The last of New Zealand’s structured financing cases to reach our courts, Frucor Suntory Ltd v Commissioner of Inland Revenue, was decided late last year. The Commissioner of Inland Revenue’s position was upheld in our highest court, the Supreme Court, not only as to the application of our general anti-avoidance rule (known as the GAAR, section BG 1 of the Income Tax Act 2007) but also the Commissioner’s decision to impose penalties.

The case involved a complex international funding arrangement. The majority in the Supreme Court found that the purpose and effect of the arrangement was to provide deductibility for what in economic substance were repayments of principal. When the arrangement was considered in total rather than as a series of steps individually, the majority found that the economic burden of the interest costs claimed had not in substance been suffered.

This firm line on tax avoidance and penalties represents a further disincentive to corporate tax avoidance schemes in New Zealand. Indeed, we have seen a marked change in behaviour by large companies in New Zealand over the last few years, there being little or no appetite for such off-the-shelf tax schemes.

Inland Revenue has now followed this major decision with an update of our public guidance on the application of the GAAR. The links to this material may be found here:

IS 23/01: Tax avoidance and the interpretation of the general anti-avoidance provisions sections BG 1 and GA 1 of the Income Tax Act 2007

IS 23/01 FS: Information about the Commissioner's Interpretation Statement on tax avoidance (fact sheet)

QB 23/01: Income tax: scenarios on tax avoidance - 2023 No 1

QB 23/02: Income tax scenarios on tax avoidance - 2023 No 2

By: John Nash |Strategic Advisor, International | Inland Revenue New Zealand