2013 NZLS Tax Conference Paper

1            INTRODUCTION
1.1        In 1999 Dr Adrian Sawyer of Canterbury University made a comparison of New Zealand Taxpayers’ rights with selected civil and common law countries and asked whether New Zealand taxpayers had been “short changed”.[1] He identified problems arising from the absence of a written constitution, minimal legal protection of rights though statutory means and a poor attempt at providing a charter of taxpayer rights as having contributed to a position where a future government could potentially override not only fundamental taxpayer rights but also fundamental human rights. This was heady stuff!
1.2        In 2007 prominent tax practitioner Denham Martin presented a paper in which he examined the extent to which the rhetoric of Inland Revenue (“IR”) concerning its accountability to taxpayers fell short of practical reality in the day-to-day practices of tax officers. He concluded that sometime acts of bad administration go unidentified, unchallenged and unpunished.[2] His focus was somewhat less rarified than Dr Sawyer’s but no less concerning because of its practical focus on tax administration.
1.3        Earlier this year Dr Ranjana Gupta produced a paper for the Australasian Tax Teachers Association which examined the search and seizure powers of the Commissioner of Inland Revenue (“CIR”) under the Tax Administration Act 1994 (“TAA”) against section 21 of the New Zealand Bill of Rights Act 1990 (“BORA”), the statutory protection against unreasonable search and seizure.[3] In it she concluded that procedural safeguards afforded and civil liberties protected by the BORA should have a place in protecting taxpayers from abuses by the New Zealand revenue authorities but that the high degree of discretion conferred on the CIR exposed taxpayers to the risk of practical, if not administrative (in the legal sense), unfairness. She said the fact that IR is “generally fair” misses the point and that the present balance between taxpayers and IR heightens the potential for abuse of process.
1.4        In a recent issue of NZ Lawyer[4] Denham Martin was moved to write again that honest taxpayers need advocates and real rights and that, although there is much to admire about the New Zealand tax system, aspects of the system are out of balance because it does not adequately recognize and protect the rights of individual taxpayers in important areas.
1.5        These writings have been published over a period of 14 years, expressing a broadly common theme. The fact that they span such a period suggests that, far from the concerns that were expressed in 1999 having been addressed and ameliorated, they remain. In the intervening years there have been efforts to address shortcomings in the disputes process and the sometimes tortuous way it wends to the Taxation Review Authority and the Courts. These efforts have doubtless delivered some improvements in those specific aspects of the tax system. But the presentation to this conference on progress towards an improved disputes system will reflect the competing views of the IR and practitioners over just how successful those efforts have been. The practitioner view is that opportunities for some real improvements in the disputes process, such as a taxpayer right to exit the system and move to Court, have been lost or at least overlaid with unnecessary administrative limits.
1.6        At the same time the law as interpreted and applied by the Courts has moved, it seems inexorably, against taxpayers being permitted to raise even threshold level objections to the exercise of discretions by the CIR in the fulfillment of her duties. Such objections must in all but extreme cases be raised in the tax challenge process, which is criticized as still being time consuming and expensive, to the point where taxpayers are often burnt off by it.
1.7        It may be that this is simply because tax has been caught up in a movement to limit generally the preparedness of the Courts to intervene in administrative matters, except in the clearest cases of abuse. A preference for the light handed approach to administrative remedies against the Commissioner is reflected in the second remedies paper for this conference session. But when there is a prevalent feeling that, for example, it is almost pointless for a taxpayer to even consider taking issue with the way IR exercises its access powers under section 16 of the TAA, something is amiss.
2.1        A number of things coalesced to prompt the writer to agree to the request to address this topic for the conference. The first was personal involvement in the work done by the tax committees of the NZLS and NZICA with IR to address shortcomings in the tax disputes process. While the achievements of that project have improved the process, working on it with IR officials reinforced the impression that IR is very conscious that it presides over a tax administration which is weighted in its favour. It is reluctant to see that change. It may agree to administrative or managerial changes, which are not always just tinkering at the edges, whatever critics may argue, but is most reluctant to see taxpayer interests reflected in a different legislative response. In short the interests of taxpayers in the system were viewed and distilled through the judgments of IR, rather than by reference to independently stated rights.
2.2        Secondly, it became apparent in the process that, for those charged with running the country’s tax administration, the concept of the integrity of the tax system, including taxpayer perceptions of that integrity, is not really treated as an overarching concept at all. Rather, the tax system is seen as being made up of the Revenue Acts and subordinate legislation. Administering that system with a view to preserving its integrity often means no more than being satisfied that the letter of the law is being followed, rather than asking whether that leads to good administration and actions and outcomes that allow taxpayers, especially those who are honest and willing to comply with the law, to consider that they have been dealt with openly and fairly. 
