Section 19 Tax Administration Act 1994 (TAA 1994) enables the CIR to hold an inquiry by requiring any person to attend at an Inland Revenue office and answer questions. The use of this power has increased substantially in the past decade. This article gives a brief background to s 19 inquiries and examines two questions about their ambit and implications: does a person who attends such interviews have rights under the New Zealand Bill of Rights Act 1990 (NZ BORA1990); and do the inquiries enable the CIR to circumvent the non-disclosure right in ss 20B to 20G TAA 1994.
Background – Section 19 TAA 1994
Section 19 TAA 1994 authorises the CIR to issue a notice requiring any person to attend and give evidence before Departmental officers, and to produce all relevant books and documents in the custody of or under the control of the person.
A person who does not attend a s 19 inquiry, or who attends and does not give the information requested commits an offence and is liable for a maximum fine of $6,000 for the breach and $150 for each day of default.
A person being interviewed or cross-examined in Court usually enjoys privilege against self-incrimination, previously at common law, and now by virtue of s 60 Evidence Act 2006. However this privilege is expressly excluded by s 19(3) TAA 1994. The stripping away of that important constitutional protection is presumably justified by the fact that answers in s 19 interviews are inadmissible in criminal proceedings against the person who supplied the answer: s 19(4).
CIR’s Practice
Inland Revenue has used s 19 interviews increasingly frequently over the past decade. They are still not a usual feature of a routine dispute, probably because they involve a significant deployment of senior Inland Revenue resources and represent a significant incursion into taxpayers’ liberties. They often take place during difficult or high-value investigations.
Section 19 interviews are usually held at a fairly advanced stage in the investigation process, either before or after a Notice of Proposed Adjustment (NOPA) is issued. The interview itself may be undertaken by the delegated officer who issues the notice or another delegated officer. While the interview has to be held before a delegated Inland Revenue officer, the usual practice is to have other Inland Revenue staff (for example, a solicitor and the investigator) as well as the delegated officer present, and on occasion Inland Revenue will also have Crown Counsel or a barrister present. Grant v DFCT (2000) ATC 4,612 (FCA) is Australian authority that persons compelled to attend a similar examination under s 264 of the Australian Income Tax Assessment Act 1936 can be asked questions by independent counsel instructed by the Commissioner of Taxation.
While the section provides that the person summoned may be required to give evidence orally or in writing (s 19(2) TAA 1994) and may be required to give the evidence on oath, the CIR’s universal practice seems to be to require the evidence to be given orally and on oath, and to record such interviews. Section 4 Oaths and Declarations Act 1957 provides that an affirmation may be given instead of an oath.
New Zealand Bill of Rights Act 1990 – Legal Representation
Until recently it appeared to be accepted by Inland Revenue that a person who is summoned to attend a s 19 interview is “detained under an enactment” for the purposes of s 23 NZ BORA 1990, and so has some rights under that Act:
· Section 23(1)(a) NZ BORA 1990 gives a person detained under an enactment the right to be informed promptly and in detail of the reason for the detention. The principle is that a person should be given sufficient information about the circumstances of detention to enable him or her to exercise fully the right to counsel in s 23(1)(b). The s 19 notice usually contains sufficient detail to identify the reasons for the inquiry and topics to be covered in order to satisfy this requirement but does not provide an exhaustive list of topics to be covered nor a list of questions to be asked during the inquiry.
· Section 23(1)(b) NZ BORA 1990 gives a detained person the right to instruct and consult a lawyer without delay, and to be advised of that right. The advice should also include advice that the consultation may be in private. If a solicitor is requested, there is a duty to facilitate that right, for example by providing a telephone and a list of lawyers/Yellow Pages listing/list of after hours phone numbers. If a solicitor is requested and is en route, no attempt should be made to elicit information from the taxpayer pending the arrival of the solicitor.
In the recent decision Foxley v CIR (unreported High Court, Wellington, CIV 2007-485-1089, 25 January 2008, Miller J) doubt was cast on that proposition. Foxley’s case involved a challenge to Inland Revenue issuing a s 19 notice at the Statement of Position stage of a dispute. Against the backdrop of recent High Court case law on the exercise of the CIR’s information-gathering powers during the dispute resolution process and indeed during litigation (Vinelight Nominees Limited v CIR (2005) 22 NZTC 19,298 (HC); Chesterfield Preschools Limited v CIR (2005) 22 NZTC 19,500 (HC); and Re Next Generation Investments Ltd (in liq); Mason v CIR (2006) 22 NZTC 19,775 (HC)) this challenge would seem doomed to failure and indeed, Miller J appeared to have little difficulty in dismissing the challenge. However, seemingly as an aside, he noted at paragraph [32] that “it is unlikely that attendance to give evidence under s 19 is a detention for purposes of s 23 NZ BORA 1990”. In the author’s view this conclusion cannot be sustained against the background of the decided cases.
