TaxBlog

Michael Hill International today announced that they would be moving their operations to Australia to save tax.

The restructuring “will materially and positively affect the after-tax profits and cash flow of the group,” chairman Michael Hill said in a statement. “This fundamental shift in functions has also required the Group to review its existing international transfer pricing arrangements which are in place for taxation purposes.”

It looks like there is nothing that the NZ revenue authorities can do to stop other NZ companies from following suit.

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There’s an interesting article on Stuff about the IRD investigating tax avoidance and evasion arrangements of the righ:

Tax evasion is like pornography, says Julie Segedin, tax manager at Beattie Rickman. “You may not be able to define it very easily, but you know when you see it.”

And just like pornography, it’s almost impossible to find people who will talk openly about using it.

But the wealthy, who are under suspicion of doing their utmost to pay as little tax as they can, are not finding things as easy as they once did, tax experts say.

The IRD’s high wealth individuals unit, which has netted over $36 million in avoided taxes, has powered up and is in the process of writing to 105 New Zealanders with over $50 million in assets, telling them they are being closely watched.

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The IRS announced today that it has resolved the largest tax dispute in American history:  a transfer pricing dispute with Glaxo SmithKline Holdings (Americas) Inc. & Subsidiaries (“GSK�?):

Under the settlement agreement, GSK will pay the IRS $3.4 billion, and will abandon its claim seeking a refund of $1.8 billion in overpaid income taxes, as part of an agreement to resolve the parties’ long-running transfer pricing dispute for the tax years 1989 through 2005….

The Tax Court dispute for years 1989-2000 involves intercompany transactions between GSK and certain of its foreign affiliates relating to various GSK “heritage” pharmaceutical products. Specifically at issue is the level of U.S. profits reported by GSK after making intercompany payments that took into account product intangibles developed by and trademarks owned by its U.K. parent, and other activities outside the U.S., and the value of GSK’s marketing and other contributions in the U.S. Under the settlement agreement, GSK has conceded over 60% of the total amount put in issue by the two parties for the years pending in Tax Court….

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THE actor Paul Hogan has broken years of silence to mock reports that he is caught up in a probe into serious tax fraud.

The Crocodile Dundee star is under investigation over allegations that tens of millions of dollars of film royalties were passed through offshore tax havens.

He is thought to have recently moved his family from Byron Bay’s hinterlands to the US.

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BRITAIN, the United States and Switzerland are among the world’s most corrupt countries, a tax expert says.

The failure of these and other developed countries to clamp down on offshore tax havens is responsible for more hardship than any corrupt acts by Third World leaders, John Christensen, formerly an adviser to the government of the Channel island of Jersey and now director of the Tax Justice Network, told the Economic Geography Research Group conference on Sunday.

“I would place the United Kingdom high on the list of most corrupt countries,” he said, citing its role as a tax haven and a defender of the tax haven role of its overseas territories and dependencies, as well as its “dismal role in undermining the effectiveness” of the European Union’s attempts to close tax loopholes.

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A panel of 14 lawyers from various jurisdictions met to discuss the global issue of tax avoidance at a colloquium held at Victoria University of Wellington recently.

The colloquium, “Comparing the General Anti-Avoidance Rule of Income Tax Law with the Civil Law Doctrine of Rechtsmissbrauch (Abus de Droit)”, was organised by Professor of Law John Prebble, and focused on how seven jurisdictions either frustrated tax avoidance or allowed it.

Professor Prebble began the discussion by drawing the distinction between tax evasion, mitigation, and avoidance. Evasion involves lying about one’s income, and is illegal; mitigation means reducing one’s tax in ways the statute clearly envisages, he said. Tax avoidance falls somewhere between these two. “Avoidance means contriving artificial transactions to reduce tax that is otherwise payable.”