2.3        Thirdly, there was the extraordinary spectacle of the recent tax “scandal” in the United States. When the writer was approached by the conference organisers the news headlines were full of coverage about the American IRS having been discovered undertaking the fiscal equivalent of racial profiling. It was alleged to have been systematically subjecting conservative claimants for tax-exempt status to a more prolonged and penetrating scrutiny of their applications than liberal claimants. The practice smacked, at least in the crucible of American politics, of the tax authorities playing favourites for a Democrat President. Heads rolled at senior levels in the IRS. Litigation was commenced. How the same or a similar issue of questionable administration might be dealt with in New Zealand intrigued.
2.4        Lastly, at much the same time in this country accounting advisers to some taxpayers who were caught up in an action by IR in exercise of its access, inspection, and seizure rights under section 16 and 16B of the TAA sought legal advice (not from the writer) as to how they might test the action, which they considered to be intrusive, provocative and unnecessary. The writer heard later that the advice they received was that there was no point even considering an intervention and that their clients should “go with the flow” and worry about their rights once IR had what it wanted.
2.5        The New Zealand experiences seemed to suggest that the extent to which taxpayers here could expect protection in the equivalent of the US situation was uncertain, notwithstanding the statutory requirement that all persons should be able to expect that their tax affairs are dealt with by IR fairly, impartially and according to law. They also suggested that there is something very wrong (or at least greatly unbalanced) when a department of state is vested with such wide powers and discretions in support of its investigative function that the prospect of those being successfully challenged at the time they are employed is considered so remote a possibility as to be a waste of time.
3.1        Against that background the purpose of this paper is to:
(a)Examine how the rights of New Zealand taxpayers to take issue with some important aspects of the tax administration have fared since 1999; and
(b)Consider the extent to which our Courts are prepared to intervene in such matters and to give effect to taxpayer rights and remedies.
          Some general and passing comparisons with the position in other countries can be made. Without plagiarizing his work, the object is to consider whether the protection of taxpayer rights has moved much at all since Dr Sawyer’s work in 1999 and if so in what direction!

3.2        In addressing these questions the writer has not attempted an all encompassing constitutional review. That would be too grand (and grandiose) an approach. The practical context within which the paper proceeds is the experience of a lawyer who is asked almost daily by clients dealing with the IR, “Can they really do that?”
3.3        That question is almost invariably prompted by IR’s exercise of its investigative functions, whether in requesting information, accessing premises, requiring cooperation, removing equipment and cloning computers, or compelling information from a person under oath. For most people these are the most intrusive expressions of “tax power” and it is often shocking to them that they have few hard and fast rights against which that power is balanced, rights which might allow clear remedies against IR when tax power is arguably abused.
3.4        When the relatively barren landscape of such protection is explained the response is often one of disgruntled resignation to the exercise of tax power and the futility of opposition. There have been some trail-blazers who have asserted opposition to the exercise of IR powers but their general lack of success has been obvious.
3.5        The coincident paper to this session of the conference argues that the Commissioner should not be diverted by “collateral attacks” from her statutory obligation to collect revenue. Those attacks seem to be characterized as unmeritorious per se. It may well be that the actions brought by the trail-blazers referred to were of limited merit but that should not be used to damn any attempt to hold the IR to account for its actions in the execution of its duties. After all, the CIR’s statutory duties do not extend to the collection of revenue by any means, whatever the cynics may suggest. They also encompass how she and her officers must do that. In that context there is a fundamental expectation that the state may expropriate property but must do so strictly subject to the powers granted by Parliament.
3.6        One might expect, therefore, that there would have emerged clear directions and limits on tax power on which taxpayers could rely. Instead there is a sense abroad that our tax administration relies on the approach reflected in the phrase, “Trust us, we’re from the Inland Revenue and we’re here to help you.”[5]          
4.1        A constitutional review is under way. It invites a conversation about fundamental questions of national governance.  Its published material reminds us that the New Zealand constitution is only one of three in the world not to have been reduced to a single document or statement.[6] But it notes that we have a constitution based on certain principles, statutes, conventions and understandings.
4.2        Instead of a single documentary constitution we have continued with the United Kingdom model whose twin foundations are the principles of parliamentary sovereignty and the rule of law. Under that model Parliament is the supreme and final source of law and its statutes the expression of that supremacy[7] and the law as expressed by Parliament is the overarching authority in the land to which all persons are subject, no matter their rank.