When an enactment obliges a person to attend before a certain official or at a certain place for the purpose of submitting to questioning, as is the case with s 19 TAA 1994, that person may be detained for the purposes of s 23(1) NZ BORA 1990, depending on whether there is a “substantial deprivation of liberty”: Police v Smith and Herewini [1994] 2 NZLR 306 (CA).
Cases establish that where a person (for example, a motorist) is stopped and required to answer a few questions at the very place he or she is stopped, there will be no detention: Temese v Police (1992) 9 CRNZ 425 (CA).
However, cases recognise that attendance at a meeting or interview will involve a detention: Simpson v MAF (1996) 3 HRNZ 342 (HC) and Sullivan v Ministry of Fisheries [2002] 3 NZLR 721 (CA), dealing with the very similar powers to s 19 TAA 1994 in s 79(1)(c) Fisheries Act 1983.
If the NZ BORA 1990 does apply to s 19 inquiries, the right to a solicitor under the NZ BORA 1990 has to be applied in a realistic way and anyone complaining of a breach must invest their complaint with an “air of reality”: R v Mallinson (1992) 8 CRNZ 707 (CA). Consequently, an unreasonable insistence on attending an interview only with a particular, unavailable, solicitor would not be sanctioned under the NZ BORA 1990. In addition, conduct which tended to frustrate the interview process (for example, breaking to take legal advice after each question) could cross the line from standing upon a citizen’s legal rights to obstructing the inquiry.
Non-Disclosure
The CIR’s powers under s 19 TAA 1994 are subject to legal professional privilege – in other words, information does not have to be given which would disclose legally privileged communications.
The non-disclosure rights in ss 20B to 20G TAA 1994 apply to advice given by members of an “approved advisor group” – currently this category comprises Chartered Accountants. These rights are clearly intended to protect from disclosure during a s 19 inquiry: s 19 is explicitly mentioned in s 20B(1).
However, there appears to be a shortcoming, intentional or otherwise, in the way in which the whole of the non-disclosure regime is constructed, in that it is directed to the status of particular documents, affording a right to the person holding that document not to disclose it. This contrasts with the approach to legal privilege, originally under the common law and now subject to subpart 8 of Part 2 of the Evidence Act 2006, which is much more comprehensive and focuses on the advice, rather than the mode of communicating the advice.
Although a s 19 notice may require the person attending to bring and produce documents, in practice the focus of such inquiries involves asking oral questions and eliciting oral answers. In such circumstances it is at least possible that most of the protections apparently afforded by the non-disclosure regime can be swept aside by a simple oral request to the taxpayer in the course of a s 19 inquiry to reveal the substance of any written advice from the taxpayer’s accountant. Would the CIR try this, and would such an attempt succeed?
The CIR has demonstrated a determination to adhere to the strict letter of the non-disclosure regime, rather than applying any “purposive” approach to it:
· The CIR, having obtained from a taxpayer advice given by their Chartered Accountant, has successfully required a Chartered Accountant to disclose the identity of all other clients to whom he gave the same advice: CIR v Blakeley (unreported District Court, Auckland, CIV-2007-004-001562, 17 October 2007, Judge Hubble), affirmed on appeal just as this article was going to press: Blakeley v CIR (unreported High Court, Auckland, CIV-2007-404-7017, 3 March 2008, Rodney Hansen J).
· The CIR has taken the point that while the non-disclosure rights afford protection against the use of his statutory powers, they do not extend to affording a privilege against discovery obligations in subsequent civil litigation: this was highlighted in the Minister of Revenue’s speech to the NZICA 2007 Tax Conference on 26 October 2007.
Whether such an attempt would succeed is uncertain – on a strictly literal interpretation it would be open to the Department to require such information to be given, but if the NZ BORA 1990 rights do apply, then it may well be that a s 19 inquiry solely directed to obtaining information that would otherwise be covered by a non-disclosure rights might amount to an arbitrary detention under s 22 NZ BORA 1990, or an unreasonable use of the CIR’s powers (as recognised in Green v Housden [1993] 2 NZLR 273 (CA)).
Conclusion
The increasing frequency of s 19 inquiries makes it likely that more questions will arise and need to be tested through the courts as to the limits on the CIR’s and taxpayers’ rights and duties in terms of the NZ BORA 1990 and non-disclosure rights.