Commissioner of Inland Revenue v Chatfield & Company Ltd

• Jurisdiction: New Zealand
• Judge: Asher,Brown,Gilbert JJ
• Judgment Date: 28 March 2019
• Neutral Citation: [2019] NZCA 73
• Court: Court of Appeal
• Docket Number: CA78/2018
• Date: 28 March 2019

Between

Commissioner of Inland Revenue

Appellant

and

Chatfield & Co Limited

First Respondent

Chatfield & Co

Second Respondent

[2019] NZCA 73

Court:

Asher, Brown and Gilbert JJ

CA78/2018

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTĪ PIRA O AOTEAROA

Judicial Review, Taxation — international double taxation — Double Taxation Relief (Republic of Korea) Order 1983 — Tax Administration Act 1994 — whether decision of the appellant to issue production notices was justiciable

Counsel:

P H Courtney and L A Herbert for Appellant

R A Rose and L M Zwi for Respondent

• A The appeal is dismissed.

• B The appellant must pay the respondents one set of costs for a standard appeal on a band A basis and usual disbursements.

JUDGMENT OF THE COURT

Table of Contents

	Para No
Introduction	[1]
The double tax agreement	[3]
Relevant background	[10]
The 2014 notices	[10]
Previous rulings	[15]
The High Court judgment	[22]
Justiciability	[23]
Lawful action by competent authority	[24]
Intensity of review	[29]
Issues	[30]
Issue 1: Justiciability of decision to issue the 2014 notices	[32]
Issue 2: Intensity of review	[46]
Issue 3: Amicus vs court alone review	[53]
Issue estoppel	[55]
The Court's refusal to consider the documents alone	[60]
Issue 4: Did Mr Nash lawfully discharge his obligations as competent authority?	[70]
Issue 5: The evidential foundation for certain facts relied on by the Judge	[89]
Exchange control investigation	[91]
Exhaustion of domestic options	[94]
Korean limitation periods	[97]
A suspension of the NTS investigation	[100]
Conclusion	[102]
Issue 6: The correct approach to the interpretation of the DTA	[103]
Result	[108]

REASONS OF THE COURT

(Given by Brown J)

Introduction

1 Following a request made by the Korean National Tax Service (NTS) under art 25 of the New Zealand-Korea Double Tax Agreement (the DTA), 1 on 7 October 2014 the Commissioner of Inland Revenue issued notices (the 2014 notices) to Chatfield & Co (together with the first respondent, referred to as Chatfield) under s 17

of the Tax Administration Act 1994 (TAA) requiring the production of various documents and records of New Zealand taxpayer companies associated with a Korean national with New Zealand residency. In a review proceeding by Chatfield challenging the Commissioner's decision to issue the 2014 notices Wylie J granted a declaration that the decision was invalid and made an order quashing the 2014 notices. 2

2 The Commissioner appeals from that judgment. In addition she renews her contention rejected in the High Court that the decision to issue the 2014 notices was non-justiciable and in the alternative she challenges the finding that in the context a “correctness standard” of review should apply. The Judge's decision to decline to receive documents alone and without reference to Chatfield is also attacked on appeal.

The double tax agreement

3 A double tax agreement is an international treaty between the New Zealand government and another state entered into for the purposes in s BH 1 of the Income Tax Act 2007 which materially states:

BH 1 Double tax agreements

…

Purposes

(2) The following are the purposes for which a double tax agreement may be negotiated:

(a) to provide relief from double taxation:

…

(f) to prevent fiscal evasion:

(g) to facilitate the exchange of information:

…

4 The overriding effect of a double tax agreement is stated in s BH 1(4):

Overriding effect

(4) Despite anything in this Act, … a double tax agreement has effect in relation to—

• (a) income tax:

• (b) any other tax imposed by this Act:

• (c) the exchange of information that relates to a tax, as defined in paragraphs (a)(i) to (v) of the definition of tax in section 3 of the Tax Administration Act 1994.