4.3        When the New Zealand Parliament set about enacting legislation which referred to fundamental rights, it judged at the time that it should not give that law any greater force than any other and so we were delivered of the New Zealand Bill of Rights Act 1990 (“BORA”).[8] It would be too great a task to examine remedies against the CIR by reference to all aspects of the New Zealand constitution. The BORA provides a succinct statement of some fundamental rights against which to measure progress.
4.4        The BORA is declaratory of rights in that it expressly affirms them[9].  The Court of Appeal rejected a conservative construction of that affirmation in favour of one that foresaw the development of the law where necessary.[10] That is clear from the way the Court fashioned the possibility that remedies will be found for breaches of the BORA. However, the inherent limits on those rights, and consequent limits on what amounts to a breach, are apparent from the provisions that:
(a)    Prohibit a Court striking down legislation because it is inconsistent with the BORA;[11] 
(b)    Permit limitations on rights demonstrably justified in a free and democratic society;[12] but
(c)     Require enactments to be interpreted consistently with the BORA where that is possible.[13]
4.5        While the effectiveness of the BORA as a bulwark of rights in a number of areas has been championed[14] it is the fact that it has to be read alongside the tax laws and particularly the TAA, and reconciled to it, which has led to concern that protections that might have been expected under the BORA have arguably been interpreted away by the Courts.
4.6        The rights that are affirmed under the BORA and which can relate to the exercise of tax power discussed at [3.3] are:
(a)    The right not to be subject to arbitrary detention;
(b)    The right not to be subject to unreasonable search and seizure;
(c)     The right not to be required to confess guilt in criminal proceedings;
(d)    The right to bring civil proceedings against the Crown.    
4.7        For the purposes of this paper the constitutional lens is the BORA but whether it magnifies or distances tax remedies is the issue.
5.1        The TAA sets out the major phases or steps in tax administration in New Zealand. These form a framework within which to consider the extent of taxpayer rights and protections, the remedies that give force to those rights and effect to the protections, and a basis for considering the extent to which the Courts support taxpayer’s interests in each phase.
5.2        For the purposes of this paper the phases can be summarized thus:
(a)    The investigation or audit phase;
(b)    The pre-assessment or disputes phase;
(c)     The making or raising of an assessment or amended assessment; and
(d)    Challenge and appeal rights concerning tax obligations.
5.3        There are two other elements of the frame work that need to be considered. The first reflects a longstanding tension between the civil jurisdiction administered by the CIR and the criminal jurisdiction in which she prosecutes, at least until prosecution responsibilities are assumed by the Crown in more serious cases.  This tension is reflected in what appears to be a growing propensity for the IR to prosecute tax offences in conjunction with, but often in advance of, the completion of assessment and challenge procedures. It relates to and affects the practical availability of the challenge procedure.
5.4        The second is the overarching obligations imposed under sections 6 and 6A of the TAA, in relation to which two issues arise in the content of this paper. First, there is the need to consider the extent to which care and management powers, in their use as dispensing powers, could be an effective means of taxpayer protection. The second is the extent to which the CIR is charged with certain basic tasks which must be weighed and balanced against each other, sometimes to the detriment of taxpayers.
     The Investigation or audit phase

5.5        This is the phase in which the exercise of tax power is most keenly felt by taxpayers. For that reason it is the aspect of tax administration on which the paper concentrates. The BORA right that is of immediate relevance is the right not to be subject to unreasonable search and seizure. Given the way some IR investigative actions are often conducted the right not to be detained is also relevant.
5.6         The powers in question are conferred by sections 16 to 19 of the TAA. They cover access rights and seizure rights. They are of necessity often conflated as the typical IR action under these powers consists of both elements. There are two aspects to be considered. The first is the extent to which the exercise of the powers may be reviewed and the second is whether the product of the search, ie evidence obtained by it, can be excluded if the search can be impugned.
5.7        The two main cases on the exercise of the search and seizure powers, Avowal[15] and Tauber,[16] seem to have established:
(a)    The CIR’s use of search powers (and detention powers as well) are constrained by the BORA limitation on unreasonable search and seizure; however
(b)    The limitation on such powers that might have been occasioned by the need for a necessity and relevance test to be applied and objectively measured has been marginalized;
(c)     That is because the decision whether something is necessary and relevant so as to be within the legitimate scope of a search and seizure is treated as a matter of the Commissioner’s discretion, which the Court will only second guess in extreme cases;
(d)    Moreover in cases where it is not practical to conduct a threshold review of necessity and relevance the need for it has been waived. That has been done essentially on the basis that suspicious circumstances such as encryption permit the CIR to treat all affected documents as being necessary and relevant to IR’s inquiries.
(e)    Also, in deciding what is necessary and relevant the IR need not undertake any threshold consideration of material before seizing it, if it has some reasoned basis for concluding that it is within the scope of IR’s inquiries.
