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Auckland-based accounting firm Chatfield & Co Ltd has won a judicial review into the lawfulness of information production notices issued by the Commissioner of Inland Revenue (the Commissioner).
After a lengthy period of litigation which saw the case go to the Supreme Court and back, the High Court has determined that the Commissioner's issuing of the notices was unlawful and awarded costs to Chatfield. Consequently, Chatfield can withhold all information which the Commissioner sought about its clients.
The decision highlights the growing international exchange of information by New Zealand and foreign states and reinforces the importance of taxpayer rights in this context.
The Commissioner first issued the notices to Chatfield (as tax agent) to supply information about 15 of its clients in 2014. She did so further to a request from Korea's National Tax Service (NTS) under the double taxation agreement between New Zealand and Korea (DTA). The DTA is a tax treaty which seeks to avoid double taxation of income and prevent tax evasion, as well as facilitate the exchange of information between states in relation to these goals.
In a judgment issued on 22 December 2017, Justice Wylie quashed the information production notices which the Commissioner had issued to Chatfield.
Justice Wylie considered that the key issues in the case were:
- Was the Commissioner's decision susceptible to review;
- Did the NTS's request involve taxes covered by the DTA;
- Was the information sought in the NTS's request "necessary" as specified under the DTA;
- Did any of the DTA's specific exceptions to information exchange apply; and
- What standard of scrutiny should the Court apply to the Commissioner's decision-making?
The Commissioner's refusal to release background documents to Chatfield's counsel or a court-appointed independent person on the reasons for the NTS's request meant that Justice Wylie could only base his decision on affidavits filed by the Commissioner and Chatfield.
The Commissioner's affidavits were "long on generalities but short on specifics", said Justice Wylie. He was left with nothing more than an official's "say so" that the NTS's request complied with the DTA's terms and local tax laws. The information not disclosed by the Commissioner was of a kind which would broadly be expected to be necessary or relevant and easily able to be supplied. He said that "when the actions of public authorities are in issue, there is an expectation that public authority defendants will explain themselves, and disclose all relevant documents."
Justice Wylie was not satisfied that the appropriate inquiries had been undertaken in the case.
"The days when a Court will accept an official's simple assertion that a power had been exercised lawfully are long over," Justice Wylie said.
The seven earlier judgments in the Chatfield litigation during the last three years have been noted by commentators as significant in terms of the need for transparency and recognition of taxpayer rights in the application of the growing number of international exchange of information agreements related to taxation. Justice Wylie's decision adds to that. More generally, it is also significant in terms of its confirmations that the types of decisions unable to be scrutinised by a court as non-justiciable are now extremely limited, that all administrative decisions must be made according to law, and that public authorities need to be prepared to satisfy a court about the lawfulness of their decision-making.
New Zealand has a network of 40 double tax agreements in force with its main trading and investment partners. All include an information exchange provision.
Bell Gully acted for Chatfield & Co in the case.
If you or your business has any questions regarding any of the issues raised in our article, please contact one of our team or your usual Bell Gully adviser.