Disputes resolution process commenced by a taxpayer (Apr 05) (WITHDRAWN)

  Introduction

1. This Standard Practice Statement outlines the taxpayer's rights and responsibilities in respect of an assessment of tax liability or a disputable decision when a taxpayer commences the disputes resolution process.
   
   
2. Where the Commissioner commences the disputes resolution process, the Commissioner's practice is stated in SPS 05/03 - Disputes resolution process commenced by the Commissioner of Inland Revenue.
   
   
3. This Standard Practice Statement consolidates all previous Standard Practice Statements and practices and has been updated for recent changes to the law in the Taxation (Venture Capital and Miscellaneous Provisions) Act 2004. The Commissioner regards this Standard Practice Statement as a reference guide for taxpayers and officers of Inland Revenue. The practices outlined will be followed by officers of Inland Revenue.

 Application

4. This Standard Practice Statement applies to disputes commenced on or after 1 April 2005 or in the case of GST disputes, applies to GST return periods starting on or after 1 April 2005. It replaces the following Standard Practice Statements (these, as revised from time to time, will continue to apply to disputes commenced prior to 1 April 2005 or in the case of GST disputes, apply to GST return periods starting prior to 1 April 2005):
   
   
   • INV-150 Content standards for Notice of Proposed Adjustment and Notice of Response published in Tax Information Bulletin Vol 11, No 6 (July 1999); and
     
     
   • INV-170 Timeliness in resolving tax disputes published in Tax Information Bulletin Vol 14, No 2 (February 2002).
   
   
   
5. Unless specified otherwise, all legislative references in this Standard Practice Statement are to the Tax Administration Act 1994.

 Background

6. The aim of the disputes resolution process is to resolve disputes over tax liability in a fair, effective and timely manner. The disputes resolution process is designed to encourage an "all cards on the table" approach and the resolution of issues without the need for litigation. It ensures that all the relevant evidence, facts, and legal arguments are canvassed before a case goes to court.
   
   
7. The disputes resolution process was introduced in 1996. A review of the procedures was carried out in July 2003. Amendments have recently been made to the process to improve the framework within which tax disputes are resolved.
   
8. The early resolution of a dispute is intended to be achieved through a series of steps prescribed in legislation, the main elements of which are:
   
   
   • A notice of proposed adjustment: this is a notice by either the Commissioner or a taxpayer to the other that an adjustment is sought in relation to the taxpayer's self-assessment, the Commissioner's assessment or a disputable decision.
     
     
   • A notice of response: this is issued by the party receiving the notice of proposed adjustment with which they disagree.
     
     
   • A disclosure notice and statement of position: a disclosure notice triggers the issue of a statement of position. A statement of position contains an outline of facts and propositions of law with sufficient details to support the position taken. A statement is issued by each party. It is an important document because it limits facts and propositions of law which can be relied on (by either party) if the case goes to court.
   
   
   
9. There are also two administrative phases in the process-the conference and adjudication phases. The conference can be formal or informal discussion between Inland Revenue and the taxpayer, to clarify and, if possible, resolve the issues. Adjudication involves the independent consideration of the dispute by Inland Revenue and is the final phase in the process before the taxpayer's assessment is amended (if it is to be amended), and follows the exchange of statements of position. If the dispute has not been already resolved, the Commissioner's practice will be to hold conferences, and refer the dispute to the Adjudication Unit, except in rare circumstances.

Standard Practice and Analysis

Contents

Disputes resolution process commenced by a taxpayer

Heading	Paragraph or Appendix
Introduction	1
Application	4
Background	6
Standard Practice and Analysis
Assessment:
Taxpayer assessment	10
Assessment made by the Commissioner	15
Notice of proposed adjustment:
5 situations where a taxpayer may issue a notice of proposed adjustment:	18
Situation 1: a notice of proposed adjustment in respect of the Commissioner's assessment	19
Situation 2: a notice of proposed adjustment in respect of the commissioner's default assessment	23
Situation 3: a notice of proposed adjustment in respect of deemed assessment: under section 80H	33
Situation 4: a notice of proposed adjustment in respect of disputable decision	39
Situation 5: a notice of proposed adjustment in respect of an assessment made by a taxpayer	45
Contents of a taxpayer's notice of proposed adjustment	59
Identify the proposed adjustment	65
Provide a statement of the facts and the law in sufficient detail	67
How the law applies to the facts
Include copies of the documents in support of the adjustment
Election of small claims jurisdiction of Taxation Review Authority	81
Receipt of taxpayer's notice of proposed adjustment	82
Notice of proposed adjustment issued by a taxpayer outside the applicable response period	87
Timeframes to complete the disputes resolution process	95
Notice of response:
The Commissioner's response to a taxpayer's notice of proposed adjustment: notice of response	99
Deemed acceptance	104
Exception to deemed acceptance	105
Implication of section 89J	108
Rejection of the Commissioner's notice of response	109
Conference:
Conduct of a conference	113
Legal and other advisers attending a conference	116
Conference not held or abridged	117
Disclosure notices:
General rules	121
Evidence exclusion rule	124
Issue of a disclosure notice	126
Taxpayer's statement of position:
General rules	128
Contents of taxpayer's statement of position	130
Receipt of taxpayer's statement of position	136
Commissioner's statement of position	140
Agreement to include additional information	148
Preparation for adjudication	153
Adjudication decision	163
Indicative administrative timeframes	Appendix 1

