Utu wreaks revenge on investors

By Nick Smith

Friday 5th July 2002

UTU: About $1.2 million in funding for the film was fictitious

The ghost of taxation past is again haunting the public, with winebox-type allegations aired in the High Court at Wellington over funding of the film Utu.

One of New Zealand's most successful films, Utu's financial structure has been described by Justice Grant Hammond as "fraud," more than 20 years after the film was made.

In a reserved judgment, Justice Hammond said about $1.2 million in funding for the film was fictitious and a tax- avoidance arrangement.

"[The funding arrangement] was a fraud on the investors and was designed to cause the investors to put in their own cash," said Justice Hammond in his decision.

Allegations about tax-avoidance schemes for films such as Merry Christmas Mr Lawrence were raised during the winebox inquiry.

But no charges have ever been laid in relation to that film or Utu, despite the Taxation Review Authority and Justice Hammond calling the financial arrangements a fraud.

Utu remains one of the few New Zealand-made films to earn substantial income - $2.3 million as at September 1998.

Essentially, the fraud involved fictitious loans for a budget of $3.1 million, when Utu cost only about $2 million to make.

The bogus loans were designed to cause investors to put in their own cash to the film project, Justice Hammond said.

Also, invoices for Utu spending of $1.152 million were "merely meaningless pieces of paper designed to give to the [IRD] the impression that real services were truly performed."

Justice Hammond's decision rejects the claims for deductions by Utu investor Richard Dale Peterson and upheld an earlier decision by the Taxation Review Authority.

Mr Peterson did not know of "what has now been seen to have been an established fraud" and was not party to the "fraudulent arrangement," the judge said.

But Mr Peterson did obtain an advantage through a share of the inflated price of the film, he said in dismissing the appeal.

It is the second judgment he has delivered on film investment involving Mr Peterson. An earlier case involving tax deductions for a film called Lie of the Land were allowed.

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