ASB
Bank is under investigation for tax avoidance over investments in Japanese bonds. Following a preliminary court hearing, the
High Court refused ASB access to Inland Revenue internal files about the
investigation.
Inland Revenue alleges
tax avoidance in respect of foreign exchange losses arising on ASB investments
in Japanese government bonds. In
particular, the Revenue is looking closely at the purpose and effect of hedging
arrangements used by ASB. The Bank denies
any wrongdoing.
ASB told the High
Court there was no tax avoidance, but if there was then no penalties should be
imposed because it did not take an “unacceptable tax position” when filing its
tax returns. The Bank was seeking Inland
Revenue internal documents to find departmental views which might support its
argument that no penalties should be imposed.
The extent of tax
avoidance alleged by Inland Revenue was not made public at the preliminary High
Court hearing.
There can be genuine
differences of opinion between tax specialists as to the tax effect of a particular
transaction. Even if later found to be in
the wrong, a taxpayer can be excused penalties if the tax position taken was “likely
or not to be correct”. This requires
evidence that there was objective support for the tax position taken, even if
it later proved wrong.
ASB Bank wanted Inland
Revenue to hand over all emails, meeting notes and minutes relating to the
investigation. This would include the musings
and debates of all staff: senior and junior.
Inland Revenue said
there are strong public interest arguments against making disclosure. Fair and frank exchanges of view between
staff would be discouraged if they knew their comments would be disclosed.
Justice Asher ruled
against the Bank. Informal internal
expressions of view can only be understood in context. There may be a myriad of qualifying
factors. Comments may have been based on
a lack of knowledge about the subject, or made with a misunderstanding of the
background facts, or a particular internal document may be drafted as a
contrary view taking the stance of a devil’s advocate.
ASB
Bank Ltd v. Inland Revenue – High Court (10.09.14)
14.040