 

The disputes resolution process is set out in the following diagram.

Click on the image below to get full sized view

 

 Taxpayer assessment

10. Section 92(1) states:
    

    A taxpayer who is required to furnish a return of income for an income year must make an assessment of the taxpayer's taxable income and income tax liability and, if applicable for the income year, the net loss, terminal tax or refund due.

11. The above legislative provision applies to the 2002-03 and subsequent income years. Where a taxpayer is required to file a tax return, they must make an assessment of their taxable income and income tax liability, and if applicable, the net loss, terminal tax or refund due.
    
    
12. Similar requirements apply to taxpayers who are required to file GST returns under the Goods and Services Tax Act 1985 ("the GST Act"). For GST return periods beginning on or after 1 April 2005, these taxpayers are required to make an assessment of the amount of GST payable. Section 92B(1) states:
    
    

    A taxpayer who is required under the Goods and Services Tax Act 1985 to provide a GST tax return for a GST return period must make an assessment of the amount of GST payable by the taxpayer for the return period.

13. For both income tax and GST assessments made by taxpayers, the date of assessment is that on which Inland Revenue receives the return from a taxpayer.
    
    
14. Inland Revenue's practice is that when the taxpayer's assessment is received, the return is stamped with the date of receipt either electronically or manually. This date is then entered into Inland Revenue's computerised database. Once this date is entered into the computerised database, a return acknowledgment form is generated and sent to the taxpayer. This practice ensures that the taxpayer will have a clear record of the date of their assessment.

 Assessment made by the Commissioner

15. Despite section 92(1) and subject to the statutory time bar in sections 108 and 108A, the Commissioner can sometimes issue a notice of assessment to a taxpayer.
    
    
16. The Commissioner will not make an assessment without first issuing a notice of proposed adjustment ("NOPA") to a taxpayer, unless an exception to the requirement for issuing a NOPA under section 89C applies. (Nevertheless, even if the Commissioner, in a very unlikely event, made an assessment in breach of section 89C, the assessment would be regarded as valid under section 114.)
    
    
17. Where the Commissioner issues an assessment without first issuing a NOPA, the taxpayer may issue a NOPA to the Commissioner in respect of that assessment. The exceptions under section 89C are explained in the Commissioner's practice as stated in SPS 05/03 - Disputes resolution process commenced by the Commissioner of Inland Revenue.

 A taxpayer may issue a NOPA to the Commissioner

18. A taxpayer may issue a NOPA to the Commissioner in the following five situations:

 Situation 1: NOPA in respect of the Commissioner's assessment

19. Section 89D(1) states:
    
    If the Commissioner-
    
    
    1. Issues a notice of assessment to a taxpayer; and
    2. Has not previously issued a notice of proposed adjustment to the taxpayer in respect of the assessment, whether or not in breach of section 89C,-
       
    the taxpayer may, subject to subsection (2); issue a notice of proposed adjustment in respect of the assessment.
    
    
20. Where the Commissioner issues a notice of assessment without first issuing a NOPA to a taxpayer, and the notice of assessment does not relate to a "default assessment", the taxpayer may issue to the Commissioner for receipt a NOPA in respect of the assessment. Taxpayers' responses to default assessments are discussed in Situation 2: NOPA in respect of the Commissioner's default assessment.
    
    
21. The taxpayer's NOPA must be issued within the applicable "response period" as defined in section 3(1), i.e. within the four-month period starting on the date of the Commissioner's notice of assessment. For instance, if the Commissioner's notice of assessment is made on 8 April 2005, the taxpayer may issue a NOPA in respect of the assessment to the Commissioner for receipt on or before 7 August 2005.
    
