Protocols Between the Solicitor-General and the Commissioner of Inland Revenue

On 29 July 2009 the Solicitor General (“S-G”) and the Commissioner of Inland Revenue (“CIR”) signed a set of protocols dealing with the role each officer and their respective organisations play in dealing with tax litigation and disputes.

The protocols are the outcome of work between the IRD and Crown Law over some months and are an attempt to reconcile the roles of the two organizations in deciding how tax cases should be advanced and how disputes may be settled. It is an open secret that there has been tension between the two offices for some time and some resentment within IRD at Crown Law's claims of what amounts to a "supervisory" role in relation to the interpretation and application of tax laws.

It is important for any tax disputant or litigant to understand that the relationship between the IRD and Crown Law is not the equivalent of client and lawyer, with Crown Law acting on the instructions of the IRD. Instead the protocols confirm that Crown Law will quite possibly be a separate protagonist in some tax disputes and litigation, having its own views of what arguments should be advanced, and whether settlement should be considered and if so on what terms. Crown law is also quite likely to be a much more active participant in the tax rulings process.

This development reinforces the importance of taxpayers and their advisers being aware of the attitudes and approach of the Crown Law Office as well as understanding the IRD’s approach. Where the two do not necessarily accord the Crown law view is likely to prevail.

In the conduct of litigation:

1. Disagreements between the departments will be resolved respectfully; but

2. The S-G appoints counsel to represent the CIR and he has limited his approval of IRD lawyers being used to non precedential District and High Court matters; and

3. Appointed counsel is responsible for what legal arguments are put to the Court subject to the S-G views; and

4. Settlements must be jointly approved by Crown Law and the IRD.

These provisions make it reasonably obvious that the S-G has asserted final control over the conduct and disposition of tax litigation, especially precedential matters.

As to ruling and interpretations, the protocols address the treatment of legal issues that are central to a dispute and which are about to be the subject of a ruling or IRD interpretation. In such cases the IRD and Crown Law must consult. It is clear that the practical effect of this is that on matters such as whether a structure involves tax avoidance, it is most unlikely that a ruling will be given without Crown Law involvement. Again, from a practical perspective this has already been occurring with the result that some ruling applications have been significantly delayed.

Public statements about tax legal issues will only be made after consultation between the S-G and the CIR and agreement as to the content. When the IRD is communicating a Crown Law position to a taxpayer, Crown Counsel is likely to assist the IRD in communicating that position.

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