Winebox Inquiry

The Winebox Inquiry was an inquiry undertaken in New Zealand to investigate claims of corruption and incompetence in the Serious Fraud Office (SFO) and Inland Revenue Department (IRD).

The full name was the Commission of Inquiry into Certain Matters relating to Taxation. The Commissioner was Sir Ronald Davison. The Commission concluded that there were no grounds supporting the allegations of fraud and corruption. The inquiry was characterized by extensive litigation, both during and afterwards and by an extremely high level of public interest. The Commission was established in September 1994 and reported nearly 3 years later in August 1997.

Popular name

The Commission became popularly known as the Winebox Inquiry, as Winston Peters brought the documents at the centre of the allegations to Parliament in a winebox. The wine box contained numerous documents relating to a range of transactions entered into or contemplated by a number of parties.

History

In 1994 the Winebox Inquiry was formed. The terms of reference of the Commission of Inquiry required it to report upon whether the Inland Revenue Department and the Serious Fraud Office had acted in a lawful, proper and competent manner in dealing with the relevant transactions, and to examine whether any changes to the criminal or tax laws should be made for the purpose of protecting New Zealand's income tax base from the effects of fraud, evasion and avoidance.

The genesis for the inquiry was repeated claims by Winston Peters of criminality associated with tax planning undertaken by some of New Zealand’s largest companies (some involving tax deals with the Cook Islands) as well as fraud and incompetence by both the Inland Revenue Department and the Serious Fraud Office. Public pressure eventually forced the government to set up the Inquiry.

The Magnum Transaction

The transaction at the centre of the Winebox Inquiry was known as the “Magnum” transaction. This is largely because it was the focus of much of the subsequent litigation. In fact there were more than 60 different transactions involving a range of parties contained in the documents in the “winebox”.

In September 1986 European Pacific Investments (EPI) was incorporated. Magnum was a company owned by EPI. It paid the Cook Islands Government $2 million and received a tax certificate which was presented to the tax office in New Zealand. Once presented, EPI received a tax credit of the same amount. Meanwhile, back in the Cook Islands, another member of the EPI group received a refund of $1.95 million from the government, the net effect being that the EPI group had effectively paid the Cook Islands government $50,000 but received a New Zealand tax credit of $2 million.

Controversy

Although the Commission concluded that there was no fraud or incompetence, controversy surrounded these rulings.

The Law Commission identifies ^[1] 4 court cases which arose during or immediately after the inquiry which indicates the degree of litigation and controversy surrounding it. There were also other court cases (for example against TVNZ) which related to the subject matter of the inquiry.

Subsequent appeals were made to overturn the Commission’s findings. Most notable of these was a case for judicial review taken by Winston Peters against the Commissioner which effectively upheld Davison’s findings.^[2] A subsequent ruling of the Court of Appeal ^[3] overturned this finding and referred the matter back to the High Court. The final ruling of the High Court ^[4] was that 4 of the findings of the Commission which related to the Magnum transaction were struck out as a result of errors in law by the Commission and associated criticisms of Winston Peters to the extent they related to those errors in law. The Court stated:^[5]

“Declarations (1) to (4) [striking out the 4 findings relating to Magnum] are not, and are not intended to suggest, findings by this Court that there has been fraud or incompetence. The effect of the declarations is as if the words in the Winebox report to which they relate were crossed out, leaving the Winebox report incomplete in these respects. Declaration (5) [striking out the related criticism of Winston Peters] will ameliorate the criticisms made of the plaintiff which are related to those errors. The Winebox report remains otherwise unaffected.”

Unsurprisingly both sides to the debate claimed victory.

Aftermath

Changes to tax laws relating to the claiming of foreign tax credits were made. New rules relating to disclosure to the Inland Revenue Department and penalties for non-compliance were introduced.

To this day controversy remains as to who “won”.^[6][7][8]

References

1. ↑ The Role of Public Inquiries at page 53
2. ↑ The Honourable Winston Raymond Peters v The Right Honourable Sir Ronald Keith Davison 1998 NZAR LEXIS 6; [1998] NZAR 309
3. ↑ Peters v Davison 1998 NZLR LEXIS 70; [1999] 2 NZLR 164
4. ↑ Peters v Davison [1999] 3 NZLR 744
5. ↑ Peters v Davison [1999] 3 NZLR 744 at paragraph 94
6. ↑ Summary by Des Trigg
7. ↑ Molloy, Tony (21 July 2008). "Tony Molloy: 'Time and time again, courts labelled Winebox deal fraud'". The New Zealand Herald. Retrieved 3 December 2011.
8. ↑ "Editorial: SFO could be soon restored". The New Zealand Herald. 14 July 2008. Retrieved 3 December 2011.