Inland
Revenue must act consistently, treating taxpayers in the same circumstances
similarly, the High Court ruled in a preliminary hearing over Michael Hill
Jewellers disputed $35 million tax deductions derived from its trans-Tasman
restructuring.
Michael Hill Group transferred its
intellectual property and franchising operations to Australia in 2008, using a
wholly-owned Australian limited partnership established in Queensland. Inland Revenue in New Zealand disputes the claimed
tax effect of this restructuring which saw Michael Hill claiming tax deductions
in both Australia and New Zealand and reducing assessable income in New
Zealand. Tax deductions totalling $35
million for the last six tax years are in dispute.
The High Court was told Michael Hill says
it became aware of another taxpayer successfully using the same restructuring
template when it applied to Inland Revenue for a binding ruling on part of its
proposed restructuring. Taxpayers can
get advice in advance from Inland Revenue on the potential tax effect of a
proposed transaction. This can provide some certainty for
business. Inland Revenue’s response to
Michael Hill’s request for a ruling obliquely referred to another tax file,
resulting in the inadvertent disclosure to Michael Hill of another taxpayer
getting approval for a similar transaction.
One of the arguments raised by Michael
Hill in its $35 million tax dispute is that Inland Revenue must act
consistently: taxpayers who have used the same, or similar, tax structures must
be treated the same. In a preliminary
hearing, Inland Revenue applied to have this part of Michael Hill’s claim
struck out. Justice Toogood ruled the
claim to inconsistency should not be struck out. There is a legal obligation on Inland Revenue
to act consistently.
Whether Inland Revenue did act
inconsistently is yet to be decided.
Inland Revenue says there are “significant differences” between the
Michael Hill restructuring and the transaction inadvertently disclosed.
Michael
Hill Finance v. Inland Revenue – High Court (10.12.15)
16.019