Deborah Hill Cone
Friday 21st November 2003
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But some tax experts wonder why they are bothering, given how comprehensively Justice Ronald Young condemned the so-called software investment.
Inland Revenue, which has poured millions of dollars of resources into the case, has been emphatically vindicated in the judgment, which found investors were engaging in tax avoidance and must pay back the tax they owe plus up to 200% in penalties.
The dotcom era case involves 320 investors who took part in a joint venture that bought software at high prices, allowing investors to claim large tax losses on the assets' depreciation.
An investment of $300,000 would return $539,000 within two to three years, even if there were no sales of the software, Justice Young noted.
The main piece of software at the centre of the case, billing system Baccis, was bought for $450 million and later justified with valuations from PricewaterhouseCoopers (then Price Waterhouse) and AUS.
The software had been bought by the vendors for only $5000.
Although Justice Young made it clear PWC did not have all the facts at the time it made its valuation, the case is still deeply humiliating for the accounting giant.
The investors argued PWC's seemingly absurd valuation was valid because it was made at a time of irrational exuberance during the technology boom of the 1990s a justification that got short shrift from Justice Young.
Actonz promoter Scott Anderson said the investors would definitely push ahead with an appeal, focusing on the 200% penalties issue.
But a piece of tax legislation being rushed through Parliament on the verge of being passed at press time yesterday will clear up the situation where people who invested using loss-attributing qualifying companies (LAQCs) could face 200% penalties. They will now have to pay the original tax owing plus 100% penalties.
Tax barrister David McLay said there were some issues surrounding the way Justice Young had accepted individual investors had taken an abusive tax position because Actonz was their tax agent and they therefore took on the knowledge of Actonz.
This part of the judgment was simplistic because Actonz became the tax agent for some investors after they filed their tax returns, McLay suggested. But a point by Justice Young that software code is separate from software copyright would not have wider significance because it was specific to the Actonz contract.
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