Russell-linked tax avoidance case in High Court
Companies with links to John George Russell are accused of entering into “tax avoidance” arrangements and are in a $3.5 million fight with the IRD.
Russell – who developed a template that the Court of Appeal called a “blatant tax-avoidance scheme” – is a 79-year-old accountant being chased by the IRD over $367 million of unpaid tax, interest and penalties.
Companies associated with Russell are also in disputes with IRD, one of which is detailed in a recent High Court judgment.
This is a decision from Justice Geoffrey Venning transferring two cases from the Taxation Review Authority to the High Court.
Justice Venning’s decision says companies known as the Bell Group undertook three major property developments, making profits of $10.4 million.
A Wellington man called Chris Mason, a company he directs called Kupuri Investments, and a trustee company directed by Russell ultimately received from the profits of these developments, the decision said. These entities are known as the Mason Group.
The Bell Group firms are now all directed by Russell and the Companies Office said they have ceased trading. The High Court judgement refers to Russell as the companies’ tax agent.
While the property developments made $10.4 million, these were returned by a company called Emborion International on the basis the Bell Group was acting as its agents. Emborion was in receivership – with Russell as its receiver – at the time and had accumulated tax losses.
This means that no tax was payable by Emborion.
The IRD, however, has included the property development profits in the Bell Group’s assessable income for 2004 to 2008.
“The Commissioner [of Inland Revenue] considers the Bell Group entered an arrangement to avoid returning the profit as assessable income for income tax purposes and that the arrangement constitutes a tax avoidance arrangement,” Justice Venning said in his judgment.
In the alternative, the IRD has included the profit in the Mason Group’s assessable income for the years in question on the basis it flowed to it either directly or indirectly.
“Again the Commissioner’s position is that the Mason Group entered an arrangement to avoid returning the profit as assessable income for income tax purposes and that this arrangement constitutes a tax avoidance arrangement,” the judge said.
Justice Venning’s decision records the amount of basic tax at issue is the region of $3.5 million.
The decision does not record what any penalty or interest would amount to.
Both the Bell Group and Mason Group had challenged this before the Taxation Review Authority.
The IRD then applied to transfer this to the High Court, which the companies challenged. Russell maintained the transfer application was “continued harassment” by the tax officials of him and his clients.
The IRD argued in support of the transfer that the arrangement was complex, the litigation was significant, the companies had raised certain issues of law and there was a likelihood of appeal.
On the point of complexity, Justice Venning said he did not consider the matter was straightforward.
“At the very least it must be said the proceedings are of moderate complexity,” he said.
He also said that in principle there could be some “precedential value in the case” but that there was no direct evidence about other proceedings involving Russell or Mason.
On the matter of administrative law, the companies in this case make a number of allegations “impugning the integrity and conduct of Inland Revenue officials.
These include that the IRD’s assessments were “invalid due to a vendetta practised by the Commissioner against Mr Russell and Mr Mason”.
After considering the four points the IRD put forward, Justice Venning was satisfied there were “sufficient factors supporting transfer of the proceedings to this court”.
He also consolidated the challenges by the Bell and Mason groups into one set of litigation and awarded the IRD costs.