Partial strike out of Judicial Review of Commissioner’s decision to issue notices under s 17 of the Tax Administration Act 1994
2016 case note - partial strike out of Judicial Review of CIR's decision to issue notices - section 17 notice, legitimate expectation, relevant considerations, DTA.
The Commissioner of Inland Revenue (“the Commissioner”) applied to strike out an application by Chatfield Co Ltd and Chatfield & Co’s (together “Chatfield”) seeking judicial review of the decision of the Commissioner to issues notices under s 17 of the Tax Administration Act 1994 (“TAA”). The Court struck out the first cause of action and the first two particulars of the second cause of action. The third particular of the second cause of action, alleging that the Commissioner did not take into account the terms of Article 25 of the Double Taxation Relief (Republic of Korea) Order 1983 (“the DTA”), the Court considered to be reasonably arguable and permitted to proceed to trial.
Chatfield’s substantive proceeding will continue to trial on the sole cause of action alleging the Commissioner did not take into account the terms of the DTA when issuing the 15 notices under s 17 of the Tax administration Act 1994 requiring Chatfield to produce documents and records held on behalf of various companies (“the Notices”).
This decision highlights the limited scope for an application of legitimate expectation as a cause of action in judicial review in a tax context.
Chatfield is the registered tax agent of various companies (“the Companies”) which are currently under investigation by the tax authorities of the Republic of Korea (“Korea”). Korea’s National Tax Service (“the NTS") asked the Commissioner to obtain and provide information relating to the Companies, pursuant to the DTA.
The Commissioner issued the Notices. Chatfield resisted the Notices and in its judicial review application asked the court to set them aside on two grounds.
The Commissioner contended that neither of the causes of action pleaded by Chatfield was reasonably arguable.
Lang J struck out the first cause of action and the first two particulars of the second cause of action, ordering costs in the Commissioner’s favour.
On the second cause of action Lang J held that the third particular, whether the terms of the DTA had been taken into account, needed to go to trial.
The first cause of action: denial of legitimate expectation
Lang J considered there are significant obstacles to this cause of action, referring to the Court of Appeal decision in Dandelion Investments Ltd v Commissioner of Inland Revenue  1 NZLR 600 (CA) as an example of the approach courts are likely to take in respect of a claimed legitimate expectation in a tax context. Lang J went on to state that “the Court of Appeal has not yet definitively held that applications for judicial review based on denial of legitimate expectation cannot succeed in a taxation context.
Lang J took the view that nothing in OS 13/02 established an unambiguous commitment or promise by the Commissioner that information would be sought from the taxpayer or other third parties before a notice under s 17 would be issued to a taxpayer’s tax agent. As a result the first cause of action was not reasonably arguable and must be struck out.
The second cause of action: failure to take into account relevant considerations
In his decision, Lang J considered that the first two particulars of the second cause of action were not reasonably arguable:
- In this case the Commissioner was not required to take OS 13/02 into account. OS 13/02 contains no reference to the manner in which the Commissioner will use s 17 of the TAA to give effect to New Zealand’s obligations under Double Tax Agreements with other countries and was therefore irrelevant.
- The Commissioner was not required to have regard to the nature of the relationship between Chatfield and its taxpayer clients, whether limited or otherwise because she would have no way of knowing the nature and scope of those relationships. The fact that an entity such as Chatfield is registered as a taxpayer’s tax agent is sufficient to entitle the Commissioner to consider it may hold information relevant for her purposes.
Lang J considered that third particular to the second cause of action was reasonably arguable. Lang J held that the Commissioner was required to take into account the terms of the DTA when deciding whether to comply with the request from the NTS and subsequently issue the Notices. Chatfield’s claim in this respect was focused on whether any of the exceptions to Article 25 of the DTA applied.
Lang J found that the Court must proceed on the basis Chatfield can prove that the Commissioner did not take the terms of the DTA into account when making her decision to issue the Notices. Despite this, Lang J foreshadowed that there is likely to be an issue at trial as to the extent to which the Court may scrutinise this aspect of the Commissioner’s decision, noting that this issue cannot be determined in the context of a strike out application.
Section 17 Tax Administration Act 1994, Judicature Amendment Act 1972 and Double Taxation Relief (Republic of Korea) Order 1983