(f)     Blocking a taxpayer’s vehicle from departing the scene of a section 16 action does not amount to arbitrary detention and neither will the number of IR staff involved in an action lightly be treated as intimidating or overbearing.
5.8        The problem these conclusions pose it that they give clear guidance as to what is not unreasonable search and seizure by IR but little about what is. IR has published its standard practice on the exercise of its powers. That sets out expectations that taxpayer could reasonably have as to the IR’s conduct, yet it is clear that the CIR may depart from standard practice without the resulting action being regarded as unreasonable or illegal.[17]
5.9        Moreover the approach taken so far gives little comfort that matters which have yet to be tested directly will be resolved on a basis that establishes meaningful limits on the exercise of IR’s search and seizure powers. Two examples are worth mentioning. The first is the extent to which a person may be detained in the course of the search function under section 16 of the TAA. In Tauber the taxpayer argued arbitrary detention in being unable to leave the premises because a vehicle was blocked in by IR cars. This was rejected. Yet there are often and routinely far more direct and concerning instances which could amount to a detention. The writer is aware of instances where taxpayers have been confined to a room while a search is undertaken; been required to stay on the premises; told to sit in the corner and “not move”.
5.10     In the first stages of such actions it is not unusual for IR officers to be accompanied by police whose presence (though claimed as protective) also plainly imbues the IR’s actions with a vicarious implication of the power to arrest. Whether and to what extent unlawful detention of a taxpayer in the course of a search operation would render it unreasonable, so as to warrant a remedy or unlawful so as to affect potentially the extent to which the product of the search might later be relied on is not clear. The signals are that even a detention which clearly overreached what was reasonable in the circumstances might not be regarded as unlawful; that despite the need to consider the conduct at the time rather than to try to justify it after the event by reference to the utility of outcome.
5.11     The second example relates to the extent to which force may be used by the IR in the exercise of its section 16 access power. Section 16 of the TAA provides that the CIR shall at all times have full and free access to places, books and documents. The usual form of warrant used to authorise access to a dwelling[18] permits the IR officers involved to be accompanied by others whose services may be required in the execution of the access and inspection/search power. That has been used by the IR to authorise them to bring locksmiths to gain entry to locked premises and spaces within premises. But how far does the full and free access power go?
5.12   Outside the limits applicable to a dwelling, the access power in section 16 of the TAA is exercisable without warrant. There is no prior judicial oversight. However, rather than regarding the absence of such oversight as a reason to be sparing in the latitude given to IR, the Courts have concluded that the powers are extremely broad and should be given effect as such.[19] One wonders what the Court’s attitude would be to an IR action which involved forcible entry to premises outside business hours and absent the presence of the owner or occupier.
5.13   These are not flights of fancy. The writer has seen cases where access was gained by IR to a storage unit without the owner’s consent or presence by cutting off a padlock. In a recent action a locked briefcase was hacksawed open because the locksmith could not pick the lock as he had promised he could. These are smaller scale examples of the right to make a forcible entry which IR seems to be claiming incrementally.
5.14   It has been suggested that most searches occur at reasonable times and without forced entry and that as a result they will seldom be unreasonable in terms of the BORA.[20]That may well be so but the extent to which the Courts have so far been prepared to allow the IR latitude to exercise what all accept must be a robust investigative function means that no bright-lines have been drawn on which taxpayers can rely. Outside the tax field, in the context of national security, it has been held that a power of forcible entry cannot be implied despite wide language,[21]yet a confined approach to the search-related language of the TAA has been rejected in the face of it having been expressed in the “widest terms”.[22]
5.15   The absence of guidance[23]  may well be because bright-lines can only be drawn as factual circumstances unfold and it is not always possible for fact-specific disputes to be resolved clearly or quickly outside litigation on the tax liability in question. Thus, judicial review of a search action may not be possible where allegations of overreaching power are fact specific. In such cases the taxpayer may have to wait until trial to challenge the admissibility of evidence obtained in the search.
5.16   The last aspect of the IR investigative function for consideration of rights affirmed under the BORA is the compulsory interview under section 19 of the TAA. There are two relevant aspects. The first is the extent to which the procedure is a detention and the second is the extent to which its structures may compel a confession.
5.17    Although it is not beyond doubt[24], the generally accepted view is that a person who is summonsed to undergo a compulsory interview is detained during the course of that procedure and so is entitled to the rights affirmed in that regard by section 23 of the BORA.[25] In the writer’s experience the tensions that occur during a compulsory interview often relate to the different expectations as to the role taxpayers’ counsel may play in the procedure. IR’s view seems to be that a taxpayer may not seek advice on matters that are purely factual and which should be within the taxpayer’s knowledge. On the contrary there is authority that makes it clear that the right to counsel is much broader than that.[26] No IR officer has taken the point by alleging, for instance, that too frequent recourse to counsel amounts to obstruction of the interview.
