Ten years after initiating the process, and 23 years since it last published a comprehensive statement on the topic, IRD has now issued its finalised Interpretation Statement on the general anti-avoidance provision in the income tax legislation ("section BG 1"). It remains to be seen whether the Interpretation Statement will materially advance the consideration of avoidance issues in practice.

IRD has employed section BG 1 to great effect in recent years, with a string of successes in high profile cases. High net worth investors in the "Ben Nevis" forestry venture (also known as the "Trinity" case), the major trading banks in structured finance transactions, a high-profile property developer drawing a modest salary while receiving profits as loans, and two Christchurch orthopaedic surgeons diverting income through taking reduced salaries, have all felt the sting of section BG 1.

An arrangement which complies with technical or "black letter" tax rules can be annihilated by section BG 1 for tax purposes, if the arrangement has a more than merely incidental purpose or effect of "tax avoidance". Tax avoidance is defined to include directly or indirectly altering the incidence of income tax. These words are deceptively simple and literally all-encompassing. The proper scope and application of section BG 1 has for decades caused more debate and consternation among tax advisers than any other aspect of tax law, given the uncertainty of the borders between legitimate tax planning and tax avoidance.

The Interpretation Statement stands as a comprehensive summation of the relevant cases and the authors deserve praise for doing a thorough and earnest job of seeking to draw out coherent principles. However, in a nutshell, the spectre of section BG 1 is likely to be raised by IRD if an arrangement has any element of commercial novelty or smacks of tax "structuring", with the onus on the taxpayer to justify the arrangement. With the Supreme Court showing no sympathy for the argument that the limits of section BG 1 are uncertain, in these straitened economic times this sends a message that taxpayers should respect a wide "no go zone".

This is not to say the decisions referred to above, often highly influenced by the presence in transactions of "non-market" features, are necessarily wrong. Indeed, reasonable differences of opinion are possible over which arrangements were rightly struck down. But the Courts in their judgments, and now IRD in the Interpretation Statement, can perhaps be seen to be covering over what is, to an extent, a subjective or impressionistic analysis, in a cloak of platitudes and high-sounding but ultimately empty phrases (such as "the Parliamentary contemplation test"), that are nigh-on impossible to apply as new transactions are confronted in practice. See what you think..... http://www.ird.govt.nz/technical-tax/interpretations/2013/.