Supreme Court application for leave to appeal dismissed

Facts

The National Tax Service of the Republic of Korea ("NTS") made a request under art 25 of the NZ-Korea DTA to obtain information relating to certain New Zealand taxpayer companies associated with a Korean national.

In order to obtain the requested information, the Commissioner of Inland Revenue ("the Commissioner") issued 15 notices under s 17 of the Tax Administration Act 1994 ("TAA"), now section 17B, requiring Chatfield & Co Ltd and Chatfield & Co (collectively "Chatfield") to furnish documents held on behalf of the companies.

Chatfield applied for judicial review of the Commissioner’s decision to issue the s 17 notices. Chatfield succeeded in the High Court and the notices were quashed (Chatfield & Co Ltd v Commissioner of Inland Revenue [2017] NZHC 3289, [2018] 2 NZLR 835). Chatfield also succeeded in the Court of Appeal where the Commissioner’s appeal was dismissed. (Commissioner of Inland Revenue v Chatfield & Co Ltd [2019] NZCA 73, (2019) 29 NZTC 24-007).

Issues

The Commissioner applied for leave to appeal to the Supreme Court on a number of issues which she argued were matters of general or public importance and necessary in the interests of justice for the Court to hear and determine the proposed appeal:

1. Was the decision to issue the s 17 notices justiciable?
2. Alternatively, whether any review by the Courts should be “circumscribed” reflecting:
   1. the dual nature of the NZ-Korea DTA as both domestic legislation and a treaty subject to international law; and
   2. the difficulty that the availability of judicial review would pose for the Commissioner responding in a timely way to requests for information under double tax agreements ("DTAs").
3. Whether the Courts below had erred in their interpretation of art 25 of the NZ-Korea DTA and interpreted “necessary” too narrowly?
4. Whether the Court of Appeal erred in identifying what the Competent Authority is required to do in responding to a request for information under the NZ-Korea DTA?
5. Whether the High Court erred in its insistence on disclosure of the NTS request in order to properly evaluate the existence or otherwise of proper grounds for the s 17 notices?

Supreme Court Decision

The Supreme Court dismissed the Commissioner’s application for leave to appeal. The Court was satisfied that it was not in the interests of justice to grant leave.

Justiciability and whether any review by the Court should be “circumscribed”?

The Supreme Court was not satisfied that the Commissioner’s justiciability argument, nor her alternative argument that any review should be “circumscribed”, met the test for the grant of leave.

Principles of treaty interpretation

The Supreme Court accepted that the interpretation of the NZ-Korea DTA may give rise to points of public importance given its international and domestic law status.

The Commissioner had argued that the Courts below interpreted the reference in art 25 of the NZ-Korea DTA to “necessary” too narrowly and that properly interpreted there was little difference between “necessary”, “necessary and relevant” and “foreseeably relevant” (the formulation used in the current model bilateral tax convention published by the OECD, Model Double Taxation Convention on Income and on Capital (OECD Publishing, 2017) at 45, art 26(1) and the Convention on Mutual Administrative Assistance in Tax Matters, as amended by 2010 Protocol (opened for signature 1 June 2011, entered into force 1 March 2014). See Double Tax Agreements (Mutual Administrative Assistance) Order 2013).

However, the Supreme Court did not consider the interpretation issues as capable of altering the outcome on the facts and for that reason did not consider leave for a further appeal to be justified.

What the Competent Authority is required to do in responding to a request for information under the NZ-Korea DTA?

The Supreme Court stated that the Court of Appeal had largely accepted the Commissioner’s position on this issue and its finding against the Commissioner was based on the actual wording of Mr Nash’s affidavit, which made the point specific to the facts of the case and no matter of public importance or commercial significance arose.

Disclosure in order to properly evaluate the existence or otherwise of proper grounds for the s 17 notices

The Supreme Court accepted that a number of issues of public importance potentially arise from a consideration of the High Court’s insistence on disclosure of the request received from the NTS to the Court, and possibly to Chatfield or its counsel or to an amicus curiae in order to properly evaluate the existence or otherwise of proper grounds for the s 17 notices. The NTS did not authorise the Commissioner to disclose the letter to anyone other than the Court. Nevertheless, the Supreme Court considered the argument (in essence that the Court should resolve the concerns raised by Chatfield against it without being able to refer to the key document which was in the Commissioner’s possession) as having an insufficient prospect of success.

Case Impact Statement

The Court of Appeal decision in Commissioner of Inland Revenue v Chatfield & Co Ltd [2019] NZCA 73, (2019) 29 NZTC 24-007, accepted much of the Commissioner’s position and its findings against the Commissioner were largely specific to the facts of the case. However, it does also set out the current law relating to decisions to issue s 17 notices to comply with exchange of information requests by a foreign state under the NZ-Korea DTA and other similarly worded DTAs.

The Court of Appeal concluded that the New Zealand Competent Authority’s assessment of the NTS’s request was not lawful by reference to the requirements of art 25 of the NZ-Korea DTA. Since 2016 the Commissioner has had updated processes in place for assessing inward exchange of information requests. Those processes were reviewed by the Peer Review Assessment team as part of the Global Forum Exchange of Information on Request Peer Review and the feedback was positive. The Commissioner is committed to balancing the timely exchange of information between revenue authorities and the rights of individual taxpayers to test the validity of a request for information to be exchanged under a DTA.

The Court of Appeal decision confirms that s 17 notices are an available mechanism for the Commissioner to request and obtain information in order to fulfil New Zealand’s obligations under DTAs. However, the Commissioner must be satisfied by the relevant requirements of s 17 and the relevant terms of the DTA before issuing the s 17 request.

The Court of Appeal decision confirms that each bilateral treaty must be construed in accordance with its own individual terms. In this respect the Court of Appeal endorsed its approach in Commissioner of Inland Revenue v Lin [2018] NZCA 38, (2018) 28 NZTC 23-052.

The Court of Appeal’s decision further confirms that:

1. The Commissioner’s decisions under s 17 of the TAA are justiciable and reviewable, the fact that the Commissioner seeks the information to further a foreign state’s request does not alter the position.
2. Such a review requires determinations only about whether, before making her decision to issue s 17 notices, the Commissioner has satisfied herself about all relevant requirements of s 17 of the TAA and arts 2 and 25 of the NZ-Korea DTA.
3. It is appropriate for the courts to decline to receive and review documents not disclosed to a taxpayer even in a redacted form. However, to the extent that documents contain confidential information, there is no reason why recourse cannot be made to the Court alone review process in r 8.25(2) of the High Court Rules 2016 to enable the inspection of documents in order to determine claims of privilege or confidentiality.
4. Neither the Competent Authority nor the Court on review can be expected to inquire into the factual assertions underlying a foreign state’s request nor as to the law in the foreign state. Where the Competent Authority does not consider there to be any lack of clarity or the presence of doubt raising a question about the validity of the request, prior to a decision on a request, it is sufficient for the validity of the request to be determined on its face.
5. The Competent Authority’s assessment of the NTS request was not lawful by reference to the requirements of art 25 of the NZ-Korea DTA which used the language “necessary” and not “necessary or relevant” nor “foreseeably relevant”.

Since these proceedings began the Commissioner has taken, and continues to take, steps to update New Zealand’s bilateral DTAs.