This note considers what implications might arise from the Court of Appeal’s decision in CIR v Chatfield & Co Limited  NZCA 79, both as to further appeal and its practical application.
The Commissioner’s appeal was dismissed and that cannot have been the outcome she was looking for after a loss in the High Court. The Commissioner will therefore be weighing up whether to seek leave to appeal to the Supreme Court. In this author’s opinion, it is not clear that the Supreme Court will grant leave. The Commissioner may face a decision by the Supreme Court which mirrors that made last year in Lin. There the Supreme Court noted that the significance of the case was substantially affected by relevant law changes and expected future changes to the China/NZ DTA. As a result, the issues in Lin were not considered to be sufficiently important to justify a grant of leave.
Since IR issued requests for information to Chatfield & Co Limited in 2014, there have been substantial shifts in information sharing between revenue authorities. The OECD has introduced Country-by-Country (“CbC”) Reporting, developed under Action 13 of the Base Erosion and Profit Shifting Action Plan. This has been activated between Korea and New Zealand. This agreement results in substantial automatic information sharing, primarily in relation to multi-national enterprises, related parties and transactions with unrelated parties. In addition, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (“MLC”) provides for information exchanges outside the scope of DTAs.
When considering what the competent authority in Chatfield should have taken into account, counsel for the company submitted that the Court of Appeal should answer the following question:
‘Did the Commissioner/Mr Nash scrutinise the KNTS’s request for compliance with arts 2 and 25 [of the DTA] or did she/he simply act more like an automaton?’
Automatic information exchanges are likely to strengthen the presumption that a competent authority might take exchange of information requests at face value. If that proves to be so, then the competent authority’s role would be much more that of an automaton. Considering the specifics of Chatfield, it is possible that the transaction details between the relevant New Zealand and Korean companies would in the future be shared automatically with the KNTS, regardless of a DTA based necessity test.
Equally, future exchanges of information may occur under the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, to take advantage of the arguably broader “foreseeable relevance” test. Another step will be added to the foreign competent authority’s routine, with requesting states simply needing to confirm broadly that the information requested falls under Art 2 of the DTA, ie it relates to relevant taxes. Not that this last measure will be necessary unless the New Zealand competent authority has some reason to believe that the request may not be in order. The only saving grace may be that the competent authority must investigate uncertain requests further and be open to reviewing an initial decision should new information come to light.
This begs the question, will the Supreme Court consider that future exchange of information requests will bear so little resemblance to those made by KNTS in 2014 that the significance of hearing Chatfield in the Supreme Court is greatly diminished? This possibility is only strengthened by the aligned decisions of the High Court and the Court of Appeal.
One must also consider what the Court of Appeal’s decision will mean for the application of DTAs. The courts have criticised the Commissioner’s handling of the requests, commenting on her seeming unwillingness to participate in open justice and roundly quashed the information requests themselves. But will the outcome really change for taxpayers? The mishandling of matters in Chatfield is not a mistake the Commissioner will make twice and requesting states will doubtless be taking note of the decision. As noted in my commentary on the case, the Court has given IR and foreign tax authorities a blueprint for avoiding the issues that arose in Chatfield. It is highly likely that the blueprint will be followed if a DTA based request is received by IR, but equally likely that much information will be exchanged in the future without authorities even having to consider that blueprint.
© G D Clews