Tax recovery arrangements

2009 amendment to the Tax Administration Act clarifies that charges associated with foreign unpaid tax may be collected under NZ's tax recovery arrangements.

Section 173D of the Tax Administration Act 1994

Section 173D of the Tax Administration Act 1994 has been amended, by the inclusion of a new subsection (2), to clarify that charges associated with foreign unpaid tax may be collected under New Zealand’s tax recovery arrangements.

Background

New Zealand has in recent years begun entering into bilateral tax recovery arrangements with a selected number of its tax treaty partners – to date, with Australia, the Netherlands, Poland and the United Kingdom. (In the case of Australia, Poland and the United Kingdom the arrangements have been included in our double tax agreements with those countries, but in the case of the Netherlands they constitute a stand-alone Tax Recovery Convention).

Part 10A of the Tax Administration Act 1994 provides a framework for the type of tax recovery assistance that New Zealand can provide to other countries. Tax treaties generally override domestic law, but part 10A has been deliberately framed so that it cannot be overridden by a tax treaty.

Part 10A is silent on the matter of charges associated with the foreign unpaid tax (such as penalties, interest and costs) that New Zealand may be asked to collect for other countries under such arrangements. However, concerns have arisen that an argument could be constructed that the way “tax” is defined for the purposes of the Act results in part 10A preventing New Zealand from collecting such charges. This would run counter to the original policy intention that associated charges could be collected. It would also conflict with the provisions of our tax recovery arrangements that explicitly require New Zealand to collect associated charges.

To prevent the possibility of such an argument being raised, Part 10A has been amended to include clarification that charges such as interest, administrative penalties and costs may be collected under New Zealand’s tax recovery arrangements.

The clarifying amendment will apply from at least 1 April 2008, which is the earliest date from which New Zealand has potentially been able to receive and respond to requests for tax recovery assistance.

Key features

Subsection (2) of section 173D of the Tax Administration Act 1994 clarifies that assistance in the recovery of taxes includes assistance in the recovery of charges associated with the taxes, whether interest, administrative penalties, costs of collection or conservancy, or any other related amount.

Questions we’ve been asked

Q: What are “costs of conservancy”?

A: A state that is not yet able to ask for assistance in the collection of unpaid tax (because, for example, a final judgement has not yet been issued) may, in certain circumstances, request that measures of conservancy be taken to safeguard its collection rights. This might include, for example, seizure or freezing of assets, to ensure that those assets will still be available when collection can subsequently take place. Costs of conservancy are costs that relate to the taking of any such measures of conservancy.

Application date(s)

The amendment will apply in relation to events and periods occurring before or after 1 April 2008.

New Zealand has potentially been able to receive and respond to requests for tax recovery assistance since 1 April 2008. The amendment has therefore been drafted so it is clear that it has application in relation to any requests received from that date. As such requests may apply to unpaid taxes owing from earlier tax periods, the drafting contemplates the possibility that it may further predate 1 April 2008.