5 Such treaties facilitate the exchange of information between states which contributes to the integrity of their respective tax systems by enabling tax authorities to monitor taxpayers operating in multiple jurisdictions. Double tax agreements are unusual amongst New Zealand international treaties because, once given effect to by Order-in-Council, they have direct application in New Zealand's domestic law.

6 The DTA was incorporated into New Zealand law by the Double Taxation Relief (Republic of Korea) Order 1983. It largely follows the Organisation for Economic Cooperation and Development's model convention as it stood at the time. 3

7 The taxes to which the DTA applies are specified in art 2:

Article 2

Taxes covered

1. The taxes to which this Convention shall apply are:

(a) In the case of Korea:

• (i) the income tax;

• (ii) the corporation tax; and

• (iii) the inhabitant tax (hereinafter referred to as “Korean tax”);

…

8 Of particular relevance to this case is the provision relating to exchange of information which relevantly provides:

Article 25

Exchange of information

• 1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention, as well as to prevent fiscal evasion. The exchange of information is not restricted by Article 1. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by the Convention. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

• 2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:

  • (a) …

  • (b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

  • (c) …

9 Since 1 March 1994 the position as competent authority for New Zealand has been held by Mr J Nash, the Manager (International Revenue Strategy) at the Inland Revenue Department (IRD) who is responsible for exchanges of information with New Zealand's tax treaty partners.

Relevant background

The 2014 notices

10 The NTS commenced a tax investigation in Korea into the affairs of Mr J H Huh, a Korean national with New Zealand residency, who was the substantial owner of several New Zealand companies. In May 2014 the NTS made a request to the Commissioner under art 25 of the DTA in relation to several New Zealand taxpayer companies associated with Mr Huh. Although some of the information was able to be provided from existing records, to fully respond it was necessary for the Commissioner to take further steps.

11 Consequently on 7 October 2014 the Commissioner exercised her power to issue to Chatfield 15 notices under s 17 of the TAA which relevantly states:

17 Information to be furnished on request of Commissioner

(1) Every person (including any officer employed in or in connection with any department of the government or by any public authority, and any other public officer) shall, when required by the Commissioner, furnish any information in a manner acceptable to the Commissioner, and produce for inspection any documents which the Commissioner considers necessary or relevant for any purpose relating to the administration or enforcement of any of the Inland Revenue Acts or for any purpose relating to the administration or enforcement of any matter arising from or connected with any other function lawfully conferred on the Commissioner.

12 The notices issued by Ms Forrest, an IRD investigation team leader, required Chatfield to produce various documents and records which it held on behalf of KNC Construction Ltd and 14 affiliated companies. Each of the companies has its registered office in New Zealand and at the time of the request Chatfield was registered under s 34B of the TAA as the tax agent for each of them.

13 The Commissioner's sole purpose in issuing the 2014 notices was to obtain information requested by the NTS for possible exchange under art 25. No New Zealand tax revenue was in issue. Although some of the 2014 notices were relatively confined, others were more wide-ranging. Thus the notice to Blue Pacific NZ Ltd simply sought copies of the financial statements for the 2010 to 2013 tax years while the notice to Victoria Tower Developments Co Ltd sought, in addition to the financial statements for 2003 to 2013, copies of several agreements for the sale and purchase of real estate and company shares.

14 In May 2015 Chatfield commenced review proceedings challenging on two broad grounds the Commissioner's decision to issue the 2014 notices. First it was alleged that the decision breached Chatfield's legitimate expectations arising from an operational statement known as OS 13/02 dealing, inter alia with the issuance of s 17 notices. 4 Secondly, Chatfield contended that in issuing the notices the Commissioner failed to take into account three relevant considerations:

• • OS 13/02;

• • the limited nature of the tax agent/client relationship; and

• • the terms of the DTA, in particular art 25.

Previous rulings

15 This Court has previously had occasion to consider this litigation on two occasions, first in the context of disclosure and secondly concerning the scope of the pleading.

16 Chatfield sought an order under s 10(2) of the Judicature Amendment Act 1972 seeking that the...