actual agreement was made. The evidence cannot be used to contradict or deny the legal character of the written agreement entered into. 3.3 Shams Sham is first exception to the form approach. The concept of “sham” has been defined and analysed in numerous decisions both in New Zealand and elsewhere.The classic definition of a sham was given in Snook v London & West Riding Investments Ltd 62 , where Diplock LJ said: “... that for acts or documents to be a ‘sham’, with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.” A sham is the act done or document executed that is intended to mislead. It is where the parties resort to a form of action or document which does not fit the real facts in order to deceive a third person. 63 A sham is not the underlying motive or intention of the parties In Mills v Dowdall 64 Richardson J described the concept of sham as a situation in which the “essential genuineness of the transaction is challenged”. In that case Richardson J also indicated that there are two situations in which there may be a sham. First, where the documents do not reflect the true agreement between the parties; and second, where the documents are bona fide in inception but the parties have departed from their initial agreement while leaving the original documentation to stand unaltered. A sham does not apply to transactions that are intended to take effect, and do take effect, between the parties according to their tenor, even though those transactions may have the 62 [1967] 1 All ER 518. 63 Bateman Television v Coleridge Finance Co Ltd [1969] NZLR 794. 64 [1983] NZLR 154. 22
effect of fraudulently preferring. 65 And a sham will not be found to exist simply because a taxpayer adopts one legally available form over another 66 . There is no acceptance of the notion of a “halfway house” between a sham and an effective transaction. This means there is no legal principle supporting a concept where, even though the documents record the intention of parties, nevertheless the substance of the transaction can be interpreted so as to produce some different legal result 67 . In ascertaining the true nature of the transaction one must consider the legal character of the agreement which embodies the transaction. It is only if a challenge can be mounted on the basis of the genuineness of the agreement that it is necessary to consider the true substance of the transaction. 3.4 Section BG 1 Income Tax Act 2004 The second exception for the form approach is where there is a statutory anti-avoidance provision, which requires a broader or different approach to be adopted in assessing the transaction. The statutory anti-avoidance provision can be divided into two categories: specific anti-avoidance provisions and the general anti-avoidance provision. Specific antiavoidance provisions are directed to particular defined situations, whereas the general antiavoidance provision is not limited to specific transactions and covers any arrangement entered into with the object of avoiding tax. Section BG 1 is current general anti-avoidance provision of the Income Tax Act 2004. Cooke J in Challenge Corporation Ltd v CIR 68 described the ambit and effect of these provisions: “[the provisions] nullif[y] against the Commissioner for income tax purposes any arrangement to the extent that it has a purpose ... of tax avoidance ... [W]here an arrangement is void ... the Commissioner is given power to adjust the assessable income of any person affected by it, so as to counteract any tax advantage obtained by that person.” It was also noted by Woodhouse J in Elmiger v CIR 69 that the general provision, “is designed ... to forestall the use by individual taxpayers of ordinary legal processes for the 65 Paintin and Nottingham Ltd v Miller Gale and Winter [1971] NZLR 164. 66 Bateman Television v Coleridge Finance Co Ltd [1969] NZLR 794. 67 Re Securitibank Ltd (No 2) [1978] 2 NZLR 136. 68 [1986] 2 NZLR 513, 541 (CA). 23
Page 1 and 2: Tax Avoidance: Causes and Solutions
Page 3 and 4: 7.1.6 Reconstruction ..............
Page 5 and 6: Acknowledgements I would like to ta
Page 7 and 8: 1.0 Introduction The purpose of thi
Page 9 and 10: elates to the indirect consumption
Page 11 and 12: Direct Income tax was first imposed
Page 13 and 14: 2.0 Defining tax avoidance The defi
Page 15 and 16: Net income is defined in s BC 4, fo
Page 17 and 18: Net income - net losses = taxable i
Page 19 and 20: In the case W33 37 , a dentist term
Page 21 and 22: 2.3.2 Case law Newton 44 is a typic
Page 23 and 24: elated to all of the six software p
Page 25: This approach was subsequently conf
Page 29 and 30: Review of these rules is undertaken
Page 31 and 32: 4.3 General anti-avoidance provisio
Page 33 and 34: probably are not identical as to su
Page 35 and 36: administration must undergo a speci
Page 37 and 38: 6.0 Legislative - specific rules 6.
Page 39 and 40: Section GC 9 is aimed at nullifying
Page 41 and 42: is a trustee in relation to any sha
Page 43 and 44: Section CB 13 covers the situation
Page 45 and 46: limitations on loss deductions by p
Page 47 and 48: “(1) Avoidance Arrangement Void A
Page 49 and 50: Steps 1 to 3 are the three elements
Page 51 and 52: contracts and agreements so as to e
Page 53 and 54: As Baragwanath J noted: “It is to
Page 55 and 56: Therefore, as suggested by Trebilco
Page 57 and 58: incurs ... Income tax is avoided ..
Page 59 and 60: If there is more than one purpose,
Page 61 and 62: “Whatever difficulties there may
Page 63 and 64: section GB 1(1) to adjust the incom
Page 65 and 66: 7.1.7.1 Peterson v CIR The factual
Page 67 and 68: against profits the capital costs o
Page 69 and 70: The minority’s opinion was that t
Page 71 and 72: which is less than the whole of an
Page 73 and 74: (v) the result in relation to the o
Page 75 and 76: change his mind. There are, perhaps
Page 77 and 78:
7.2.1.5 Recent developments In Dece
Page 79 and 80:
Under section 245 (4), section 245(
Page 81 and 82:
system include: a broader and speci
Page 83 and 84:
8.3.2 Generally anti-avoidance rule
Page 85 and 86:
impermissible tax avoidance are var
Page 87:
Robert W. Maas ed., Tolley’s Anti
show all

Tax Avoidance: Causes and Solutions - Scholarly Commons Home

Create successful ePaper yourself

Delete template?

Save as template?