5.18    The section 19 procedure denies the interviewee the right against self- incrimination. Neither may the interviewee resist answering on the grounds that they may be rendered liable to a penalty or forfeiture.[27] The trade-off for this is that the statements obtained in the interview may generally not be used in criminal proceedings,[28] though clearly they can be used to pursue civil proceeding against the taxpayer if that was necessary.[29] The BORA right not to be compelled to confess liability is limited to criminal proceedings[30] and the limitation in section 19(4) of the TAA provides a protection in that regard but it is still an uneasy companion to the BORA in that it doubtless informs the decision whether or not to prosecute and the perjury exception means that the taxpayer who is prosecuted on other evidence is practically unable to offer a version of events which contradicts his or her “confession”. 
      Pre-assessment or dispute phase
5.16   The current state of the tax disputes procedures is the subject of another presentation. Clearly there are continuing concerns about aspects of it. For the purposes of this paper the question is how the process stacks up when viewed thought the constitutional lens. In that context the main concern is whether the disputes process has become an impediment to the right of taxpayers to pursue civil litigation against the Crown.
5.17   There is no doubt that the disputes procedures lock a taxpayer into a formulaic dance with the IR. It has long been considered too expensive and wasteful and to lead to taxpayer “burn off”.[31] The recently developed procedure by which a taxpayer may seek IR approval to opt out of the process[32] and to go to Court without having to complete it, is a welcome response though clearly less than taxpayers’ representatives would have liked. It is an effort to walk a middle line between permitting taxpayers in certain cases to apply scarce resources to litigating matters with the IR rather than continue with the disputes process, but at the same time reserving the CIR’s ability to require the disputes process to be completed when she considers that is warranted. Rather than the taxpayer’s right to litigate tax matters with the Crown having been enhanced, the decision whether to move from the disputes process or not has effectively been retained by the IR which must agree.
5.18   Disagreement over an opt out does not deny the taxpayer the right to litigate per se,[33] but when there are constraints on it doing so which are exacerbated by the decision not to agree to an opt out, the practical impediment to the BORA right is clear. It may be that tax practitioners have become too jaundiced by the very many instances of taxpayers preferring to settle over liabilities they do not agree with, but the right to litigate against the Crown is sometimes a constitutional theory rather than a practical possibility.
5.19   These observations have to be balanced by the reality that the disputes procedures perform a positive function in distilling the issues between IR and taxpayers. It is important that both understand their respective positions so that in the interests of all matters can be resolved short of litigation of that is practically possible. No one could sensibly advocate a position where a tax dispute could be shifted without preliminary steps into the TRA or the Courts. Where those steps have been taken to ensure that the parties have adequately joined issue, there is no real argument, other than IR’s administrative convenience, for taxpayers not being afforded the right to skip the balance of the disputes process rather than the right to ask to do that.
      The challenge/prosecution dichotomy

5.20    The criticism of the disputes procedures as a potential impediment to the right to challenge an assessment relates as much to the challenge procedure itself. But there is another aspect that intrigues and concerns the writer. That is the IR propensity to run criminal proceedings in tandem with a dispute and challenge process which has inevitably a much longer lead time than most criminal prosecutions.
5.21   The speed with which criminal proceedings are dealt with by comparison with civil actions means that the right of someone facing tandem action by IR to challenge their civil tax liability is sometimes choked off by the supervening weight of criminal action. Moreover the threat of criminal proceedings has a practical if not deliberate effect of causing taxpayers to settle and pay as quickly as possible so that their reparation can be taken into account in sentencing. 
5.22   Not all tax investigations end up with criminal charges, although it is apparent that IR is adopting a much more concerted and serious stance towards the prosecution of tax offences than has arguable been seen in the past. When tax crime is detected there are now very often two aspects in play at the same time. One is the prosecution and punishment of the alleged offender. The other is the determination of liability and the recovery of that tax due from the taxpayer.
5.23   There are different dynamics in each. In most instances to date the pattern has been for IR to investigate, take up issues through the disputes process, raise assessments and then consider the extent to which a matter warrants prosecution. That is still done, however there are (at least in the writer’s experience) increasing numbers of case where the approach is for criminal proceedings to be commenced at the same time as IR raises assessments without NOPA, on the basis that fraud has been detected.[34]
5.22   Such an approach raises obvious difficulties for the taxpayers concerned:
(a)   They are forced to fight on two fronts at the same time – civil and criminal;
(b)   The raising of an assessment exposes them to the risk that IR will commence recovery action so that a third front may be opened, potentially affecting the ability to fund a defence on the others;[35]  
(c)   There are different burdens and standards of proof involved and different forums within which the cases are heard;
(d)   In the criminal jurisdiction the quantum of liability has an important bearing on sentence yet it may not be resolved by the disputes process as the criminal proceedings unfold;
(e)   The speed with which criminal proceedings are now undertaken means that a taxpayer wanting to dispute by challenge the liability that has been assessed must effectively trade away a potentially valuable sentencing credit to be able to buy time to determine liability.
