The Court of Appeal has found in favour of the Inland Revenue Department in the latest bout of a long-running tax battle with listed jewellery retailer Michael Hill International, rejecting a claim the tax department should be 'consistent' in its application of tax law.

The judgment said Michael Hill's claim is based on the Commissioner of Inland Revenue having a duty under the Tax Administration Act to act "fairly, impartially, and consistently"."But that is not what the TAA says," the appeal court judges said.

"A taxpayer's only right on an assessment is to have its liability 'determined fairly, impartially and according to law'."

The Brisbane-headquartered retailer is in dispute with IRD over transferring its group intellectual property and franchising operations from New Zealand to Australia in 2008, using an Australian Limited Partnership (ALP) as part of the finance structure.


The company settled a case with Australia's tax office on the matter in 2014.

Michael Hill Finance owned 95 per cent of the ALP and applied for a binding ruling under the Income Tax Act in New Zealand on how tax would be applied to it, including under BG1, the tax avoidance provision.

New Zealand's Commissioner of Inland Revenue Naomi Ferguson found the almost $300 million transfer was a "tax avoidance arrangement" involving about $35 million in tax deductions.

Michael Hill Finance, which is 100 per cent owned by the listed entity, launched a High Court challenge over the subsequent tax assessment.

Its lawyers challenged on two grounds - that the Commissioner was inconsistent in her treatment compared to other taxpayers using the same, or materially the same structure as an ALP structure, and on the more orthodox ground that her treatment of the transaction was wrong in law in that it is not tax avoidance.

The IRD tried to strike out the inconsistency challenge but Justice Kit Toogood dismissed that application in February and awarded costs to Michael Hill.

Toogood found it wasn't "plain and obvious that the inconsistency challenge cannot succeed" and that it was arguable whether there's an enforceable obligation that the tax commissioner be consistent. However, today's Court of Appeal judgment supported the IRD, striking out Michael Hill's action on the basis of inconsistency and ordered it to pay costs.

The Court of Appeal said Michael Hill's claim presumed that when undertaking its comparative assessment the High Court would use the materially similar transactions as the benchmark and that its commercial purpose could only be to get its liability cancelled.


Michael Heron QC, acting for the Commissioner, described Michael Hill as "running a race to the bottom".The Commissioner was entitled to change her mind on questions of statutory construction and, in particular, about the application of BG1, they said.