R v G

• Jurisdiction: New Zealand
• Judge: O'Regan P
• Judgment Date: 13 May 2013
• Neutral Citation: [2013] NZCA 146
• Court: Court of Appeal
• Date: 13 May 2013
• Docket Number: CA250/2013

[2013] NZCA 146

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

O'Regan P, Randerson and Stevens JJ

CA250/2013

BETWEEN

The Queen

Applicant

and

G (CA250/2013)

First Respondent

and

O (CA250/2013)

Second Respondent

Counsel:

D R La Hood and M J Ferrier for Applicant

First Respondent in person

M T Lennard for Second Respondent

JUDGMENT OF THE COURT

• A We answer the questions of law referred for the Court's opinion as follows:

  Question one: was I correct to hold in [19] of the judgment that the non- payment of tax for the tax years 1997 to 1999 and 2000 to 2002 was not enough, of itself, to constitute the actus reus of count one?

  No.

  Question two: if correct, was I nevertheless incorrect to hold that the acts described in [21]–[23] and [14](f) of the judgment, individually or cumulatively, were insufficient to establish the actus reus of count one?

  Given the answer to question one it is not necessary to answer this question.

• B We set aside the order discharging the respondents in respect of count one of the indictment and direct that the respondents face trial on that count.

• C We make an order prohibiting publication of the judgment and any part of the proceedings (including the result) in news media or on the internet or other publicly available database until final disposition of trial or earlier order of the High Court. Publication in law report or law digest permitted.

REASONS

(Given by O'Regan P)

1 The respondents, whom we will call G and O, face trial with a third person on tax evasion charges in the High Court.

2 In a decision dated 27 March 2013, Simon France J discharged G and O under's 347 of the Crimes Act 1961 on count one of the indictment 1 That count charged G and O with evading the assessment or payment of tax by a company

associated with O, which we will call M Ltd, under's 143B(2) of the Tax Administration Act 1994 (TAA).

3 The Crown wished to appeal against this ruling and therefore applied to the High Court Judge to refer questions of law for the opinion of this Court under's 381A of the Crimes Act. The Judge agreed to do this 2 The parties agreed to some minor alterations of detail to the questions, so that the questions requiring our determination now read as follows:

Question one:

Was I correct to hold in [19] of the judgment that the non-payment of tax for the tax years 1997 to 1999 and 2000 to 2002 was not enough, of itself, to constitute the actus reus of count one?

Question two:

If correct, was I nevertheless incorrect to hold that the acts described in [21]–[23] and [14](f) of the judgment, individually or cumulatively, were insufficient to establish the actus reus of count one?

4 With the cooperation of G, who was self-represented in this Court, and counsel for O, the appeal was set down for urgent hearing so as to allow the impending trial, due to start on 13 May 2013, to proceed without disruption. We have prepared this judgment to meet that deadline.

5 Before we address the issues arising from the questions for determination, we will briefly summarise the factual background and explain why the identification of the actus reus of the offence of evading the assessment or payment of tax is of such significance in the present case.

Factual background

6 Together with a third accused who is not the subject of this appeal, the respondents face a number of counts alleging the evasion of the assessment or payment of tax.

[7] Broadly, the Crown's case alleges a “pattern” used by O, with the assistance of the second respondent and another accused, to evade tax over a period of 15 years. The pattern is as follows. A series of transactions would be entered into which had the effect of substantially reducing the taxable income generated by business entities associated with O. Due to concern that those transactions would be reassessed by the Commissioner, the relevant tax returns were deliberately not filed when due. In the intervening period the entities and O and his partner would take steps to divest themselves of assets or otherwise protect assets from being available to the Commissioner. Once the returns were eventually filed and the tax assessed, the tax liability was not paid.

8 Count one, the count on which the respondents were discharged, is a charge of tax evasion under's 143B(2) of the TAA. It deals principally with the tax affairs of M Ltd. O and his partner were shareholders and directors of M Ltd. M Ltd is alleged to be the principal offender, evading payment of $755234 of tax assessed in respect of the tax years 1997–2002. O and G are charged with aiding and abetting that offending.