    
22. The taxpayer's right to issue a NOPA under section 89D(1) would not be affected, even if the Commissioner, in a very unlikely event, made the assessment in breach of section 89C. The assessment will be regarded as valid under
    section 114.

 Situation 2: NOPA in respect of the Commissioner's default assessment

Default assessment other than GST

23. Section 89D(2) states:
    

    A taxpayer who has not furnished a return of income for an assessment period may dispute the assessment made by the Commissioner only by furnishing a return of income for the assessment period.

24. Where a taxpayer has not filed a tax return, the Commissioner may make an assessment (commonly known as a "default assessment") without first issuing a NOPA to a taxpayer.
    
    
25. Where a taxpayer wants to dispute a default assessment through the disputes resolution process, the taxpayer must, within the applicable response period (i.e. 4 months from the date of issue of the default assessment):
    
    
    • File a tax return in the prescribed form for the period to which the default assessment relates (refer to section 89D(2)); and
      
      
    • Issue a NOPA to the Commissioner for receipt in respect of the default assessment.
      
26. In the case of a default assessment, the requirement to furnish a tax return is an additional requirement of the disputes resolution process. This ensures that all taxpayers have provided the information required by tax law before they are entitled to dispute an assessment. (Note that a taxpayer cannot dispute a "default assessment" unless the requirements as set out in paragraph 25 of this Standard Practice Statement are met.)
    
    
27. On receipt of the taxpayer's tax return for the default assessment period, the Commissioner may decide not to amend the default assessment on the basis of that tax return, if the Commissioner considers that the taxpayer's tax position is, for example, incorrect or a result of a vexatious or frivolous act or does not meet a reasonable standard. However, where an amended assessment has been issued on the basis of the taxpayer's tax return, the Commissioner is not prohibited from conducting further investigation on that assessment, and if necessary, issuing a NOPA to the taxpayer.

GST default assessment

28. Similar rules apply to a taxpayer's NOPA in respect of a GST default assessment.
    
    
29. Section 89D(2C) states:
    

    A taxpayer who has not provided a GST tax return for a GST return period may not dispute the assessment made by the Commissioner other than by providing a GST return for the GST return period.

30. Where a taxpayer has not filed a GST return, the Commissioner may make a GST assessment (commonly known as a "GST default assessment") without first issuing a NOPA to a taxpayer.
    
    
31. Where a taxpayer wants to dispute a GST default assessment through the disputes resolution process, the taxpayer must, within the applicable response period (i.e. four months from the date of the issue of the GST default assessment):
    
    • File a GST return for the period to which the GST default assessment relates (refer to section 89D(2C)); and
      
      
    • Issue a NOPA to the Commissioner for receipt in respect of the GST default assessment.
      
    
    
32. Section 89D(2C) applies for GST return periods that begin on or after 1 April 2005.

 Situation 3: NOPA in respect of deemed assessment under section 80H

33. Section 89D(2B) states:
    

    A taxpayer to whom section 80F applies who has not furnished an amended income statement for an assessment period may dispute a deemed assessment under section 80H only by furnishing an amended income statement for the assessment period.

34. The above section applies to a taxpayer who derives income only from salary and wages, interest and dividends and where the taxpayer will receive an income statement from the Commissioner under section 80D(1).
    
    
35. In general, where the taxpayer considers that the income statement is incorrect, the taxpayer must inform the Commissioner of the reasons and provide the relevant information to correct the income statement under section 80F(1). This has to be done within the statutory time limit, being the later of the taxpayer's terminal tax date for the income year to which the income statement relates and two months after the date the income statement is issued.
    
    
36. If the relevant information is not provided within the statutory time limit, the taxpayer will be treated as having filed a tax return under section 80G(2) and having made an assessment under section 80H in respect of that income statement. In this case, the date of deemed assessment under section 80H will be the date on which the statutory time limit under section 80F expires.
    
    
37. Pursuant to section 89D(2B), the taxpayer may not issue to the Commissioner a NOPA in respect of the deemed assessment under section 80H without first satisfying their statutory obligation to file an amended income statement for the assessment period.
    
    
38. Where a taxpayer wants to dispute a deemed assessment under section 80H, the taxpayer must, within the applicable response period (i.e. within four months from the date of the issue of the deemed assessment):
    
    
    • File an amended income statement for the assessment period; and
      
      
    • Issue a NOPA to the Commissioner for receipt in respect of the assessment.

