Inland Revenue is trying to make the rules around tax avoidance clearer, following its Supreme Court victories against tax dodges.

IRD has put out a 115-page draft paper about tax avoidance for public consultation. The last time IRD issued a final form view on tax avoidance was in 1991, with a previous draft report in 2004 never finalised.

The draft statement is particularly based upon the Supreme Court's judgments and approach to the law in the Ben Nevis and the recent Penny and Hooper cases, IRD said.  

''Given the perception the line in the sand between what is acceptable and unacceptable tax avoidance has moved in the last twenty years, this document is welcomed,'' Ernst & Young tax partner Jo Doolan said. However, it could still not be relied on until it was issued in final form, likely by the middle of next year.

Under the Income Tax Act, if an arrangement is tax avoidance the commissioner has powers to counter any tax advantage a taxpayer had sought to gain from it.

The statement sets out the principles to be applied in a reaching a view whether an arrangement was tax avoidance.

''Tax planning including the use of alternative business structures does not necessarily constitute an avoidance arrangement,'' IRD chief tax counsel Martin Smith said.

''However, Inland Revenue does focus on cases where there are clear indicators and circumstances indicating that a taxpayer has entered into a tax avoidance arrangement,'' he said.

The statement outlines the factors highlighted by the Courts, which would be important in IRD's consideration of the issue.

Inland Revenue says it is trying to pull together what the Courts have been saying about the section, and ''provide greater clarity as to how to assess each case based on its particular facts and characteristics'', Smith said. 

Submissions close at end of March, and the statement is likely to be finalised in mid-2012.

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