IRD lays down its law on nature of tax avoidance

By BRIAN FALLOW

The Inland Revenue has spelled out the law - as it sees it - in the vexed and murky area of tax avoidance.

PricewaterhouseCoopers tax partner Peter Boyce said avoidance was probably the most difficult aspect of tax law and moves to clarify it were welcome.

"There have been a lot of cases but the courts haven't crystallised tests of what is avoidance.

"And it has been 14 years since the department's last interpretation statement," he said. "Meanwhile the audit function of the IRD has become much more aggressive compared with a few years ago."

The general anti-avoidance provision casts a very wide net.

The courts have said that, if taken literally, the provision would mean many legitimate family or business transactions would be caught because they reduce the tax liability of the parties.

"Determining when the tax avoidance profusion applies is not a paint-by-numbers exercise and never will be," Boyce said.

"The facts in each case are different and need to be considered in detail.

"But understanding the set of rules the IRD considers it should be using is a material step forward."

A brief first look at the 80-page draft suggested it was substantially in accord with what most tax advisers would say the law was, Boyce said.

"There are some areas where we might disagree but my first impression is most practitioners' views would be reasonably consistent with the framework analysis it lays out."

The draft statement is open for comment until December 17.