 Situation 4: NOPA in respect of disputable decision

39. Section 89D(3) states: If the Commissioner-
    
    
    1. Issues a notice of disputable decision that is not a notice of assessment; and
       
       
    2. The notice of disputable decision affects the taxpayer, -

the taxpayer, or any other person who has the standing under a tax law to do so on behalf of the taxpayer, may issue a notice of proposed adjustment in respect of the disputable decision.

40. The term "disputable decision" is defined in section 3(1) to mean an assessment and a decision of the Commissioner under a tax law. The definition also includes exceptions to what is a disputable decision. Section 3(1) on the definition of "disputable decision" defines the term as:
    
    
    1. An assessment:
       
    2. A decision of the Commissioner under a tax law, except for a decision -
       
       1. To decline to issue a binding ruling under Part VA; or
          
       2. That cannot be the subject of an objection under Part VIII; or
          
       3. That cannot be challenged under Part VIIIA; or
          
       4. That is left to the Commissioner's discretion under sections 89K, 89L, 89M(8) and (10) and 89N(3)
          
    
    
41. A "decision of the Commissioner under a tax law" generally refers to a tax law which specifically gives the Commissioner a discretion or power. Subparagraph (iv) excludes from the definition of "disputable decision" decisions left to the Commissioner's discretion that occur specifically under the disputes legislation contained in Part IVA of the TAA. For example:
    
    
    • A taxpayer issues a late NOPA to the Commissioner and the Commissioner refuses to exercise the discretion to accept it as a NOPA issued within the response period under section 89K. The refusal to exercise the Commissioner's discretion is not a disputable decision.
      
      
    • After receiving the taxpayer's statement of position, the Commissioner provides the taxpayer with additional information under section 89M(8). The decision to provide this additional information is not a disputable decision.
      
      
    • The Commissioner refuses to exercise the discretion under section 113 to amend a taxpayer's income tax assessment. This decision cannot be challenged under section 138E(1)(e)(iv) and is therefore, not a disputable decision.
      
    
    
42. The above exceptions ensure that only substantive issues are disputed as disputable decisions and that procedural sections of the disputes resolution process do not in themselves give rise to disputes.
    
    
43. Pursuant to section 89D(3), a taxpayer may issue to the Commissioner a NOPA in respect of a disputable decision, other than an assessment. For example:
    
    
    • A taxpayer who is a natural person may dispute the Commissioner's decision under section OE 1 of the Income Tax Act 2004 that they are resident in New Zealand for taxation purposes.
      
      
    • Under section NC 1(2) of the Income Tax Act 2004, the Commissioner can determine whether, and to what extent, a payment is subject to PAYE. It is not possible to dispute such a determination. However, where an employer or an employee receives an assessment of tax deductions, they may dispute the assessment on the ground that a section NC 1(2) determination on which it is founded is wrong in fact or in law.
      
    
    
44. The NOPA must be issued for the Commissioner's receipt within the applicable response period, i.e. within the two-month period starting on the date of issue of the notice of disputable decision (not being an assessment).

 Situation 5: NOPA in respect of an assessment made by a taxpayer

45. Section 89DA(1) states:
    

    A taxpayer may issue a notice of proposed adjustment in respect of an assessment made by the taxpayer for an income year or a GST return period if the Commissioner has not previously issued a notice of proposed adjustment to the taxpayer in respect of the assessment.

46. The above legislative provision applies to taxpayers' income tax assessments for the 2002-03 and subsequent income years. A taxpayer who is required to file a tax return must make an assessment of their taxable income and income tax liability under section 92(1).
    
    
47. Section 89DA(1) also applies to taxpayer's GST assessments for the GST return periods beginning on or after 1 April 2005. A taxpayer who is required to file a GST return must make an assessment of the amount of GST payable for the return period under section 92B(1).
    
    
48. Section 89DA(1) allows a taxpayer to issue to the Commissioner a NOPA in respect of their own assessment of tax. The NOPA must be issued for the Commissioner's receipt within the applicable response period, i.e. within the four-month period starting on the date on which Inland Revenue receives the taxpayer's notice of assessment.

Proposed adjustments - input tax credits

49. Where a taxpayer receives a taxable supply and omits to claim a deduction from output tax under section 20(3) of the GST Act, the taxpayer may have two options.
    
    
50. First, the taxpayer may propose an adjustment by issuing a NOPA to the Commissioner within the applicable response period.
    
