IRD wary of poacher turned gamekeeper

By MATHEW DEARNALEY

Inland Revenue Department staff have been advised of conflict of interest "issues" from the recruitment to their upper ranks of the Bank of New Zealand's top tax specialist.

Spyros Papageorgiou has crossed the fence to chase taxes as group manager of the department's corporates arm, a division dealing with companies with annual turnover of at least $100 million.

But until recently he was convenor of a lobby group of powerful corporate taxpayers, and an internal staff circular says "a number of conflict of interest issues have been identified" as a result of his appointment.

Papageorgiou was until last month the BNZ's group tax manager, in which he had tax administration responsibilities extending to Singapore.

His main duties were managing the BNZ's tax risk within New Zealand, but he has also worked in Australia and Britain for other firms in his more than 20 years in corporate tax management, which followed time as an IRD inspector in the early 1970s.

In 1996, he sparred with the IRD in testy exchanges at the Winebox commission of inquiry into tax credit schemes looped through the Cook Islands by the European Pacific group, which the bank owned with Fay Richwhite and Brierley Investments in the 1980s.

Papageorgiou told the inquiry that the BNZ returned as income - and paid tax on - the $200 million proceeds of a controversial closed-loop insurance scheme for which it came under Securities Commission fire in 1993 for over-stating profits.

He was not involved in either that or any European Pacific-linked schemes, not having joined the BNZ until October 1993.

But he faced rigorous cross-examination over the BNZ's initial failure in 1994 to tell tax officials, one of whom accused him of being obstructive, of its possession of documents relevant to their inquiries about European Pacific.

Under re-examination by the bank's lawyer, however, he firmly denied obstructing the department in response to a deluge of time-consuming information demands.

Obstructing a tax officer is an offence under the Tax Administration Act punishable by a maximum fine of $25,000 for a first conviction and $50,000 for repeat behaviour.

Although the IRD memo's reference to his new appointment assures staff that conflicts of interest from his arrival will be "appropriately managed with protocols in place", New Zealand First leader Winston Peters is sceptical.

"Operating protocols mean snakes and ladders and Chinese walls all over them," Peters said.

But the IRD's new general manager for service delivery, Naomi Ferguson, told the Herald that rigorous arrangements had been made to make sure that Papageorgiou would not have any dealings with the BNZ for at least the current tax-reporting period.

She said the memo was not meant to imply actual conflicts of interest had arisen, but that action had been taken to avoid any public perception of partiality in the way the IRD treated individual taxpayers.

She was confident the BNZ was not avoiding tax liabilities.

Ferguson, to whom Papageorgiou will report, said his position was advertised and denied he was "head-hunted" from the BNZ, as suggested by a business newspaper.

PricewaterhouseCoopers tax partner John Shewan, welcoming the appointment, said conflicts of interest were inevitable when people changed roles at senior levels "and as long as they are declared and disclosed and dealt with, it shouldn't be an issue".

Asked about the winebox inquiry exchanges, he said it was in the nature of the relationship between the IRD and corporates that disputes would arise.

"It's not at all surprising that a senior person from the private sector tax community has been involved in those kinds of debates," he said of Papageorgiou.

"That's why he's very well-suited to the role, because he understands both sides of the debate."