New Zealand Inland Revenue updates anti-avoidance guidance after Supreme Court decision

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

New Zealand Inland Revenue updates anti-avoidance guidance after Supreme Court decision

Sponsored by

sponsored-firms-russel-mcveagh.png
new-zealand-73230.jpg

Fred Ward and Young-chan Jung of Russell McVeagh explain the newly adopted approach to New Zealand’s GAAR that was shaped by a Supreme Court decision.

The New Zealand Inland Revenue issued Interpretation Statement: Tax Avoidance and the interpretation of the general anti-avoidance provisions sections BG 1 and GA 1 of the Income Tax Act 2007 (the ‘Interpretation Statement’) on February 3 2023.

The Interpretation Statement sets out the Commissioner of Inland Revenue's (the ‘Commissioner’s’) view on how New Zealand's general anti-avoidance rule (GAAR) applies and replaces the previous interpretation statement that was issued in 2013. Of relevance to the updated Interpretation Statement is the Supreme Court's decision in Frucor delivered in September 2022.

The GAAR

The GAAR provides that a tax avoidance arrangement is void as against the Commissioner and that the Commissioner may counteract a tax advantage obtained from or under a tax avoidance arrangement. A tax avoidance arrangement has tax avoidance as its sole purpose or effect, or if it has more than one purpose or effect, tax avoidance is more than merely incidental to any other purpose or effect.

In determining whether an arrangement has the purpose or effect of tax avoidance, the ‘Parliamentary contemplation test’ as set out in the Supreme Court case Ben Nevis has been adopted as the authoritative approach by New Zealand's courts, including by the Supreme Court in Frucor.

The Commissioner's approach to the GAAR

The Interpretation Statement sets out the Commissioner's approach to applying the GAAR in detail, which can be summarised as the following steps:

  • Understanding the legal form of the arrangement;

  • Ascertaining Parliament's purpose for the specific provisions involved;

  • Understanding the commercial and economic reality of the arrangement as a whole;

  • Considering whether the arrangement makes use of, or circumvents, the specific provisions in a manner consistent with Parliament's purpose;

  • Deciding whether there is a tax avoidance purpose or effect; and

  • If tax avoidance is not the sole purpose or effect of the arrangement, whether the tax avoidance purpose or effect is merely incidental.

Supreme Court decision in Frucor

In September 2022, the Supreme Court delivered its decision in Frucor, under which the Commissioner was successful in arguing that the GAAR applied to a cross-border financing structure on the basis of interest deductions being claimed in excess of the economic funding cost under the structure.

While the Frucor decision adopted and applied the Parliamentary contemplation test as set out in Ben Nevis, the approach of the Supreme Court majority could be considered to have applied a broader economic substance test, with much emphasis placed on the impression the structure gave.

The Interpretation Statement, while generally following the same thrust as the previous version, reflects the approach in Frucor and provides that the Commissioner's approach also places greater emphasis on the economic substance of arrangements.

Practical considerations

The Interpretation Statement is not technically binding on the Commissioner; however, from a practical perspective, it is of use to taxpayers as a risk analysis tool because it provides an updated statement as to the Commissioner's approach to the GAAR.

Although not addressed in the Interpretation Statement, also of relevance to taxpayers is the liberal approach to the imposition of shortfall penalties by the Supreme Court in Frucor, which may necessitate an increased threshold for taxpayer certainty as to the GAAR's application before implementing structures.

As a result, a continuing trend of caution is expected from businesses when engaging in structuring and considering the potential application of the GAAR, with likely continued reliance on the ability to obtain binding rulings from Inland Revenue before implementing structures.

more across site & shared bottom lb ros

More from across our site

Uncertainty isn’t always a bad thing, but it’s easy to see how the Trump administration’s IRS commissioner merry-go-round may serve to undermine business confidence
The EU defended its ‘sovereign right’ to impose the tax in the face of US tariff threats; in other news, the US deputy Treasury secretary resigned after just five months
Ascoria’s chief revenue officer shares her career wisdom garnered from the disparate worlds of tax technology, electric cables, radio DJing and more
Businesses no longer have a choice when it comes to tax technology transformation. Pavlo Boyko of TMF Group says the question is simply: sink or swim?
The firm is hunting for a senior TP manager in its quest to build a full-service practice in Indonesia, A&M Tax’s Jakarta head Jaap Zwaan tells ITR
With a new government in place, the evolving tax landscape presents both opportunities and challenges for taxpayers
Major economies have expressed concerns, with China arguing a US global minimum tax exemption would be a violation of the principle of fair competition – ITR understands
Senator Richard Colbeck told ITR he was concerned by the decision to let PwC Australia tender for government contracts again after a scandal-induced ban
Whether it be due to a fragmented advisory market or a rise in M&A, Italy’s frenetic hiring has not gone unnoticed by ITR’s Talent Tracker
The deal gives Azets 14 new partners and boosts its Swedish revenues to over $100 million; in other news, Svalner Atlas launched in Copenhagen
Gift this article