In 2003 Alesco New Zealand Ltd (Alesco NZ) bought two other New Zealand companies. Its Australian owner, Alesco Corporation (Alesco), funded the acquisitions by advancing the purchase monies of $78 million. In consideration Alesco NZ issued a series of optional convertible notes (OCNs or notes). The notes were non-interest bearing for a fixed term and on maturity the holder was entitled to exercise an option to convert the notes into shares. Between 2003 and 2008 Alesco NZ claimed deductions for amounts treated as interest liabilities on the notes in accordance with relevant accounting standards and a determination issued by the Commissioner against its liability to taxation in New Zealand. In the High Court Heath J upheld1 the Commissioner’s treatment of the OCN funding structure as a tax avoidance arrangement under s BG 1 of the Income Tax Act 1994 and the Income Tax Act 2004 (the ITA). Alesco NZ appeals that finding and two consequential findings. The amount at issue ... Read more