A fluctuating controversial tax fight that involves Christchurch orthopedic surgeons is almost definitely headed for the Supreme Court after today's finding showed that the surgeons were trying to avoid paying tax.

By a two to one majority, Court of Appeal judges upturned a High Court verdict in the long-running Penny and Hooper case.

When surgeons Ian David Penny and Gary John Hooper each set up firms to purchase their individual practice, they worked in the 2002, 2003 and 2004 tax years at wages the Inland Revenue Department believed were unnaturally squat.

The IRD took a look at the structuring of their dealings, saw that their practices were operated via companies and that they were paid an unnaturally low salary which amounted to tax avoidance.

The IRD said that they took benefit of the lower corporation tax rate of 33c in the dollar when they needed to have been taxed at the higher marginal tax rate of 39c on their personal income.

The High Court said that the arrangement was not tax avoidance, but in a pronouncement released on Friday afternoon Court of Appeal Justices, Grant Hammond and Tony Randerson said that it was tax avoidance and upturned the High Court ruling in favor of IRD.