New Zealand vs Cullen Group Limited, March 2019, New Zealand High Court, Case No [2019] NZHC 404

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In moving to the United Kingdom, a New Zealand citizen, Mr. Eric Watson, restructured a significant shareholding into debt owed by a New Zealand company, Cullen Group Ltd, to two Cayman Island conduit companies, all of which he still controlled to a high degree. This allowed Cullen Group Ltd to pay an Approved Issuer Levy (AIL) totalling $8 million, rather than Non-Resident Withholding Tax of $59.5 million.

The steps in the arrangement were as follows:

(a) Mr Watson sold his shares in Cullen Investments Ltd to Cullen Group, at a (rounded) value of $193 million, being $291 million less his previous $98 million shareholder advances. The sale was conditional on Cullen Investments Ltd selling its shares in Medical Holdings Ltd to Mr Watson and on Cullen Investments Ltd selling its shares in Vonelle Holdings Ltd to Maintenance Ltd which was owned by Mr Watson.

(b) Cullen Group’s purchase of the Cullen Investments Ltd shares from Mr Watson was funded by a vendor loan from Mr Watson of $193 million (Loan A). Mr Watson also lent Cullen Group $98 million (Loan B) which Cullen Group on-lent to Cullen Investments Ltd so that Cullen Investments Ltd could repay Mr Watson’s shareholder advance of that amount.

(c) Mr Watson assigned his rights under Loans A and B to the two conduit companies, Modena and Mayfair, respectively. Mr Watson made back-to-back loans of $193 million (Modena Loan) and $98 million (Mayfair Loan) to each of them to fund their payment to him of consideration for those respective assignments in return for security over all property owned by Modena and Mayfair respectively.



The result was therefore that Cullen Investments Ltd was owned by Cullen Group which owed money to Modena/Mayfair which owed money to Mr Watson. Effectively, instead of Mr Watson owning the shares in Cullen Investments Ltd, he held loans for the same value to Cullen Investments Ltd’s owner, Cullen Group, through Modena and Mayfair. He had exchanged equity for debt.

The tax authorities held that Cullen Group had avoided $59.5 million of NRWT (withholding tax) while it paid $8 million in Approved Issuer Levy. An assessment in the amount of the difference, $51.5 million, was issued.

There are three requirements for there to be tax avoidance in New Zealand:

  • There is an arrangement which uses, and falls within, specific tax provisions.
  • Viewed in light of the arrangement as a whole, the taxpayer has used the specific provisions in a way which cannot have been within the contemplation and purpose of Parliament when it enacted the provisions.
  • The arrangement has a purpose or effect, that is more than merely incidental, of directly or indirectly altering the incidence of income tax.

The High Court found there was a tax avoidance arrangement because it was not within Parliament’s contemplation and purpose in enacting the Approved Issuer Levy regime. Cullen Group Ltd was found liable for the $51.5 million difference plus interest and penalties.


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