    
51. Alternatively, the taxpayer may claim a deduction from output tax in a later GST return period under section 20(3) of the GST Act. There is an unqualified two-year period to claim an input tax credit in a current period return. Pursuant to paragraph (a) of the proviso to section 20(3) of the GST Act (which can be found after paragraph (i) of the section), the two-year period is calculated from the earlier of:
    
    
    • The date of payment for the taxable supply to which the input tax credit relates; and
      
      
    • The date of issue of a tax invoice in relation to that taxable supply
      
    
    
52. However, pursuant to the proviso to section 20(3) of the GST Act, the taxpayer may have an unlimited time to claim the input tax credit if the taxpayer's failure to make the deduction under that section arises from one of the following reasons:
    
    
    • An inability of the registered person to obtain a tax invoice;
      
      
    • A dispute over the proper amount of the payment for the taxable supply to which the deduction relates;
      
      
    • A mistaken understanding on the part of registered person that the supply to which the deduction relates was not a taxable supply;
      
      
    • A clear mistake or simple oversight of the registered person.
      
    
    
53. For example, a taxpayer is registered for GST. They pay GST on an invoice basis and file monthly GST returns. In May 2005, they receive a tax invoice in respect of a taxable supply. However, the taxpayer omits to claim the input tax credits in respect of that taxable supply in the May 2005 GST return period. The reason for the omission is that the taxpayer has misplaced the tax invoice in one of their business files. The taxpayer has found the tax invoice in December 2007.
    
    
54. The taxpayer has two options. First, they may propose an adjustment to an input tax credit in the May 2005 GST period by issuing a NOPA to the Commissioner. However, the NOPA will be issued outside the four-month response period. Unless one of the "exceptional circumstances" in section 89K applies, the Commissioner will not accept the taxpayer's NOPA outside the response period. The Commissioner will consider the taxpayer's case under section 113. The Commissioner's practice in relation to section 113 is stated in a separate Standard Practice Statement.
    
    
55. The second option is that the taxpayer may claim a deduction from output tax in the current GST return period under section 20(3) of the GST Act. In this example, the taxpayer's omission is due to a simple oversight of the taxpayer. Therefore, the two-year restriction on claiming the deduction does not apply.
    
    
56. The term "clear mistake or simple oversight" is interpreted in a similar manner to that in section 89C(b).
    
    
57. There is no dollar limit to what is "a simple or obvious mistake or oversight" and this may be ascertained on a case by case basis.
    
    
58. However, "a simple or obvious mistake or oversight" will not include a taxpayer's GST position taken as a result of:
    
    
    • A new, beneficial interpretation or favourable new case law; or
      
      
    • A change of mind (e.g. a taxpayer has taken the tax position that the sale of business is a supply of a going concern and therefore, zero-rated for GST purposes, but later changes their mind and wants to treat the supply as a standard-rated supply.)

 Contents of a taxpayer's NOPA

59. A NOPA is the document that commences the disputes resolution process. It is intended to explain in a legal/technical manner what the position of the issuer is in relation to the proposed adjustments. The contents of a NOPA issued by a taxpayer are prescribed in sections 89F(1) and (3).
    
    
60. Section 89F states:
    
    1. A notice of proposed adjustment must-
       
       1. contain sufficient detail of the matters described in subsections (2) and (3) to identify the issues arising between the Commissioner and the disputant; and
          
       2. be in the prescribed form.
          
    ...
    
    3. A notice of proposed adjustment issued by a disputant must-
       
       
       1. identify the adjustment or adjustments proposed to be made to the assessment; and
       2. provide a statement of the facts and the law in sufficient detail to inform the Commissioner of the grounds for the disputant's proposed adjustment or adjustments; and
       3. state how the law applies to the facts; and
       4. include copies of the documents of which the disputant is aware at the time that the notice is issued that are significantly relevant to the issues arising between the Commissioner and the disputant.
          
    
    
61. A NOPA must be in the prescribed form. The taxpayer is required to use a Notice of proposed adjustment (IR 770). This can be found on Inland Revenue's website www.ird.govt.nz In order to support the proposed adjustment in the NOPA, the taxpayer is required to provide a statement of the facts and the law in sufficient detail, state how the law applies to the facts and include copies of the documents that are significantly relevant to the dispute and that the taxpayer is aware when issuing their NOPA.
    
    
62. The law requires a statement of the facts and the law in sufficient detail. The term "sufficient detail" is intended to convey a document that contains an adequate amount of analysis of the law and facts relevant to the dispute. This means enough discussion of the law to enable the Commissioner to clearly understand the proposed adjustment.
    
