Securitibank founder loses tax fight

FIGHT ENDS: Former Securitibank boss John George Russell has lost his long-running battle with the IRD.

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Tax dodge designer and Securitibank founder John George Russell has lost his High Court battle against the IRD which has billed him for $138.795 million in back taxes, interest and penalties.

Russell, a chartered accountant, appealed to the High Court in July against a decision by the Taxation Review Authority (TRA) in September 2009, relating to assessments the IRD had made against his income between 1985 and 2000.

During those years, Russell maintained his income was a total $298,700; the IRD said without the tax dodge arrangements, the figure should have been $15.75 million.

The two Russell-related companies involved were Commercial Management Partnership and Mahalo Ltd.

In his just-released decision, Justice Ed Wylie said the facts of the case were of "labyrinthine complexity".

The case before the TRA had lasted for 64 days and was heard between late 2005 and April 2009.

The arrangements Russell put in place were contrived, involving a myriad of companies, partnerships and trusts, the judge said. Each was controlled by Russell.

"The arrangement was in my view so tortuous that it is hard to escape the conclusion that it was put in place simply to obfuscate the situation and to confuse even the most diligent tax inspector."

Russell claimed he used legitimate corporate and trust structures. But the IRD argued the overall arrangement was designed by Russell to avoid him having to pay tax in his personal capacity.

To do this, loss-making companies were inserted into the arrangement.

Russell was the only real person underpinning the structure and it was he who "pulled the strings", Justice Wylie said,"and he was the one who obtained the tax advantage, he did not pay tax on the vast majority of his personal exertion income".

The judge noted that during his appeal, Russell did not dispute the amount of tax the IRD had assessed.

Penalties and interest have continued to accrue on the $138.795 million bill since the figure was assessed on 22 April this year.

Since Securitibank, New Zealand's first merchant bank, collapsed in December 1976, Russell has run his own tax consultancy business.

He developed the so-called "Russell template" - a tax dodge arrangement for clients where profits could be converted into shareholders' capital.

- BusinessDesk