WWW.DISSERTATION.XLIBX.INFO
FREE ELECTRONIC LIBRARY - Dissertations, online materials
 
<< HOME
CONTACTS



Pages:   || 2 | 3 | 4 | 5 |   ...   | 6 |

«Interpretation Guideline: IG 12/01 GOODS AND SERVICES TAX; INCOME TAX – “SHAM” Contents Introduction Analysis Summary Meaning of sham When sham ...»

-- [ Page 1 ] --

Interpretation Guideline: IG 12/01

GOODS AND SERVICES TAX; INCOME TAX – “SHAM”

Contents

Introduction

Analysis

Summary

Meaning of sham

When sham can be alleged

Courts’ approach to determining sham

Consequences of a finding of sham

Case summaries

Examples

Introduction

1. Interpretation guidelines discuss the Commissioner's approach to the

interpretation of a general area of law where there are also taxation implications. They are intended to clarify general points of interpretation that may cause difficulty for practitioners, taxpayers and Inland Revenue.

2. This interpretation guideline reviews the New Zealand, Australian and English case law on sham. In doing so, it clarifies the Commissioner’s

understanding of:

 the meaning of sham;

 when sham can be alleged;

 how the courts determine whether there is a sham; and  the consequences of a finding of sham.

To illustrate the practical application of the sham doctrine, the guideline summarises two significant sham cases and discusses two factual examples.

3. The conclusions reached in this interpretation guideline are set out in paragraphs 5 – 13 below. The main conclusions can be summarised as

follows:

 An allegation of sham is serious – it is akin to an allegation of fraud.

The courts have stated that an allegation of sham should not be made lightly, and that a high standard of evidence is required to prove it.

 A sham exists where the parties to the transaction documents did not intend to create the legal rights and obligations created by those documents, and intended to mislead third parties into considering they had created those legal rights and obligations. The parties intended either to create different rights and obligations to those recorded in the documents, or to create no legal rights or obligations

–  –  –

 In considering whether the transaction documents are shams, the courts are concerned with the parties’ subjective intentions, and not

–  –  –

 A sham can exist at the time the documents are created. Documents that were bona fide when created can later become shams. This will occur when the parties agree to change the terms of their transaction, but leave the original documents standing so as to give the impression that those documents continue to accurately record the terms of their transaction.

 If the court is satisfied that the allegation of sham is proven, the documents are disregarded to the extent they are shams. A document may be a sham in part and, in such cases, only that part of the document will be disregarded. The true arrangement between the parties (ie, the legal rights and obligations (if any) they created) is then given effect and the parties taxed accordingly. By contrast, if the court is satisfied that the documents are not shams, the parties are taxed in accordance with the legal rights and obligations created in those documents (except where s BG 1 or another anti-avoidance provision applies).

4. This interpretation guideline replaces the earlier interpretation guideline “Sham – meaning of the term”, Tax Information Bulletin, Vol 9, No 11 (November 1997). This guideline does not signal a change of approach by the Commissioner towards sham. The main differences between this

guideline and the earlier guideline can be summarised as follows:

 The earlier guideline has been reorganised and revised so as to improve its readability.

 The earlier guideline’s analysis has been updated to take account of subsequent court decisions, in particular the Supreme Court’s decision in Ben Nevis Forestry Ventures Ltd v CIR [2008] NZSC 115, [2009] 2 NZLR 289.

 New discussion has been inserted on the onus and standard of proof where sham is alleged in the tax law context.

Analysis Summary

5. As a general rule, the tax treatment of transactions between taxpayers depends on the legal rights and obligations created by the transaction documents. However, if satisfied that the documents are “shams”, the courts disregard them to the extent they are shams. The court then gives effect to the true legal arrangement between the parties and the parties are taxed accordingly.

6. The essential characteristic of a sham is pretence. A sham exists where the parties intend the transaction documents to mislead third parties as to the true nature of the relationship between the parties. The parties intend either to create different rights and obligations to those recorded in the documents, or to create no legal rights or obligations at all.

7. The leading New Zealand authority on sham is Ben Nevis. In this decision, the Supreme Court reiterated the requirements for sham as set out in Diplock LJ’s judgment in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 (CA). It also described the effect of a sham in the tax

law context (at [33]):

–  –  –

8. To establish sham, it must be shown that the parties did not intend to create the legal rights and obligations recorded in the transaction documents; and that they intended that third parties would be misled by those documents into considering that the parties had created those legal rights and obligations. In considering whether there is a sham, the courts are concerned with the parties’ subjective intentions and not with the economic substance and commercial reality of the transaction.





