Taxation Law Specialist

  • Tax investigations

  • Tax disputes before assessment

  • Court hearings

  • Taxation Review Authority hearings

  • Declaratory Judgment cases

  • Tax Warranty disputes

  • Negotiation of tax settlements

  • Binding Ruling applications

  • General tax advice (eg income tax & GST)

Tax investigations by Inland Revenue

Satisfying the investigator as to queries during investigation is the best way to prevent a dispute from escalating. Inland Revenue has considerable and wide ranging powers to require financial and tax information from taxpayers and other persons (eg NZ Stock Exchange and NBNZ v CIR (1991) Privy Council – general ‘fishing’ information requests regarding customers). Failure to comply with information requests within the specified time limits can have serious consequences and affects for the taxpayer or person concerned, including future evidence exclusion.

Tax disputes before assessment

A complex, mandatory, statutory procedure for tax disputes precedes the issuance of an assessment by Inland Revenue. The disputes procedure involves a notice of proposed adjustment (nopa), a notice of response (nor), a commissioner statement of position (csop), and a taxpayer statement of position (tsop). Taxpayers have two month response periods for providing a nor and a tsop, which documents must address various specified matters (such as facts, legal issues, tax laws and legal propositions being relied on). Issue limitation and evidence exclusion rules apply to subsequent court challenges for issues and evidence not specified in the statements of position. The statements of position (csop and tsop) are considered by Inland Revenue's adjudication unit, which unit makes the Inland Revenue's assessment decision.

Court hearings

There are special rules for challenging tax assessments through court proceedings (eg as to time limit for commencing a challenge, being 2 months from the earlier of the Inland Revenue adjudication report or an assessment). Such rules apply along side the general rules for conducting litigation in the Taxation Review Authority, the High Court, the Court of Appeal and the Supreme Court (including rules as to costs recovery by the successful party and security for costs : for security for costs in a tax case see Reefdale v CIR (2004)). A taxpayer may elect to commence a challenge in the High Court (eg State Insurance v CIR (1990) – share-swap gains on insurer's capital account; Withey v CIR (1998) – a tax avoidance case and subsequent new due date case), or in the Taxation Review Authority (eg Case V9 (2001). Appeals from cases in the High Court are to the Court of Appeal (eg CIR v Dewavrin Seagard (1994) – foreign exchange gains/loss, hedging contracts and the accruals rules; Hill v CIR (1994) – deductibility of forestry expenditure), and from there to the Supreme Court (that has now replaced the Privy Council (see CIR v Mitsubishi : Privy Council 1994 – warranty provisions held to be tax deductible).

Taxation Review Authority (TRA) hearings

The Taxation Review Authority is a specialist taxation court, operating at a district court level, but which handles the full range (small to large) tax disputes (eg Case U17 (1999) – tax residence and double tax treaty). A TRA case differs from a High Court case in that a taxpayer's name is confidential in the reporting of TRA cases, and the general position is that there is no costs recovery for the successful party in the TRA. Cases commenced in the TRA can be transferred to the High Court : see CIR v XXX (2005, 23 May, E France J). Appeals from the TRA are made to the High Court and from there to the Court of Appeal, and from there to the Supreme Court (previously Privy Council). The special TRA rules on confidentiality and costs do not apply on the appeal of a TRA decision.

Declaratory Judgments Act cases

The Declaratory Judgments Act provides a basis for seeking a judgment on a tax issue that is outside of the normal assessment challenge process, but has features that limit its availability: see Pacific Trawling v MOF & CIR (2005) – GST input credits; Housing New Zealand Ltd v CIR (1999) – GST and residential housing.

Tax Warranty disputes

While most tax disputes will be between a taxpayer and Inland Revenue, disputes also arise between persons over the interpretation and application of tax warranties in contracts, and particularly over GST.

Negotiation of tax settlements

Securing settlement of a tax dispute by negotiated agreement, rather than by litigation, is often preferable to leaving resolution in the hands of the court. If Inland Revenue cannot be persuaded as to the merits of the taxpayer’s position at the investigation stage or the nor stage (see above), perhaps the best opportunity for settlement arises in the period after preparation of the taxpayer’s case, but before the case is heard by a judge, because that is the time Inland Revenue lawyers are in the best position to assess realistically the Inland Revenue’s chances of success.

Binding Ruling applications

A statutory procedure is available for seeking a binding ruling from Inland Revenue for an arrangement or an impending arrangement. The process relies upon full disclosure of the details of the arrangement and of its taxation consequences, and fees are payable to Inland Revenue for the application, and for the time taken by Inland Revenue to consider the application. Alternatively, non-binding rulings may also be sought.

General tax advice (eg income tax & GST)

So called ‘shortfall’ civil penalties may be imposed on taxpayers by Inland Revenue in various circumstances (eg not taking reasonable care: 20% of tax shortfall; unacceptable interpretation : 20% of tax shortfall; gross carelessness : 40% of tax shortfall; abusive tax position : 100% of tax shortfall; evasion : 150% of tax shortfall). The shortfall penalties, which are severe, make the taking advice on potentially contentious tax filing positions by a taxpayer an important step.

(Robbie was taxpayer’s counsel, or one of them, in the cases referred to above)