Tax recovery arrangements
2009 amendments ensure NZ can meet treaty obligations to provide tax recovery assistance to another country under a tax recovery arrangement with that country.
Sections 3(1), 173B and 173G of the Tax Administration Act 1994
Section 173G of the Tax Administration Act 1994 has been amended (and the definitions of "contested tax" in sections 3 and 173B of that Act have been consequentially repealed). The purpose of the changes is to ensure that New Zealand can fully meet its treaty obligations to provide tax recovery assistance (also known as collection assistance) to another country under a tax recovery arrangement with that country.
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 form part of New Zealand's double tax agreements (DTAs) with those countries by including specific Articles on "Assistance in the Collection of Taxes". In the case of the Netherlands the arrangements have been established in a stand-alone Tax Recovery Convention.
Part 10A of the Tax Administration Act 1994 authorises the entering into of collection assistance arrangements. It also sets limits on the collection assistance that New Zealand can provide. Before the amendment, part 10A prohibited the Commissioner of Inland Revenue from providing collection assistance relating to unpaid tax that was "contested". (The term "contested", as defined, had a broad meaning. For example, it included tax not actually subject to objection but for which the time limits for objecting had not yet expired.)
However, the treaty obligation, as expressed in the Assistance in the Collection of Taxes Articles in the DTAs with Australia, Poland and the United Kingdom, is for the requested State to provide collection assistance unless the person owing the tax is unable to prevent its collection under the laws of the requesting State. A similar outcome arises under the Netherlands Tax Recovery Convention, albeit by means of different wording.
The laws of some States may require the payment of taxes even when an objection has been made or the period for objecting has not yet expired. For example, in New Zealand, the Commissioner may require payment of all tax in dispute if there is a significant risk that the tax in dispute will not be paid if the objection did not succeed. This conflict could have resulted in the Commissioner being required by treaty to provide collection assistance in cases where domestic law prohibits the provision of such assistance.
The amendment to section 173G, and the consequential amendments to the definitions of "contested tax" in sections 3 and 173B will ensure that the Commissioner is not constrained by the Tax Administration Act 1994 provisions from providing collection assistance in compliance with New Zealand's treaty obligations.
Section 173G of the Tax Administration Act 1994 has been amended, and the definitions of "contested tax" in sections 3 and 173B of that Act have been consequentially repealed, to ensure that the Commissioner is no longer constrained by domestic law from providing collection assistance in compliance with New Zealand's treaty obligations.
The amendment applies from the date of enactment, 7 December 2009.