9. A sham can exist from the time when a document is created. A document that was bona fide when created can later become a sham. This will happen where the parties agree to change the terms of their transaction, but leave the original transaction documents standing so as to give the impression that those documents continue to accurately record the terms of their transaction.

10. The courts’ approach to determining whether there is a sham can be outlined in three stages.

11. First, the courts determine the legal rights and obligations recorded in the documents. The courts interpret the documents objectively to arrive at the meaning a reasonable person would give them. They may consider evidence of surrounding circumstances at the time the documents were created to ascertain the meaning of the words used, but this evidence cannot be used to contradict or vary the terms of the documents.

Evidence of the parties’ subjective intentions is not considered at this stage.

12. Second, the courts then consider whether there is evidence that the documents are shams. The courts are concerned with the parties’ subjective intentions at this stage. To show there is a sham, the courts

must be satisfied on the balance of probabilities that:

 the parties did not intend to create the legal rights or obligations recorded in the documents, and  it was intended that third parties would be misled by those documents into thinking the parties had created those rights and obligations.

An allegation of sham is serious – it is akin to an allegation of fraud.

Consequently, the courts have made clear that an allegation of sham is not to be made lightly and that a high standard of evidence is required to prove it.

13. Third, if the court is satisfied the documents are shams, the documents are disregarded to the extent they are shams. A document may be a sham in part and, in such cases, only that part of the document will be disregarded. The true arrangement between the parties (ie, the legal rights and obligations (if any) they created) is then given effect and the parties taxed accordingly. By contrast, if the court is satisfied that the documents are not shams, the parties are taxed in accordance with the legal rights and obligations created in those documents (except where s BG 1 or another anti-avoidance provision applies).

3Meaning of sham

14. The doctrine of sham is a long-standing doctrine developed by the courts.

In his article “Sham, trusts and mutual intention” [2008] NZLJ 227,

Matthew Conaglen observes:

For well over two hundred years, the courts have refused to permit sham transactions – transactions which were created as “a mere cloak or screen for another transaction” (Yorkshire Railway Wagon Co v Maclure (1882) 21 ChD 309 at 318) – to conceal the truth. They have asserted a jurisdiction to “see through” (ibid) such transactions to get at “the real truth of the matter” (Re Watson (1890) 25 QBD 27 at 33).

… The jurisdiction to ignore sham transactions is a jurisdiction of general application.

English case law

15. The classic definition of sham is contained in Snook v London and West Riding Investments Ltd. In this English Court of Appeal decision, Diplock

LJ stated (at 802):

I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the Court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities … that for acts or documents to be a 'sham,' with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.

16. Diplock LJ’s definition was discussed in Hitch v Stone [2001] EWCA Civ 63, [2001] BTC 78. In this English Court of Appeal decision, Arden LJ stated (at [63], [66] and [69]):

63. The particular type of sham transaction with which we are concerned is that described by Diplock LJ in Snook, above. It is of the essence of this type of sham transaction that the parties to a transaction intend to create one set of rights and obligations but do acts or enter into documents which they intend should give third parties, in this case the Revenue, or the court, the appearance of creating different rights and obligations. The passage from Diplock LJ’s judgment set out above has been applied in many subsequent decisions and treated as encapsulating the legal concept of this type of sham.

66. Second, as the passage from Snook makes clear, the test of intention is subjective.

The parties must have intended to create different rights and obligations from those appearing from (say) the relevant document, and in addition they must have intended to give a false impression of those rights and obligations to third parties.

69. Fifth, the intention must be a common intention: see Snook’s case, above.

–  –  –

18. New Zealand courts have defined sham consistently with Diplock LJ’s judgment in Snook. As defined by the New Zealand courts, a sham exists where the parties execute documents, or do acts, so as to mislead third parties as to the true nature of the legal arrangement between the parties.

The parties either intended to create different rights and obligations to those recorded in the documents, or to create no legal rights or obligations at all.

