In pre-trial skirmishes, Cullen Group won a bid to seek documents offering advice to Parliament - but Inland Revenue have disputed this ruling with an appeal to be heard in Wellington on May 29.
Both Inland Revenue and representatives for Watson and Cullen cited the legal action in declining to comment about the dispute
Watson's restructuring of his Cullen empire in 2002 - when he relocated from New Zealand to London - is at the centre of the case.
The restructuring saw a complex chain of loans and share transfers between entities - with Watson making $291m in loans to Cullen Group to enable the sale of his Cullen Investments shares, then assigning these loans to two Cayman Island companies - that Inland Revenue alleges served no purpose except to avoid paying $59.5m in tax.
"The Commissioner alleges that this was a tax avoidance arrangement," Justice Woolford summarised in his ruling.
Justice Woolford said Inland Revenue claimed the manoeuvre was "not a genuinely arms-length transaction" but was instead "contrived" and "carefully designed" to ensure the interest payments involved qualified to pay only a 2 per cent levy instead of 15 per cent non-resident withholding tax.
Tax consultant Terry Baucher, who reviewed the published ruling on the case, said the dispute boiled down to the spirit of the law.
"This will all comes back to the very nebulous concept of 'Parliament contemplation'. At the time Cullen complied with the letter of the law. The issue is that Inland Revenue is arguing that Parliament never contemplated the law being used this way, so aggressively," he said.
He compared aggressive tax planning to the over-the-ball play of former All Black captain Richie McCaw.
"Any good openside will push it to the limit. They'll secure you lots of turnovers, but sometimes they'll get whistled for it."
According to public notices in the Cayman Islands, the two entities connected to the case - Modena Holdings and Mayfair Equities - were wound up, respectively, in 2009 and 2010.
Baucher noted the age of the dispute - with some transactions in question dating back 16 years - did raise questions but there may have been issue obtaining information from entities in "non-transparent" jurisdictions like the Cayman Islands.
"On the other hand, you might argue justice delayed is justice denied. It's clearly been in dispute for some time but when taxpayers dig in and exercise their rights, it can grind on," he said.
The tax dispute at the High Court in Auckland is only one legal front for the battling Watson, with other significant proceedings pitting him against fellow rich-lister Sir Owen Glenn also soon to come to a head.
That case, over a soured business relationship between the two men and the fate of more than $200m stashed in a Jersey bank account, has spanned four years and courts in Europe and the British Virgin Islands.
A 12-week trial over the matter at the Chancery Division of the London High Court concluded in July, with a ruling yet to be handed down.
Reached for comment this week Glenn said the legal limbo meant he was unable to comment. "I am not allowed to discuss this case until a decision is handed down by the judge," he said.
The multimillion-dollar legal battles come as Watson has apparently exited New Zealand, the country of his birth but where he has not resided since 2002. In the past year he has cashed up his remaining local holdings, including an estate in Karaka, a stake in Viaduct eatery Soul Bar & Bistro and the New Zealand Warriors NRL team.
