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| Brendan Brown |
Rhonda Gregory |
In a number of recent decisions, the New Zealand courts have
considered a challenge to the validity of requests for
information made by the New Zealand Inland Revenue at the
request of South Korea's National Tax Service (Korea).
The background to these decisions was that Korea had sought
certain information from New Zealand pursuant to Article 25 of
the New Zealand-Korea double tax agreement. The information
sought related to some 21 companies under investigation by
Korea. The New Zealand Inland Revenue consequently issued
notices to Chatfield & Co, a tax agent for the companies,
requiring that Chatfield provide information about the
companies to Inland Revenue, so that it may be passed on to
Korea.
Chatfield challenged, by way of an application for judicial
review, Inland Revenue's decision to issue the information
request notices. Initially, Chatfield advanced several grounds
of challenge. These included that Inland Revenue had not
adequately considered:
- Its published guidance regarding requests
for information, which stated that Inland Revenue would
generally not seek information about taxpayers from a tax
agent without first seeking the information directly from the
taxpayer;
- The limitations on the role of and
information held by a tax agent; and
- The terms of Article 25 of the double tax
agreement.
Inland Revenue successfully applied to strike out all but
one of the taxpayer's grounds for review. The one ground not
struck out was that Inland Revenue failed to take into account
Article 25 of the double tax agreement. This ground for review
has given rise to separate decisions of the courts regarding
discovery.
Chatfield sought discovery of documents exchanged between
Korea and New Zealand, which Chatfield said might reveal the
reasons for Korea's request, Inland Revenue's decision to issue
the information requests, and processes followed. The court at
first instance rejected the request, ultimately because it
found that the confidentiality of communications passing
between the two countries outweighed the desirability of
placing before the court evidence relevant to Chatfield's
application for review.
The Court of Appeal upheld this decision (that the documents
were not to be discovered) although for different reasons. The
Court of Appeal appears to have concluded that the allegation
Chatfield relied on to support its request for discovery (that
Inland Revenue had failed to consider the double tax agreement,
and in particular, Article 25) was incorrect on its face. The
court found that Inland Revenue must have considered Article 25
as it was the basis for issuing the information requests to
Chatfield. Given the lack of further particulars supplied by
Chatfield, the court decided that the request for discovery
amounted to "fishing" rather than having the level of
specificity required of an application for discovery in the
context of a judicial review proceeding.
The Supreme Court has dismissed the taxpayer's application
for leave to appeal the Court of Appeal's decision on
discovery. It is not known what further litigation may occur,
and in particular whether the taxpayer will seek leave to
appeal to the Supreme Court in respect of the grounds of review
that the High Court and Court of Appeal have struck out.
The decisions highlight the practical difficulties faced in
testing the legality of requests for information made on behalf
of a foreign revenue authority. In future cases, it may be that
taxpayers will, instead of alleging that Inland Revenue has
failed to consider the exchange of information article in the
relevant double tax agreement, challenge whether the
information requested is within the scope of the article (since
an allegation to that effect should put in issue the scope and
potentially the reasons for the foreign revenue authority's
information request). Even then, it remains to be seen whether
a New Zealand court would order discovery of communications
between the two tax authorities.
Brendan Brown (brendan.brown@russellmcveagh.com)
and Rhonda Gregory (rhonda.gregory@russellmcveagh.com)
Russell McVeagh
Tel: +64 4 819 7748
Website: www.russellmcveagh.com