Tax Avoidance: Causes and Solutions - Scholarly Commons Home

Steps 1 to 3 are the three elements of s BG 1. Step 4 is an additional interpretative step
which requires the consideration of whether the arrangement frustrates Parliamentary
intention for the provision to give deliberate tax benefits. It is not statutory rule but adopted
by the courts to identify whether s BG1 applies to any given arrangement. The most
prominent judicial approach is choice doctrine approved by Lord Hoffmann in O’Neilv
CIR 119 .
Step 5 is the step after the tax avoidance arrangement is found and s BG 1 applies to void
the arrangement. In such case, the Commissioner has power to adjust the income of a
person affected by the arrangement under s BG 1 (2). The Commissioner may make
appropriate adjustments to counteract the tax benefit received directly or indirectly by the
taxpayer. 120
The above five steps are the reference for identifying the tax avoidance arrangement.
According to Richardson P in BNZ Investments Limited 121 , the arrangement brings a tax
advantages might not necessarily be a tax avoidance arrangement. The arrangement is a tax
avoidance arrangement only after the necessary state of mind is proven and the choice
doctrine is considered. The following section will discuss in detail about the arrangement at
under s BG1 and related leading cases.
7.1.3 Concept of Arrangement
Overview: statutory definition
The term “arrangement” is defined in section OB1:
“Arrangement means an agreement, contract, plan or understanding (whether enforceable
or unenforceable) including all steps and transactions by which it is carried into effect.”
119 O'Neil v CIR (2001) 20 NZTC 17,057.
120 CIR v BNZ Investments Limited (2001) 20 NZTC 17,103, per Blanchard J.
121 CIR v BNZ Investments Limited (2001) 20 NZTC 17,103, per Richardson P.
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