9 The factual basis of count one follows the general pattern of evasion alleged by the Crown:

• (a) M Ltd entered into the ACTONZ tax avoidance scheme 3 M Ltd was a profitable company but its ACTONZ investment had the effect of reducing its taxable income to nil over the six income tax years from 1997–2002.

• (b) In order to allow for M Ltd's profits to be drawn down by O and his partner as shareholders without creating a personal income tax effect, M Ltd entered into restraint of trade agreements with O and his partner. The agreements were valued at $5 million and purported to restrain O and his partner from competing with M Ltd for a period of five years. The Crown alleges that these restraints were artificial, and

• that their effect was to inflate O's and his partner's current account balances artificially. That, in turn, allowed them to repay themselves out of their capital contributions to M Ltd, effectively distributing its profit to them without any tax consequence.

• (c) M Ltd was then divested of any other assets by selling the underlying business to a trust, and O and his partner were granted debentures to secure in their favour the positive residual balances of their current accounts at the time of sale. They also took other steps to protect their positions, including placing significant personal assets in trust. This was designed to make M Ltd's debt to them a secured debt ranking above any obligation M Ltd may be found to have to the Commissioner of Inland Revenue.

• (d) Meanwhile, M Ltd was deliberately withholding its tax returns, eventually filing its returns for the 1997–1999 income tax years, claiming the ACTONZ losses, on 6 July 2000. The Commissioner challenged the ACTONZ deductions, and the disputes process was entered into on 19 October 2001. Reassessments were issued, with the ACTONZ deductions disallowed, on 6 December 2002.

• (e) Collection of due tax was put on hold pending a test case involving other ACTONZ participants in the High Court 4 Following the resolution of that case, M's representatives and the Inland Revenue entered into an agreement, which outlined the broad terms of a settlement, on 18 June 2004.

• (f) In July 2004, the respondents began discussing the liquidation of M Ltd. The effect of this liquidation is disputed, with the Crown alleging that email correspondence between the respondents shows that they intended to liquidate M Ltd for the purpose of preventing the recovery of M Ltd's tax liability.

• (g) Returns for the 2000–2002 tax years were filed on 21 October 2004. In them, M Ltd claimed further ACTONZ deductions. These returns were assessed on 2 March 2005, with the ACTONZ deductions disallowed.

• (h) A liquidator was appointed for M Ltd on 22 March 2005. Two days later, on 24 March 2005, the liquidator accepted a settlement agreement with Inland Revenue on behalf of M Ltd in relation to the ACTONZ losses. M's liquidation was completed on 18 August 2005. The settlement was never paid. There was evidence that M Ltd's records were to be destroyed by the liquidator.

Section 150A of the TAA

10 Section 150A of the TAA limits the filing of informations relating to a number of offences (including offences under's 143B(2)) to 10 years after the end of the tax year in which the offence was committed. It was common ground that in the present case, the earliest conduct that can be relied upon by the Crown to establish the allegation founding count one is conduct occurring on or after 1 April 2001. The conduct described above at [8] began on 29 May 1996 and, as is apparent from the description in [9], much of the conduct was completed before 1 April 2001.

11 Count one of the indictment as originally laid alleged tax evasion “between 29 May 1996 and 18 August 2005”. In order to comply with s 150A the indictment has been amended (or will be amended before the trial) so that it alleges tax evasion “between 1 April 2001 and 18 August 2005”. The effect of this is that much of the offending conduct originally relied on by the Crown cannot form the basis of the charge of tax evasion.

12 In order to keep count one alive in the face of s 150A, the Crown put forward two arguments, which it continues in this Court and which correlate to the two questions referred to this Court:

• (a) First, the Crown argued that, as a matter of law, the actus reus of tax evasion can be the omission to pay due tax. On that basis it was argued evasion began after the reassessments were made in 2001, and continued thereafter with the continuing omission to pay the due tax.

• (b) Second, alternatively or additionally, the Crown argued that there are positive acts by the respondents inside the limitation period that could constitute the actus reus of tax evasion. These acts are: the late filing of the tax returns for the tax years ending 2000–2002 in October 2004, the liquidation of M Ltd first proposed in 2004 and executed in...