Tax Avoidance: Causes and Solutions - Scholarly Commons Home

the use of that machinery is regarded as perfectly legitimate and not on its own affected by
sec 99, it may be only one element in a wider arrangement which is caught by the section.”
His Honour also stated that: “in the end, the legal answer must turn on an overall
assessment of the respective roles of the particular provision and s 99 under the Statute and
the relation between them. That is a matter of statutory construction ...”
Woodhouse P 163 rejected the choice principle and concluded that the answer to questions of
the ambit of s 99, when in conflict with specific statutory provisions, was to be found in the
use of the words “merely incidental purpose or effect”. If a tax avoidance purpose had
“merely incidental purpose or effect”, it would not trigger s 99. However, the ambit of the
section should be discovered as a matter of fact and degree on a case by case basis. In
essence, both Judges recognised the tension between taxpayers arranging their tax affairs
effectively and the need to protect the tax system from avoidance abuse.
Richardson J's statutory construction approach to the “choice doctrine” in Challenge 164 has
now been supported by the decisions of the Privy Council and House of Lords. In O'Neil 165 ,
Lord Hoffmann stated:
“On the other hand, the adoption of a course of action which avoids tax should not fall
within s 99 if the legislation, upon its true construction, was intended to give the taxpayer
the choice of avoiding it in that way.”
Therefore, under choice doctrine section BG 1 should not be applied to override the
specific provisions of the Act if to do so would defeat rather than promote the statutory
purpose. On the other hand, section BG 1 should not be construed subordinate to the rest of
the income tax legislation as to do so would render it largely redundant and ineffective.
7.1.6 Reconstruction
Once the Court has determined that an arrangement entered into by the taxpayer is void
under s BG 1 Income Tax Act 2004, the Commissioner is given an adjustment power under
163 Ibid
164 Ibid
165 O'Neil v CIR (2001) 20 NZTC 17,051 (PC).
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