The colloquium was presented by the Law Faculty in association with the Institute for Policy Studies; the International Bureau of Fiscal Documentation, Amsterdam, and the NZ Association for Comparative Law. Other speakers included Professeur de droit Yves-Louis Sage from the University of South Pacific in Papaete; Victoria University Senior Lecturer in Commercial Law David Dunbar; Victoria University Institute of Policy Studies Director Andrew Ladley, Victoria University Acting Dean of Law Paula Baron, Victoria University Law Faculty Senior Lecturer Alberto Costi, as well as students from Professor Prebble’s Master’s class: Svenja Brandt, Dennis Becher, Viktoria Preusker, and Matthew Fountain of Pricewaterhouse Coopers, Wellington.

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Something which is old news here in NZ has been making news across the Tasman.

As many as 6000 high wealth individuals, worth more than $30 million, will be targeted along with tax scheme promoters under the Australian Tax Office’s compliance program for this financial year.

People who fail to declare capital gains on the sale of homes or shares will also be in the spotlight, with 6000 under scrutiny, while the taxman will also write to 23,000 others reminding them of their obligations.

Investigations will continue in the use of tax havens, such as the multimillion dollar Project Wickenby a $300 million international credit card tax scam, allegedly involving celebrities, lawyers and business identities, will contine. The ATO has already identified 14 similar schemes which are als being examined.

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KPMG is being investigated by the IRS for a scheme involving YUM! Brands.

A court has said that two documents prepared by KPMG, analyzing the tax consequences of transactions by restaurant company Yum! Brands Inc., are protected from a summons issued by the Internal Revenue Service.

The IRS has been investigating Yum for its creation of a captive insurance company and related stock transfers between 1997 and 1999. According to the agency, the transactions resulted in a $112 million loss for tax purposes, but not book purposes.

As part of Yum’s response to an informal document request, the company produced a privilege log listing seven documents it believed were protected from IRS because of the work product doctrine. Five of the documents were eventually given to the IRS after the parties entered into a limitation of waivers agreement.

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A federal judge ruled that the Internal Revenue Service overstepped its authority by retroactively banning a tax shelter known as “Son of Boss” that cost the government at least $6 billion in lost revenue in the late 1990s.

Judge T. John Ward of the U.S. District Court for the Eastern District of Texas said the regulations, issued by the IRS in August 2000, didn’t apply to taxpayers who used the tax shelters before the rules were issued.

t’s the first significant legal defeat for the IRS in its six-year campaign against the tax shelters, a version of which prompted a federal probe of KPMG. The No. 4 U.S. accounting firm agreed in August 2005 to pay $456 million to avoid criminal prosecution relating to the sale of such tax products.

The ruling may hurt the government’s case against 16 former KPMG executives, including former Deputy Chairman Jeffrey Stein, who are charged with knowingly selling illegal tax shelters including one similar to the shelter ruled on by Ward on Thursday.

“Tax-evasion charges cannot stand in the Stein case if the underlying shelter survives on its merits,” said Lee Sheppard, a contributing editor at Tax Notes, an industry magazine.

“Son of Boss” refers to tax shelters similar in design to those known as Boss, or Bond and Option Sales Strategy, which the IRS banned in December 1999. According to the IRS, such strategies generated artificial tax losses designed to offset income from other transactions.

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The IRD is sticking with the opinion that rental property owners cannot use accelerated depreciation rates.

After two years of consultation, Inland Revenue is refusing to budge from its view that owners of residential rental properties cannot depreciate assets – such as plumbing, wiring and kitchen joinery – faster than the actual buildings they are in.

IRD Deputy Commissioner Naomi Ferguson said:

“There is also provision to depreciate separately items such as water heaters, clotheslines and other fittings that are not part of the building. The items that Inland Revenue does not believe to be separate assets are internal walls, doors, electrical wiring and plumbing and so on, as well as furniture and fittings that are permanently attached and are regarded as being part of the building.

I’m not usually inclined to agree with the IRD, but my reading of the legislation says that they are right on this one. There is no provision for taxpayers to seperate assets into as many pieces as they can. The key question to ask is, what is the asset?

Generally wiring in a house is not expensive enough to be considered a separate asset, and furthermore it is usually built into one price in a taxpayer acquiring the property.

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