No duty of consistency when assessing liability

CIR v Michael Hill Finance (NZ) Limited [2016] NZCA 276
When the High Court refused last year to strike out a challenge by the taxpayer company, based on the Commissioner having acted inconsistently between its case and that of other taxpayers, a number of taxpayers seized on the decision as confirming that the Commissioner has a duty of consistency. In my comment on the decision (click here) I warned that the threshold of a strike out application was high and that much more had to be argued before a duty of consistency could be assumed.
The correctness of that warning has been shown in the unanimous decision of the Court of Appeal, which has overturned the High Court and confirmed that the taxpayer’s challenge ground, based on a lack of consistency, must be struck out. In short the Court of Appeal dismissed any suggestion that the it was a tenable argument that Commissioner owes a duty to act consistently between taxpayers. Instead it confirmed the overarching obligation on the Commissioner to determine tax liability according to law.
The Court of Appeal held that the approach taken by the High Court in allowing that a consistency argument could not be absolutely ruled out gave rise to a “conceptual obstacle” for the taxpayer. The claim by the company presupposed that the obligation imposed on the Commissioner to “protect the integrity of the tax system” imports a duty to act consistently as between taxpayers. The Court recorded the argument for the taxpayer as being that section 6(1) of the Tax Administration Act meant the Commissioner was obliged to act fairly, impartially and consistently in her dealings with taxpayers.
The Court concluded however that the only right conferred on a taxpayer was to have its liability determined fairly impartially and according to law and the Commissioner’s duties were similarly framed. Fairness and impartiality related to administrative law principles of natural justice and the third duty related to legal or substantive correctness of the assessment.
The taxpayer in this case did not argue that the Commissioner has acted unfairly or with partiality. Those might have seemed the way to raise an issue of consistency (which seems a whisker away from those concepts). The taxpayer’s counsel accepted that, on the authorities, inconsistency was not a ground of challenge itself but symptomatic of another ground. She accepted that the authorities referred to consistency in the context of unfair treatment (which was not asserted) and also that it would only apply to the treatment of a particular taxpayer – meaning it would seem that comparative treatments of different taxpayers were not matters of consistency.
The obligation on the Commissioner is to use her best endeavours to protect the tax system. This was a standard which the Court described as aspirational, and a recognition of limited resources, interpretative revision, and the inevitability of differing views within Inland Revenue. The Commissioner used her best endeavours when she determines liability on a transaction according to law.
The Court was careful; to leave open the possibility that correctness may not be the sole consideration when the Commissioner exercises her administrative powers with the Tax Administration Act at large. That suggests that consistency of treatment between taxpayers in the conduct of investigations might be an issue capable of being argued. But this did not displace the primacy of correctness in a challenge to the determination of a taxpayer’s liability to tax.
© G D Clews, 2016        

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