Associate Professor Adrian Sawyer is to be commended for putting together this collection of essays on tax issues in New Zealand.
In broad terms it can be said that tax writing falls into two categories. One set is about compliance related matters, and often this writing is based on empirical research and the methodology usually draws heavily on the social sciences. The other category concerns what the taxing provisions actually say and how the courts interpret them. As a species of jurisprudence, it is the stamping ground of the legal analyst. In New Zealand, as a generalisation, one can say the first category arises from issues inherent in the Tax Administration Act 1994 and the second primarily from the Income Tax Act 2004 and the Goods and Services Act 1986. These two categories do not exist in a vacuum and there is an essential symbiosis between them. In his Foreword, Sir Ivor Richardson again highlights that what makes tax interesting, important, challenging and more besides is the mix of policy, principle, precedent and pragmatism. The two strands of tax writing and research reflect this mix. This collection includes papers on a broad range of topics of interest and concern in the first decade of the twenty first century. The topics roughly fall into the categories described above.
Part I, “Tax Compliance Issues”; Part IV, “Tax Policy Issues”; and Part V, “Tax Administration Issues, contain seven essays ranging from the results of empirical research on taxpayers' attitudes to compliance and a review of the use of binding rulings in the past ten years, to a consideration of the tax implications of the move toward a trans‐Tasman economic market, an issue set to become of increasing importance in the next decade. The articles are a mix of review of the past, especially in relation to the Inland Revenue Department's adjudication function and the binding rulings regime, and musings on the directions tax administration and policy ought to take in the future. All are based on sound research by a varied group of well‐known and less well‐known experts, both practitioner and academic. This mix of experience and perspective adds richness to the analysis.
Part II, “Income Tax Issues”; Part III, “Avoidance Issues”; and Part VI “Indirect Taxation Issues” contain a series of papers around significant substantive tax provisions and issues. Most would agree that tax law is difficult. This difficulty stems from many things, but probably the simplest and yet most accurate explanation of this difficulty is that tax systems make choices and do not tax all economic flows. This renders the line drawn between the taxed and the untaxed world difficult. In the New Zealand system, it is at the line between “capital” and “revenue” that the problems are most acute and most common. The distinction is frequently more opaque because the distinction as known in accounting theory is not identical with that in taxation. The essential nature of this distinction is why the description by Eugen Trombitas of his exploration of the dichotomy as “laying the essential foundations” is particularly apt. The first part of this paper explores the “influences” to be derived from the early twentieth century cases and an analysis of CIR v. Wattie [1991] 1 NZLR 529 which Trombitas characterises as a “great case”. The second half of Trombitas' analysis of the capital/revenue distinction looks at the twenty first century New Zealand cases and in particular Birkdale Service Station Ltd v. CIR [2001] 1 NZLR 293, which the author finds rather difficult to reconcile with the principles established in Wattie. This serves to highlight how after a century of jurisprudence certainty in this area remains elusive. This paper is split into two parts and between part 1 and part 2 there is an interesting analysis of the use of an associated persons test in land transactions. In a sense, an associated persons test can be seen as a form of anti‐avoidance provision and nowhere is this truer than in the land sections. The land sections are also a prime example where the New Zealand legislation defines certain types of “capital” transactions to be income tax events. For that reason, the collection of three essays has a thematic connection, but the purpose of sandwiching the article on land transactions between the two parts of the capital revenue distinction article is hard to fathom.
This sandwiching technique, however, works to good effect in Part III “Avoidance Issues”. Here John Prebble's analysis of the Privy Council's advice in Peterson v. CIR (2005) 22 NZTC 19,098 is placed between the two parts of Geoff Harley's extended analysis of the New Zealand general anti‐avoidance provision. Professor Prebble and Dr Harley have, as Sir Ivor Richardson describes it in the forward, “different takes” both on the decision in Peterson and on the general anti‐avoidance provision. While tax law generally might be difficult, avoidance is especially challenging. A taxpayer is avoiding tax when he or she is paying less than the legislature might have intended, not by engaging in illegal activity but by somehow doing something that is, in a loose sense, not acceptable. On one hand, one can say that the taxpayer who “avoids” tax is placing an unfair burden on his or her fellow citizens who must by implication meet the fiscal shortfall caused by the “avoidance”. On the other hand, tax is a species of public law, a point where the rights of the individual and the power of the state intersect and where certainty and clarity are essential. While most will agree taxpayers should not flout their obligations, tax liability ought not to fall capriciously. Avoidance is a difficult point of balancing interests and whether there exists a general anti‐avoidance provision or not courts have found it difficult to provide meaningful and consistent guidance. Dr Harley's rich analysis makes a very significant contribution to New Zealand learning on the topic. Professor Prebble has an entirely different view but he argues with conviction backed up with extensive scholarship. Reading these three pieces is rather like reading the majority and minority judgments in Peterson itself. Each is compelling on its own terms, but can both be right? Whatever the answer to that question, the editor is to be congratulated on putting the two opposing views side by side.
Twenty years after the introduction of goods and services tax in New Zealand, Andrew Maples' piece on “going concern” is a timely reminder that all is not totally settled in GST, notwithstanding the commendable simplicity of the New Zealand regime. Similarly the article on fringe benefit tax is a reminder of the period some twenty years ago when the New Zealand tax system was reformed at breakneck speed.
This collection of essays is a welcome contribution to the growing body of literature on tax issues in New Zealand. There is much for those who wish to understand more about how the tax system works. There is plenty of food for thought for those engaged in policy formulation.
