The High Court has ruled that Trinity was a tax dodge, in a judgment that slates the forestry investment scheme's architect - Auckland lawyer Garry Muir - as an evasive and unhelpful witness, sometimes "simply not credible".
Justice Geoffrey Venning yesterday found tax avoidance was the "dominant" purpose of a
scheme where investors could have claimed up to $3.7 billion in tax benefits over 50 years.
The Muir group of plaintiffs - three individuals, one estate and six companies - faces paying an unspecified number of millions of dollars in the dispute with the Inland Revenue Department.
They are a small minority of the investors who took part in the scheme but they were the only ones to take on the IRD in a test case.
Muir was not available for comment, but public relations firm Sorensen Group said the plaintiffs would appeal.
The IRD welcomed what it described as the department's largest-ever tax litigation success.
Justice Venning said Muir, a partner in Auckland law firm Bradbury & Muir, was an unsatisfactory witness, especially under cross-examination.
The judge had "real concerns" over Muir failing to produce documents under "discovery" - the pre-trial process for the opposing sides to obtain documents and information.
The lawyer had been unable to provide a credible explanation for a failure to produce a range of documents, some authored by Muir or his law firm.
The judge said that, instead, copies of the documents were produced in court after being located by the Serious Fraud Office in the British Virgin Islands.
A basic hurdle for a finding of a tax avoidance arrangement is that the tax effect is more than "merely incidental". In his written judgment, Justice Venning had no doubt.
"The uncertainty of the profitability of the forest venture is in stark contrast to the certainty and extent of the deductions and consequent tax advantages the scheme provided the plaintiffs as investors."
The advantages of the Trinity scheme were blocked by legislation from the 2004 financial year.
Ten plaintiffs - including Muir, his law firm partner, Clive Bradbury, and Westpac head of asset management Greg Peebles - went to court to challenge IRD rulings.
In their case, the Trinity investment structure had included:
* Trinity Foundation (No. 3), a charitable company that owned land in Southland to be used for growing a douglas fir forest.
* CSI, an insurance company in the British Virgin Islands.
* Southern Lakes Forestry Joint Venture, a syndicate of investors that acquired a licence from the Trinity Foundation company in connection with land owned by that company.
The IRD had refused to allow the plaintiffs' tax deductions for licence and insurance premiums in the 1997 and 1998 financial years and had also imposed a penalty for the 1998 year.
The IRD said the scheme was not a commercially viable investment.
The judge's findings on individual issues included:
* Trinity was a commercial venture - even if the prospect of a positive return from the forest at maturity in 2047-48 was unlikely.
* The insurance premium payments would have been deductible if the overall purpose of the scheme had not been tax avoidance.
* 100 per cent penalties on the plaintiffs for taking "an abusive tax position" in 1998 were properly imposed by the IRD.
* The IRD was wrong to classify insurance arrangements by Bradbury and Muir's investment vehicles as "a sham".
Garry Muir
The High Court has ruled that Trinity was a tax dodge, in a judgment that slates the forestry investment scheme's architect - Auckland lawyer Garry Muir - as an evasive and unhelpful witness, sometimes "simply not credible".
Justice Geoffrey Venning yesterday found tax avoidance was the "dominant" purpose of a
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