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Abstract
In a recently released draft statement (Income tax: Scenarios on tax avoidance) (Statement) Inland Revenue has considered the potential application of the general anti-avoidance rule (GAAR) to four fact scenarios. This article comments on the two that may be most relevant to international and corporate tax planning. New Zealand generally follows legal form when determining whether an instrument is debt or equity for tax purposes. One exception to this general rule (the substituting debenture rule) applies to treat as shares debt issued to shareholders in a company "by reference to" shares held in the company. Convertible debentures are, however, excluded from the substituting debenture rule. The GAAR would potentially apply to override the application of convertible debenture exception to the substituting debenture rule. In the past decade, Inland Revenue has adopted an increasingly expansive interpretation of the GAAR, and so far, in cases that have reached the courts, Inland Revenue's stance has generally been upheld