TaxBlog

The New Zealand Chambers of Commerce and Industry say they are encouraged by some of the options in the Government’s business tax review discussion document released today, but advised bold decisions are needed if New Zealand is to move into the top half of the OECD.

“There are some positive measures on the table and it is pleasing to see the possibility of a reduction in the company rate,” said director Charles Finny.

“However a reduction of 3 cents in the dollar is not enough if we are to fully transform New Zealand’s economy or achieve the kind of productivity growth that both we and the Government are wanting.

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Revenue Minister Peter Dunne says it is the “most significant review of business taxation since 1988″ but businesses are wondering “is that it?”

Businesses are being asked to indicate their priorities among options that include a cut in the company tax rate from 33c to 30c in the dollar, tax credits for research and development, export market development and skills development, accelerated depreciation for new assets and other measures that would normally be considered routine remedial changes.

“It’s a skinny document for something heralded as bold and innovative,” Deloitte tax partner Thomas Pippos said of the discussion document.

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The NZ Herald has a profile of David Butler the top dog at IRD.

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The IRD has just released the Business Tax Review Discussion Document.

The options are:

The press release states:

“We acknowledge that company tax rate changes may have implications for the design of the wider income tax system. Changes to the system of personal income taxation are outside the scope of the Business Tax Review. Any changes in those areas will need to be considered within the context of the overall personal tax regime.

“We want to emphasise that, in changing the tax structure, the government is not interested in an ill-thought out, politically driven lolly scramble.

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 A change in the Inland Revenue’s guide for individual income taxpayers could lead to some people underestimating the tax they owe and having to pay up later – even if they have done exactly what the IRD says.

It affects independent contractors who are registered for GST.

Their incomes may include payments that include GST.

The guide tells the contractors to enter the GST-exclusive amount at question 12 of the IR3 tax return, which records income, but also to include the GST at question 26, which relates to deductible expenses.

This appears to allow people to deduct the GST twice, and is a reversal of the instruction in last year’s guide, which was to show the gross withholding payments (including the GST) as income and deduct the GST later.

Accountants warn that a defence of following IRD instructions does not get a taxpayer off the hook if what the department says is wrong.

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But such a tax could open the door to tax dodging.

As Financial Secretary Henry Tang Ying-yen rolled out the GST proposal Tuesday, the Customs and Excise Department was muted on how the proposed levy might affect smuggling in Hong Kong, a city whose early history is closely tied with piracy.

“It is inappropriate for customs and excise to comment on issues relating to GST at this moment when public consultation is still going on,” a department spokesman said.

Tang’s consultation document makes it clear exports will not be taxed in order to “preserve our overall competitiveness as a leading logistics and trading hub.”

But goods entering Hong Kong “for home consumption” will be subject to the tax. Importers who bring in goods for transshipment elsewhere – a sizeable 75 percent chunk of all imports, calculated by value – will have their GST payments refunded.

The government is also proposing a package of special arrangements to relieve cash flow issues for the import- export sector, including specially designated temporary warehouses and deferred payments schemes.

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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 ATO has launched a shake up on the Australian sex industry.

During discussions with owners, investigators have said they believe the amount of tax being avoided is enough to build a new public hospital each year – up to $200 million.

Earlier this year, tax officials met with dozens of brothel owners at the Masonic Centre in the city.

The aim has been to get owners to pay tax, in particular GST, and keep better records.

Now, the ATO is moving to make the sex workers themselves “tax compliant”.

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A judge had some unflattering words to say about Inland Revenue yesterday as the department tried to liquidate a West Coast company.

During a civil hearing in the High Court at Greymouth, Justice Anthony Christiansen described the IRD as “lurking in the background like a shark waiting to consume failing companies”.

The comments arose following an attempt by the department to liquidate possum skin company Gray Fur Trading. It said the company owed almost $200,000 in overdue income tax and GST, but the court was told the facts revealed that almost half that amount was added on in costs and penalty payments.

The initial debt was closer to $90,000 but ballooned from 2003, when the company was first advised it was in trouble, and again in October 2004 when the IRD answered correspondence sent in reply to its demands the previous year.

Gray Fur Trading lawyer Bev Connors said a crash in the international fur market had hurt the company and Justice Christiansen agreed, saying the crash had hurt a lot of businesses.

It was then the judge compared IRD with lurking sharks.

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Millionaire Wellington businessman, pub owner and sailor Stewart Thwaites has appeared in court facing more than 100 tax-related charges totalling $1.67 million.

The Dominion Post reported today that Thwaites, who owns the $7 million supermaxi yacht Konica Minolta, was charged by the Inland Revenue Department last month for offences allegedly committed between 2004 and 2006.

He appeared in Wellington District Court yesterday facing 139 tax charges.

Thwaites entered no plea and was remanded on bail to reappear on August 9.

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