Tax lawyer rocks the boat again

By MATHEW DEARNALEY

Eight years ago, Inland Revenue Department lawyer Michael Scott complained to the Winebox inquiry of suffering recriminations for calling a notorious money-go-round scheme fraudulent.

Now he is turning more heat on his employer, warning a parliamentary select committee hearing in Auckland that a proposed reallocation of work in the department threatens the country's tax base.

Emphasising he was speaking as a solicitor of the High Court rather than as a department staffer, he told the justice and electoral select committee that allowing unqualified people to make legally binding tax rulings could put billions of dollars in question.

Mr Scott caused a sensation in 1995 at the Winebox inquiry when he said his career had suffered because he said inside the department that a deal looped through the Cook Islands called the "Magnum" transaction was a clear case of tax evasion.

He was turned down for promotions and in one case lost out to an applicant from Russell McVeagh McKenzie Bartleet after a senior tax partner with the firm, Geoff Clews, was asked about Mr Scott's suitability.

Inland Revenue denied that dissenting staff would have careers jeopardised, but admitted to its minister that it erred in this case.

A legal claim against the department by Mr Scott, now aged 59, was settled to both parties' satisfaction.

He told the select committee on Friday that the proposal on binding rulings was such a threat to the tax base that he felt a positive duty to speak out "in the proper forum."

"Such concerns can properly and appropriately be aired in terms of well-entrenched constitutional rights," he said, as a dark-suited young man in the audience suit took verbatim notes on an Inland Revenue Department jotter.

Mr Scott said his corporates unit, which deals with companies with an annual turnover of $100 million, had only four lawyers. Most of the other 90 or so staff were accountants.

But now, he said, Inland Revenue Commissioner David Butler wanted the unit to produce complex and legally binding rulings which had been done by a unit consisting almost entirely of lawyers.

The select committee is hearing submissions on the Lawyers and Conveyancers' Bill, which is aimed at ending the legal profession's exclusive right to provide property-conveyancing services.

But Mr Scott also drew the MPs' attention to another of the legislation's stated purposes, the maintenance of public confidence in the provision of legal services.

Mr Scott, who holds two law degrees from Oxford University and has worked as a tax lawyer for more than 30 years, admitted to wrestling in vain with balance sheets and accounting concepts.

Asked by Act MP Stephen Franks if parties in Inland Revenue were concerned about the integrity of binding rulings, Mr Scott said the commissioner had reported problems to Parliament about the time to produce rulings rather than their quality.

The department said in a prepared statement to the Herald that it did not believe giving its corporates unit an ability to make binding rulings was contrary to the proposed legislation.

It did not say when the changes would be made, or how they sat with the existing Law Practitioners Act.

Mr Scott told the committee Mr Butler initially announced a start date of 10 months ago.