5.23   These are not easy strands to untangle. From a practical standpoint taxpayer in this position has to decide whether there is more to be gained by defending criminal proceedings so as to have the time to pursue the disputes process and a challenge, than to deal with the criminal proceedings swiftly. The trade off is often a difficult and potentially costly one. For instance the taxpayer who elects not to plead guilty early because of the desire to dispute assessments stands to lose a healthy credit against sentence if later convicted. Even if the taxpayer decides the potential gain from reducing the final liability is worth it, the relative speed with which tax offences are dealt with under the Criminal Procedure Act 2011 means that time can run out to dispute the liability before they must answer the criminal charge.[36]
5.24   The Courts in the criminal jurisdiction see issues such as the quantum of liability as secondary to whether the broad elements of the offence have been made out. They prefer to see arguments over quantum dealt with through disputed facts hearings, which are often not well suited to determining tax liability.[37] The one advantage to the taxpayer from such an approach is that in disputed facts hearings, as in the other aspects of criminal proceedings, the burden of proof is on the prosecution. This means that if a reasonable doubt can be raised to the IR’s allegation as to tax quantum, the taxpayer ought to prevail. But that is not always the outcome and there is often too little “juice in the tank”, in terms of money and the will to fight, for the liability to be disputed further.
5.25   There are no easy answers to these sorts of problems. It is doubtless the case that the IR should prosecute tax crime when it finds it. However, there is an uneasy fit between IR as prosecutor and IR as protagonist in the civil determination and recovery of a related tax liability. The reality of the trade off referred to above is that the taxpayer’s right to dispute assessments raised without NOPA can be severely limited by the IR decision to adopt a tandem attack.
5.26   No taxpayer who has committed tax offences should consider the ability to challenge related assessments as cover for the crime. And the IR must be in a position to protect the interests of the revenue by ensuring that taxpayers cannot escape their responsibilities by absenting themselves while ostensibly disputing assessments.[38] However there is a need to consider whether the pursuit of criminal proceedings at the same time as assessments are subject to dispute is practically compatible with the BORA right to bring and pursue civil proceedings against the Crown. Were taxpayer rights clearer, perhaps that compatibility would be more easily resolved.
5.27   It is clear that certain powers of the CIR have to be exercised circumspectly so that they do not cut across the expectation that a taxpayer ought to be able to undertake litigation against the Crown on an equal footing.[39] It is intriguing to consider whether the same circumspection should apply to other aspects of the CIR’s decision-making, including the decision to prosecute.
          Rights but no rights – care and management and section 113
5.27   This part of the paper touches briefly on two matters which illustrate the core factor which limits taxpayer rights and remedies. That is that the administration of the Revenue Acts has been invested in the CIR and the Courts have been prepared largely to leave her and her officers to get on with it. There is a resonance to that approach which finds voice in the coincident paper for this presentation but it is something that contributes to the unease taxpayers have when they ask the question posed at [3.2].
5.28   The two matters are, first, the limits that relate to the IR’s care and management powers, and particularly the approach taken to the integrity of the tax system and secondly the ever more remote likely recourse by taxpayers to section 113 of the TAA even when it is clear that assessments are in error.
5.29   The inclusion of taxpayer perceptions of the integrity of the tax system in the definition of that term[40] seems to suggest that the CIR ought to measure her actions having regard to the way people who are the constant customer base of IR regard the system. “Integrity” is one of those words which is very easy to use and not so easy to interpret. Most amendments to tax laws are trumpeted as adding to the integrity of the tax system as if without them the system would be fundamentally unsound. In that context the statement is seldom more than propaganda.
5.30   The concept is defined in the TAA by reference to rights and responsibilities. On the one hand taxpayers are said to have rights to fairness, impartiality, action according to law and confidentiality. A tax system of integrity will confer these rights, presumably. On the other hand there are responsibilities which are shared. Taxpayers are responsible for complying with the law and a tax system with integrity is doubtless one which promotes that compliance. Those who administer the law are required to do so to deliver the rights first referred to above. A tax system with integrity will require that of its administrators. And “taxpayer perceptions” of that integrity presumably means that the greater part of the body of taxpayers ought to recognize those traits as being present in the system.
