Russell had 'cash box' court told

A financial 'genius' who the taxman is pursuing for $138 million had millions of dollars at his disposal through finance companies he controlled, the High Court at Auckland heard today.

Inland Revenue has begun its opening address in a case against John George Russell, the former chief executive of Securitibank.

After Securitibank failed in the 1970s, Mr Russell went on to set up several consultancy companies which signed up to various forms of a scheme known as the "Russell Template arrangements" which were meant to reduce their tax bills.

He began an appeal this week against a Taxation Review Authority (TRA) decision of September 2009 by Judge Paul Barber and disputing assessments for his personal tax liability by the Inland Revenue for the period 1985-2000 of $15 million.

This had grown with penalties and interest to $138 million as of April this year.

Over the 15 year period in question, there were three partnerships over which Mr Russell had complete control.

Mr Russell's tax avoidance templates have been the centre of previous litigation and cases involving the 'tax-saving' method - which affected hundreds of clients' to the point of ruin - went to the TRA, High Court, Court of Appeal and one, in 2001, to the Privy Council.

Mr Russell's lawyer Simon Judd said this week: "In 1976 when Securitibank went into liquidation, as a result of the bank ceasing business, Mr Russell (became) unemployed. He went from financial genius to failure."

Judge Barker noted, too, in his TRA decision that Mr Russell, a chartered accountant, was clever.

"He is a man of great intelligence and extensive experience in litigation."

At issue is the correctness of assessments as Mr Russell has already conceded the template was a tax avoidance scheme. He now only contests how much is owed.

The appeal, expected to run for around two weeks, is based on the defence that Mr Russell didn't personally receive a single cent of income from the commercial management partnerships he set up.

IRD lawyer Mike Ruffin, referring to the TRA decision, said Mr Russell's finance companies were simply the cash box where Commercial Management Partnership and other companies with the group put, by way of advance, their daily surplus cash.

When the entity needed cash, it received it back from the finance company by way of advance.

The appellant always had the money at his disposal, Mr Ruffin said. "That's critically important, that scope of arrangement. It's a finding of fact the appellant has the effective use and disposition of the monies," he said.

"The financial companies were simply the cash box."

He said despite the agency and management agreement purporting to have the Commercial Management partner earn an income on behalf of the loss company, the cash stayed with the finance company and was retained there.

- © Fairfax NZ News