R v Morris


R v Morris (2005) 22 NZTC 19,217

This is a decision of the Court of Appeal dealing with the scope and application of the secrecy provisions of the Tax Administration Act 1994 (“TAA”).

The decision arises out of a prosecution in which charges were laid under section 229A of the Crimes Act 1961, alleging that income tax returns had been used by the Defendant with fraudulent intent. The allegations against the Defendant were that he had, by submitting false returns of income, led the Inland Revenue Department to make payments by way of tax refunds of approximately $1.5 million.

At trial in the District Court the Crown sought to lead evidence from an Investigations Officer of the Inland Revenue Department, but that evidence was objected to on the basis that for the officer to give it would infringe the secrecy provisions of section 81 of the TAA.

The Judge in the District Court heard argument on the objection and ruled broadly in favour of the Crown but the Crown was not happy with that direction and so a question of law was reserved for the consideration of the Court of Appeal under section 380 of the Crimes Act. It was also agreed that directed verdicts of not guilty should be entered on all the charges, after which a case was then stated for the Court of Appeal.

The Crown’s arguments before the Court were firstly that section 81 of the TAA did not apply at all, secondly that, if it did, giving evidence would carry into effect the Inland Revenue Acts (an exception discussed below), and thirdly that the giving of evidence was permissible under the specific exception in section 81(4)(c) (permitting the Commissioner to support prosecutions of suspected Inland Revenue offences).

Section 81 of the TAA enjoins every officer of the Inland Revenue Department to maintain the secrecy of all matters relating to the Inland Revenue Acts which come into the officer’s knowledge. It prevents that officer from communicating any such matter to any person except to carry into effect the Revenue Acts or as otherwise provided for in the section.

Section 81(3) of the TAA provides that, without limiting the generality of sub-section (1), an officer of the Inland Revenue Department cannot be required to produce any book or document or to divulge or communicate any matter coming to his notice in the performance of his duties, except when it is necessary to do so to carry into effect the Inland Revenue Acts. Sub-section (4) then sets out a number of exceptions to the general prohibition on disclosure of information.

Amongst them section 81(4)(b) permits the divulging or communication of a matter or thing that the Commissioner considers desirable for the purposes of any investigation or prosecution under the Crimes Act 1961 where the investigation or prosecution or is in relation to any tax imposed or payable or any refund made or claimed under the GST Act. The section is silent about income tax. Section 81(4)(c) permits the production to the Director of the Serious Fraud Office or to a court of any book or document the Commissioner considers desirable for the purposes of any investigation or prosecution in relation to any suspected Inland Revenue offence and deems such production to be for the purpose of carrying into effect the Revenue Acts.

The first argument, that section 81 does not apply at all, asserted that the documents to which the Revenue official was to refer in evidence did not relate to the Inland Revenue Acts at all because they were false documents not purporting to reflect the true tax position of any real taxpayer. The Court declined to accept this argument because it would, in Chambers J’s words, “drive a coach and four through section 81”. The Court held, therefore, that the details of evidence which the IRD officer was to give fell within section 81 as matters that came to his knowledge in his capacity as an officer of the IRD.

The second submission was that the giving of evidence was for the purpose of carrying into effect the TAA and the Income Tax Act, both of which are Inland Revenue Acts within the scope of section 81. The Crown’s argument was that giving evidence was in fulfillment of section 6 of the TAA by which an officer of the Inland Revenue Department as a statutory responsibility to use his best endeavours to protect the integrity of the tax system. The Crown pointed to the specific matters any officer of the IRD is bound to protect, including rights of taxpayers to have their liability determined fairly, impartially and according to law, and the responsibilities of taxpayers to comply with the law. The Crown argued that the giving of evidence in support of a prosecution of a person behaving fraudulently both protected the interests of taxpayers behaving lawfully and appropriately denounced, deterred and sought to punish a fraud on the Revenue, and so amounted to protecting the integrity of the tax system as defined.

These submissions were opposed by the defence on the basis that the exceptions to section 81 contemplated prosecution by the Commissioner. The Court rejected that and said that the identity of the prosecution is irrelevant. Instead the focus must be on the proposed communication and its purpose. If the Commissioner decided that the integrity of the tax system could be better protected by a prosecution under the Crimes Act than one under the Inland Revenue Acts, he was entitled to make that determination and communications in furtherance of that decision were protected by the exceptions to section 81.

The Court observed that if the identity of the prosecutor had been important, the defendant could have frustrated the prosecution by electing trial by jury. The result of that would have been that the prosecution proceeded either in the name of the Solicitor-General or the local Crown solicitor, neither of whom were the Commissioner.

The second argument from the defence was that the concept of “carrying into effect” the Revenue Acts had to be construed narrowly. The Court considered that this amounted to saying that unless the specific exceptions in sub-section (4) applied, the general exception in sub-section (1) did not apply. This was rejected on the basis that the general exception was not to be read down by specifics that had been included for the avoidance of doubt.

The third argument was essentially that the TAA provided its own processes for prosecution of offences under the Revenue Acts. This was also rejected as being a gloss on the first arguments.

The defence cited a number of cases which it argued showed that Inland Revenue officials had been prevented from giving evidence in prosecutions under the Crimes Act. The first of these was distinguished on the basis that section 6 of the TAA created a new regime of responsibilities for IRD officials that had not previously existed. The next case involved the enactment of section 81(4)(b), affecting GST but was said not to carry the matter as far as the current point in issue. The third case was seen as one dealing with the question of admissibility as opposed to disclosure and was irrelevant. The fourth was case where no function under the Revenue Acts could be ascertained and had been proper for the Commissioner to claim a privilege from giving evidence.

The defence argued that the existence of a statutory exception in section 81(4)(b) relating to GST marked out income tax as something Parliament expected should be treated differently. However, the Court concluded that the history behind the enactment of section 81(4)(b) undermined that proposition. The provision had been enacted urgently in the face of an application for a major prosecution to be dismissed. The prosecution related to GST only. The provision was enacted out of an abundance of caution to address the specific requirements of that case and no other. In those circumstances a conscious decision to treat GST cases differently from income tax cases could not be asserted.

The Court dealt briefly with the argument that the exception relating to Serious Fraud Office prosecutions also applied. It disagreed with the Crown’s arguments and held that the exception was limited to investigations and prosecutions initiated by the Director of the Serious Fraud Office. That decision is interesting given that the subsection seems to deal disjunctively with advice to the director of the SFO and production of information to a Court. It does not expressly refer to Court proceedings initiated by the SFO but the Court of Appeal was satisfied that in context that is what was meant.

Having found, however, that the giving of evidence in a criminal prosecution relating to tax matters was in protection of the integrity of the tax system as defined in section 6 of the TAA, the Court was content that prosecution of Mr Morris could proceed using the evidence of the Inland Revenue officer concerned and it directed a new trial.

The case emphasises the breadth that is accorded sections 6 and 6A of the TAA. Having been enacted to express a broad administrative and “dispensing” power on the Commissioner’s part, these provisions resonate in areas unlikely to have been considered at the time they were enacted.

© G D Clews 2005

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