MEDIA RELEASE
20 December 2004

Inland Revenue welcomes 'Trinity' judgment

Inland Revenue today welcomed a landmark High Court decision as positive for New Zealand's taxpaying public.

The 'Trinity' scheme * named after the companies associated with the scheme * is the Department's largest ever tax litigation success. The potential tax benefit to investors in the Trinity scheme was over $3 billion. Its value eclipses the former biggest New Zealand tax case, the $226 million Actonz software scheme, which Inland Revenue won last year.

Delivered this afternoon, the decision from Justice Venning on the Trinity case stated that, "the dominant purpose of the arrangement was tax avoidance." He also supported Inland Revenue's position on shortfall penalties, saying these had been "properly imposed*on the basis the plaintiffs took an abusive tax position."

The judgment states that: "The uncertainty of the profitability of the forest venture is in stark contrast to the certainty and extent of the deductions and consequent tax advantages the scheme provided the plaintiffs as investors." It goes on to express the tax advantage in dollar terms: for the 1997 year the plaintiffs spent a total of $4,603 per hectare to achieve a tax deduction of $37,394 per hectare. For the 1998 year, apart from allowable silviculture costs, the plaintiffs spent $50 per hectare for tax deductions of $39,560 per hectare.

"Today's judgment supports our view that this scheme constituted tax avoidance, which is very pleasing for the Department and positive for the national revenue," said Karen Whitiskie, Director of Litigation Management. "The judgment also supports our decision to impose shortfall penalties of 100%."

"This has potentially saved the New Zealand tax base billions of dollars. But it also sends a message to all people considering setting up, or investing in a scheme where there are substantial tax benefits. If it looks too good to be true, it probably is. And if you have any queries or suspicions, talk to Inland Revenue first.

"This win is testament to the very hard work and dedication of Inland Revenue's investigations and legal team. They have been working for more than four years to bring this to a successful conclusion," said Ms Whitiskie.

Investors in the scheme bought a 50-year licence to grow Douglas fir trees on land owned by the Trinity Foundation companies, and agreed to pay a licence fee of $2 million a hectare, in 2047 when the trees were harvested. Investors depreciated the $ 2 million a hectare fee, a claim challenged by Inland Revenue. The scheme also involved an insurance policy with a British Virgin Islands-based company, the cost of which was also claimed as an upfront deduction.

ENDS

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