19. For example, in Bateman Television Ltd v Coleridge Finance Co Ltd [1969]

NZLR 794 (CA), Turner J held (at 813):

I think that the occasions on which Courts have set aside the form of a transaction as a "sham" are confined to cases in which, really doing one thing, the parties have resorted to a form which does not fit the facts in order to deceive some third person, often the revenue authorities, into the belief that they were doing something else. Thus where in a lease both parties prescribe a rent in excess of what is really to be paid, so as to deceive those who collect taxes as to the quantum of a deduction to be allowed, this is a sham ….

To similar effect, in the same decision McCarthy J reiterated Diplock LJ’s

judgment in Snook by stating (at 821):

… whatever else is accepted as being involved in the concept of a sham, one thing is clear in legal principle, morality and authority, namely that for acts or documents to be a sham all the parties thereto must have a common intention that the acts or documents are not to create legal rights and obligations which they give the appearance of creating.

20. By contrast, there is no sham if the parties intended the document to be legally effective. In Paintin and Nottingham Ltd v Miller Gale and Winter [1971] NZLR 164 (CA), Turner J held (at 175):

The word "sham" is well on the way to becoming a legal shibboleth; on its mere utterance it seems to be expected that contracts will wither like one who encounters the gaze of a basilisk. But by a "sham" is meant, in my opinion, no more and no less than an appearance lent by documents or other evidentiary material, concealing the true nature of a transaction, and making it seem something other than what it really is. The word "sham" has no applicability to transactions which are intended to take effect, and do take effect, between the parties thereto according to their tenor ….

21. In Marac Finance Ltd v Virtue [1981] 1 NZLR 586 (CA), Richardson J stated (at 588) that a sham could exist at the outset when the documents are created. Alternatively, the documents might be bona fide when created but could later become shams. This would happen when the parties agree to change the terms and conditions of their transaction, but decide to leave the original documents unchanged so as to mislead third

parties:

Where the essential genuineness of the documentation is challenged a document may

be brushed aside if and to the extent that it is a sham. There are two such situations:

(1) where the document does not reflect the true agreement between the parties in which case the cloak is removed and recognition given to their common intentions; and (2) where the document was bona fide in inception but the parties have departed from their initial agreement and yet have allowed its shadow to mask their new arrangement.



Pages:   || 2 | 3 | 4 | 5 |   ...   | 6 |


Similar works:

«ANWAR IBRAHIM’S LONG STRUGGLE FOR JUSTICE Report on Datuk Seri Anwar bin Ibrahim’s Appeal against conviction observed on behalf of the Australian Bar Association and International Commission of Jurists MARK TROWELL QC September 2005 Anwar Ibrahim’s Long Struggle for Justice 1. Introduction Federal Court Upholds Anwar Appeal The Political Crisis of 1998 Anwar Ibrahim’s Arrest Purpose of Report The Events Leading to Anwar’s Arrest Convictions for Sodomy Sections of the Malaysian...»

«ALBERT COLLEGE DAY STUDENT FINANCIAL HANDBOOK 2015 – 2016 An independent education can be affordable. Albert College offers a variety of payment plans, scholarships, bursaries and tax credits to make the school more accessible to deserving students. Students must successfully complete the application process prior to being considered for scholarships or financial aid. The purpose of the scholarship and financial aid program is to recognize excellence in a number of different fields and to...»

«78 CHAPTER IV METHODOLOGY AND ANALYSES The chapter presents the method of empirical testing, starting with the development of survey instrument and the sample selected. Content analyses of the managers' replies follows, leading to the classification of the replies with the help of selected criteria. The statistical tests conducted and the analyses of the results are then discussed, by collating and comparison of the managers' replies with extant literature and the current banking scenario....»

«A Conceptual Design for Visualisation of Spatio-temporal Data using Animation with Linked Graphics Sarmistha Biswas December 2004 1 A CONCEPTUAL DESIGN FOR VISUALISATION OF SPATIO-TEMPORAL DATA USING ANIMATION WITH LINKED GRAPHICS A Conceptual Design for Visualisation of Spatio-temporal Data using Animation with Linked Graphics by Sarmistha Biswas Thesis submitted to the International Institute for Geo-information Science and Earth Observation in partial fulfilment of the requirements for the...»

