Patty Lin, whose family interests control Te Kuiti-based Universal Beef
Packers, is liable for $869,000 back taxes attributed to her under the
controlled foreign companies regime. The
Court of Appeal disallowed a credit for tax relief granted by Chinese
authorities to encourage investment.
Ms Lin is a
New Zealand tax resident. She emigrated
from Taiwan in late 2001. Inland Revenue
challenged her tax assessments for the years 2005-2009. She then had an interest in five companies
resident in China. Income derived from
four of these companies was attributed to Ms Lin for New Zealand tax purposes
under the controlled foreign companies (CFC) tax regime, as it then
applied. The CFC regime was amended in
2009. The CFC rules are intended to prevent
New Zealand tax residents deferring or avoiding tax by accumulating income in
off-shore companies.
New Zealand
has some forty double tax agreements with other countries. They ensure income is taxed only once. The China double tax agreement was signed in
1986.
Inland
Revenue said there was $1.796 million tax payable by Ms Lin for income derived
from the four Chinese companies. A
credit was allowed for tax actually paid in China by these companies. Ms Lin argued she was entitled to a further
credit for $588,100 tax ‘spared’ by Chinese tax authorities. These were tax concessions allowed Chinese
companies under Chinese domestic law.
The Court
of Appeal said each double tax agreement must be interpreted according to its
own particular terms. The key wording in
the China agreement is to allow a credit for ‘Chinese tax paid’. Tax ‘spared’ is not tax ‘paid’, the Court of
Appeal ruled.
Inland Revenue v. Lin - Court of Appeal (8.03.18)
18.049