NZ's Second Largest Tax Case Ends In Controversy

by Mary Swire, Tax-News.com, Hong Kong

02 September 2003

The second largest tax case in New Zealand legal history ended somewhat controversially last week after a seven week hearing.

The case focuses on an investment scheme run by Wellington-based businessman Scott Anderson, who along with many other investors, acquired computer software at what the Inland Revenue considers was an inflated price. The investors then set about claiming exaggerated depreciation allowances on the software in addition to claiming GST benefits. Subsequently, the Inland Revenue Department ruled the scheme was a sham and demanded $226 million in penalties.

Until the end of the hearing, much of the case had hinged on whether the software's high valuation was due to its 'convergence' qualities, that is, the application could be used by two different firms for two different purposes. However, Justice Ron Young was said to be vexed when John Eichelbaum, acting for the investors, commented that "there was no source code that was convergent without some expense".

"The IRD case was that Baccis [the billing software in question] wasn't a convergent system, and it wasn't?" Young said. "Are you accepting that Baccis wasn't convergent? That's unfortunate, as I have now wasted huge amounts of my time," retorted the judge.

"I have been suffering under a complete misunderstanding of the plaintiffs' position and so has the defence ... I'm very sorry you [Eichelbaum] didn't tell me at the beginning," continued Mr Young adding: "This discussion should have happened weeks ago ... A number of witnesses were a waste of time."

Justice Young has decided to defer his judgement on the Actonz case and is expected to make his pronouncement in about eight weeks.

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