«Stock Repurchases and Liquidity∗ Alexander Hillert† Ernst Maug‡ Stefan Obernberger§ September 15, 2014 Abstract We analyze the two-way relationship between share repurchases and liquidity based on a newly available data set of realized share repurchases in the US, which covers 50,204 repurchase months between 2004 and 2010. Repurchases unequivocally improve liquidity. Firms also adapt their buyback programs by reducing repurchase activity when the market for their stock is less liquid....»

«Environmental Challenges Facing China Rehabilitation of The Loess Plateau © 2005, John D. Liu, Environment Education Media Project (EEMP) In 1995, the World Bank asked me to film the early stages of the “Loess Plateau Watershed Rehabilitation Project” for a film called “Investing in People”. This film was about initiatives that were changing the focus of the bank from large infrastructural projects, to projects intended to provide direct benefits to poor people living in remote areas...»

«THOR COMMERCIAL RATES Prices Effective January 1, 2012 Thru December 31, 2016 Client Site 2012 2013 2014 2015 2016 Labor Category SME/Consultant III $ 189.62 $ 197.20 $ 205.09 $ 213.29 $ 221.82 SME/Consultant II $ 181.74 $ 189.01 $ 196.57 $ 204.43 $ 212.61 SME/Consultant I $ 173.85 $ 180.80 $ 188.03 $ 195.55 $ 203.37 Program Manager $ 140.15 $ 145.76 $ 151.59 $ 157.65 $ 163.96 Project Manager IV $ 136.77 $ 142.24 $ 147.93 $ 153.85 $ 160.00 Project Manager III $ 124.83 $ 129.82 $ 135.01 $ 140.41...»

«Tenancy databases: risk minimisation and outcomes authored by Patricia Short, John Minnery, Elspeth Mead, Barbara Adkins, Andrew Peake, Debbie Fedrick and Martin O'Flaherty for the Australian Housing and Urban Research Institute Queensland Research Centre February 2003 AHURI Final Report No. 31 ISSN: 1834-7223 ISBN: 1 920758 97 6 ACKNOWLEDGEMENTS This material was produced with funding from the Australian Government and the Australian States and Territories. AHURI gratefully acknowledges the...»

«Application Note 2001: Application of ASHRAE Standards 15 and 34 to VRF Systems ©2013 Mitsubishi Electric US, Inc. Contents Introduction ASHRAE Standard 15 Applying ASHRAE Standards 15 and 34 to R410A Designing VRF Systems with ASHRAE 15 and 34 VRF System Volume Example Conclusion Additional References Safety Group Classifications (from ASHRAE Standard 34) June 2013 Application Note 2001 ©2013 Mitsubishi Electric US, Inc. Page |2 Introduction Variable Refrigerant Flow (VRF) Systems offer the...»

«POLICIES, PRACTICES AND DATA ON UNACCOMPANIED MINORS IN BELGIUM 2014 UPDATE Focused Study of the Belgian National Contact Point of the European Migration Network (EMN) Co-funded by the European Union October 2014 EMN Focussed Study 2014 Policies, practices and data on unaccompanied minors in Belgium The European Migration Network was set up with the purpose of providing up-to-date, objective, reliable and comparable information in the areas of asylum and migration for the European institutions,...»

«RISK MANAGEMENT AND SAFETY Frequently Asked Questions Fire Safety Table of Contents Page General Information 3 What should I do in the event of a fire or fire alarm activation?  EXIT THE AREA IMMEDIATELY  IF YOU ARE TRAPPED AND CANNOT EVACUATE  RESPONSE TO FIRE ALARMS  FOR MORE INFORMATION 4 What should I do if I have a fire safety concern on campus? 4 What agency provides fire suppression services at Auburn University? 4 What fire safety services does Risk Management and Safety...»

«Mothers of the Plaza de Mayo: First Responders for Human Rights Rachel Koepsel Case-Specific Briefing Paper Humanitarian Assistance in Complex Emergencies University of Denver 2011 Abstract The time from 1976 to 1983 in Argentina is known as the “Dirty War” period. It represents the lives lost, families destroyed, and human rights violations committed by the military government. The Mothers of the Plaza de Mayo were the first responders to the human rights violations and were able to defy...»





 
<<  HOME   |    CONTACTS
2016 www.dissertation.xlibx.info - Dissertations, online materials

Materials of this site are available for review, all rights belong to their respective owners.
If you do not agree with the fact that your material is placed on this site, please, email us, we will within 1-2 business days delete him.