5.31   The rub for taxpayers is in the phase, “fairly, impartially and according to law”. These are the touchstones of the expressed taxpayer rights and the related administrator’s responsibilities. These words do not mean one and the same thing. A determination which is according to law is not necessarily fair. Yet the opportunities for taxpayers to enforce their rights by disputing whether they are being dealt with fairly or by taking issue with the whether the tax law is being administered “according to law” have been reduced greatly, at least to the extent that they may be pursued separately form an argument over substantive tax liability. The client posing the question, “can they do that?” knows all too well that the right to have the law applied fairly and impartially more often than not means that it is applied as the IR sees it and that the opportunity to dispute that has been reserved to the contest over the tax liability that eventually emerges from the IR’s actions.
5.32   Whether this amounts (or might contribute) to a widespread undermining of confidence in the tax system is doubtful. That outcome is made less likely by the fact that in most matters the IR behaves reasonably and well. But as one commentator has said, that misses the point.[41] From a constitutional perspective more should exist to assure taxpayers of their position and it is not satisfactory to dismiss efforts at holding IR to account for the way it administers the law as meritless gaming of the system.[42]
5.33   The most recent suggestion that taxpayers cannot rely on fairness in the system relates to section 113 of the TAA, sometimes seen as the “last chance saloon” for taxpayers unable to challenge an assessment or make headway with judicial review. The section has been gradually reduced as taxpayers have approached the IR seeking some relief on the basis that it ought to be applied to ensure the correctness of an assessment. The saloon doors were even more firmly battened against taxpayers with the most recent decision concerning the section.[43]
5.34   Even though there were manifest errors in the assessments concerned, which must have had a material affect on the accuracy of the liability to tax,[44] the chance to have the assessments corrected so as to prevent liquidation of the taxpayer company was denied. The reason was broadly twofold. First the possibility of the CIR acting to correct manifest errors had to be considered against her statutory obligations of care and management including the conservation of scarce resources. Secondly, it was said the taxpayer should have challenged earlier, did not do so and so should not be permitted to make what amounted to a collateral challenge.
5.35   The image this latest decision conveys is of tax power being exercised to support manifestly incorrect tax assessments because it might cost money to change them and because the taxpayer “could have done better”.  The TAA is replete with sudden death deadlines but this decision amplifies that even in the clearest case of error, resurrection is unlikely.
6.1        The phrase from Corinthians[45] is generally taken to translate as a view of the ideal (Heaven or God) seen as a poor reflection as if in a dim mirror. The rights and remedies of taxpayers in constitutional terms are a poor reflection of what they could be and have advanced little in the 14 years since Professor Sawyer wrote of New Zealand taxpayers having been short changed in terms of tax related rights.
6.2        Without going into detail, the experiences in countries with which New Zealand aligns itself in tax terms and which have a firmer constitutional framework than ours suggest that taxpayers are able to exercise greater relative muscle against the revenue than in New Zealand. That is not to say that the revenue authorities of Australia or Canada, or the USA for that matter, cannot act robustly and effectively, or that collateral attacks lacking in merit receive anything but short shrift, but there is a climate abroad in each of those countries which is less deferential to the revenue than seems to be position in New Zealand.
6.3        This is not a paper that advocates a written constitution over our present position. That debate has yet to run its course. The focus is more on whether there has been any real movement to buttress in tax matters the recognition of such rights as have been expressed or affirmed as part of our constitutional framework. The suggestion the writer makes is that, where opportunities have presented themselves for such movement to occur, they have been lost in favour of allowing IR the latitude to act in the expectation that it will generally do the right thing.
6.4        That has been the result of a vigorous and understandable defence by IR of its territory and of a determined and consistent stance taken by the Courts. Captured by the view that any attack on the CIR other than to dispute what tax is due is a time wasting tactic, the Courts have consistently preferred to permit the CIR to set her course, and exercise her powers and discretions within a broad tolerance for the requirements of practical tax administration.
6.5        Is that a healthy position for New Zealand’s tax administration to be in? The tax system relies on the willingness of the broad mass of taxpayers to comply with the law in fulfillment of the obligation referred to in section 6 of the TAA. There are severe penalties that apply when taxpayers fall short of their compliance obligations. The matching expectation which section 6 suggests taxpayers should have is that the system will be administered fairly impartially and according to law. That expectation includes recognition of rights affirmed under the BORA as they relates to tax administration and the exercise of tax power. Yet there are few if any brightline remedies available to taxpayers with which to hold IR to account for the way it administers the tax system. Moreover, the instances where taxpayers have tried to do so have led almost invariably to the message being amplified that what will be regarded as “unconstitutional” behavior by IR lies only at the extreme boundaries of tax administration.

