In a majority decision the Supreme Court has dismissed appeals brought by investors in the Trinity tax avoidance case more than 11 years after the forestry scheme was first designed.
Both the High Court and Court of Appeal had previously ruled the scheme was tax avoidance.
Inland Revenue has said the case involved potential tax losses of about $3.7 billion.
Investors in Trinity bought a 50-year licence to grow Douglas fir trees on land owned by the Trinity Foundation companies and agreed to pay a licence fee of $2 million a hectare in 2047 when the trees were harvested.
Investors depreciated the $2 million a hectare fee, and deducted the cost of an insurance policy with a British Virgin Islands-based company.
Justices Andrew Tipping, John McGrath and Thomas Gault found that although the claimed deductions complied with the ordinary specific provisions in income tax legislation under which they were claimed, the Trinity scheme involved tax avoidance arrangements which were void under the legislation.
The claims for allowances were disallowed.
In a separate decision Chief Justice Sian Elias and Justice Noel Anderson agreed the deductions must be disallowed on the basis that they were part of a wider tax avoidance arrangement.
The two justices noted however that they had reservations on thE aspects of the reasoning of the majority.
The court upheld penalties which include repaying the tax, plus pay interest on that money and 100 per cent shortfall penalties.
Costs of $75,000 were awarded to the Commissioner of Inland Revenue.