[1] A Comparison of New Zealand Taxpayers’ Rights with Selected Civil Law and Common Law Countries – Have New Zealand Taxpayers Been Short Changed? Adrian J Sawyer, Vanderbilt Journal of Transnational Law, Vol 32, p 1345, 1999.
[2] Inland Revenue’s Accountability to Taxpayers, Denham Martin, October 2007, a paper presented to the NZICA Tax Conference 2007.
[3] The Relevance of Taxpayers’ Constitutional Rights in the Light of Inland Revenue’s Powers of Search and Seizure, Ranjana Gupta, January 2013, a paper presented to the 25th Australasian Tax Teachers’ Association Conference.
[4] Honest Taxpayers Need Advocates and Real Rights, NZ lawyer, Issue 212, 12 July 2013, p 23.
[5] Based on the 9 words said to be the most frightening by Ronald Reagan in 1976.
[6] The others are the UK and Israel; see generally www.ourconstitution.org.nz.
[7] This principle was famously enunciated by A V Dicey and can be found for example in the decision of Megarry J in Manuel v A-G [1983] 1 Ch 77.
[8] The original intent to have an entrenched supreme law and the opposition from all quarters to that are helpfully summarized by Justice Susan Glazebrook, The New Zealand Bill of Rights Act 1990, Its Operation and Effectiveness, South Australian State Legal Convention, 2004.
[9] NZBORA, section 2.
[10] Simpson v A-G (Baigent’s Case) [1994] 3 NZLR 667 at 676.
[11] NZBORA, section 4.
[12] Ibid, section 5.
[13] Ibid, section 6.
[14] See generally Glazebrook J at n 7.
[15] Avowal Administrative Attorneys v DC at North Shore (2009) 24 NZTC 23,252; [2010] NZCA 183.
[16] Tauber v CIR (2011) 25 NZTC 20-071.
[17] Unreasonableness and illegality are not the same: R v Jefferies [1994] 1 NZLR 290 at 304 per Richardson J. Indeed it has been suggested that section 21 of the BORA might “rescue” an unlawful search as still being reasonable: Gupta, p 12.  
[18] Under section 16(4), TAA.
[19] The warrant process required under section 16(4) has also been criticised as having been stripped of almost all protection and utility in terms of judicial scrutiny: M Lennard, Search and Surveillance, NZLS Tax Conference, 2011.  
[20] Gupta, p7
[21] Choudry v A-G [1999] 2 NZLR 582 (CA)
[22] CIR v New Zealand Stock Exchange (1990) 12 NZTC 7,259 (CA)
[23] This despite the Court of Appeal’s comments in Tauber.
[24] The IR does not have the right to arrest an interviewee who decides to leave the interview and its recourse is to prosecute the person under section 143F of the TAA.
[25] M Keating, Tax Disputes in New Zealand, CCH 2012, p 313.
[26] Though still subject to the need for an air of reality: R v Mallinson (1992) CRNZ 707 (CA).
[27] Section 19(3), TAA.
[28] Section 19(4), TAA.
[29] Section 199(4) is specifically limited to use of statements in criminal proceedings other than for perjury. It is plain that a statement compelled under section 19 could be used as evidence against the taxpayer in challenge proceedings.
[30] NZ BORA, section 25.
[31] See Martin, note 2 supra
[32] Allowed under section 89(1)(c)(viii), TAA and explained in Standard Practice Statement 11/05.
[33] That comes with the right to challenge, after the conclusion of the disputes process and the making of an assessment.
[34] Section 89C(eb), TAA.
[35] The threat of freezing orders or charging orders over taxpayer property is not unusual in such cases.
[36] In the worst instances the taxpayer is really forced to buy time by defending the criminal proceedings and perhaps electing to take the matter to a jury.
[37] With respect, the writer’s experience is that few District Court judges can really get to grips with an argument over, say, the significance of how an assets accretion calculation has been constructed when most are used to disputed facts hearings of limited scope and duration.
[38] Arguably those matters can be dealt with by ensuring that at the least the IR has assets against which it can proceed, through appropriate freezing and/or charging orders.
[39] Vinelight Nominees Limited v CIR (2005) 22 NZTC 19,208, referring to the investigative powers.
[40] Section 6(2), TAA.
[41] Gupta, n 3, supra
[42] An oft quoted reason for narrowing recourse to judicial review in tax matters.
[43] Arai Korp Limited v CIR (2013) 26 NZTC 21-014
[44] Basics such as no purchase cost had been allowed against land sale proceeds.
[45] 1 Corinthians 13:12, For now we see through a glass darkly.

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