    
63. The Commissioner believes that the purpose of requiring the taxpayer to "provide a statement of the facts and the law in sufficient detail" is to ensure that the taxpayer has fully considered an issue before raising it in a NOPA.
    
    
64. If the taxpayer provides sufficient information to support the proposed adjustment in their NOPA, this will facilitate a speedy resolution to the dispute, thus also reduce administrative and compliance costs.

 Identify the proposed adjustment - Section 89F(3)(a)

65. The taxpayer must identify the proposed adjustment or adjustments in their NOPA. This includes for each proposed adjustment:
    
    
    • the amount or impact of the adjustment, and
      
      
    • income year or tax period to which the proposed adjustment relates.
      
    
    
66. The proposed adjustment should be set out as specifically as possible. For example: "increase the 2003 repairs and maintenance expenditure by $3,000"; "increase the deduction from GST output tax by $4,000", etc.

 Provide a statement of the facts and the law in sufficient detail - Section 89F(3)(b)

Facts

67. This includes for each proposed adjustment the facts relevant to proving all arguments raised in support of the adjustment, including any facts which are inconsistent with any argument previously raised by the Commissioner.
    
    
68. It is important for the taxpayer to state all the relevant material facts clearly and with an adequate amount of details. In a taxpayer's dispute, the taxpayer usually has good understanding of the background and the facts. Disclosure of the background and facts at the NOPA phase helps to resolve the dispute at an earlier stage. However, the taxpayer should not overstate the facts with irrelevant detail or repetition.
    
    
69. In a complex case, the Commissioner expects the taxpayer to go through the relevant facts step by step. The taxpayer should also assist the Commissioner in understanding the background and the facts to the dispute, so as to facilitate a speedy resolution of the case. It is unhelpful and can cause delay if the Commissioner has to second guess the factual basis of the taxpayer's case.
    
    
70. For example, in a dispute that involves a complex financial arrangement, the taxpayer should explain each element of the financial arrangement. This includes providing the background to the financial arrangement, identifying the parties involved, highlighting the relevant clauses in an agreement, etc.

Law

71. This includes for each proposed adjustment the section or sections relied on including where a section has multiple independent parts, the applicable subsection(s).
    
    
72. It is important for the taxpayer to include in their NOPA an adequate amount of analysis of applicable legal principles or tests. Where possible these should be supported by case authority with full citations. For example, in a dispute that involves the tax treatment of a trade-tie payment, the taxpayer must apply the legal principles in a leading case such as Birkdale Service Station v CIR [2001] 1 NZLR 293. A mere reference to "tax cases on trade-tie payment" in the taxpayer's NOPA will not satisfy section 89F(3)(b). On the other hand, it is not necessary to laboriously describe large numbers of precedent cases.

How the law applies to the facts - Section 89F(3)(c)

73. The legal arguments must be applied to the facts to ensure that the proposed adjustments are not statements which appear out of context in relation to the rest of the documents. The application of the law to the facts must logically support the proposed adjustment and must be stated clearly and in detail.
    
    
74. The taxpayer must present materials and arguments on which it is intended to rely or on which reliance may be placed. In other words, if more than one argument supports the same or similar outcome, all arguments will be made and supported by evidence. For each proposition of law, it is recommended that the NOPA makes a clear link to an outline of supporting facts.

Include copies of the documents in support of the adjustment - Section 89F(3)(d)

75. The taxpayer is required to provide full copies of the documents that are significantly relevant to the dispute and that are known to the taxpayer when the NOPA is issued. This ensures that the Commissioner has all the relevant information necessary to respond to the NOPA.
    
    
76. For example:
    
    
    • A taxpayer proposes an adjustment on GST input tax credits in their NOPA. The taxpayer must provide copies of the relevant tax invoices as documentary evidence in their NOPA.
      
      
    • A taxpayer's dispute involves a sale of land transaction. The taxpayer must provide copies of the sale and purchase agreement and other relevant correspondence between the vendor and the purchaser as documentary evidence in their NOPA.
      
    
    
77. However, the taxpayer's NOPA will not be invalid by reason of not providing all the documentary evidence in their NOPA. In some cases, new documentary evidence may emerge, as the dispute progresses. For example:
    
    
    • A dispute involves overseas parties who hold relevant documents outside of New Zealand.
      
      
    • The documentation is quite old and may have been misplaced.
      
    
    
78. The taxpayer may not be aware of these documents when the NOPA was issued. The Commissioner and the taxpayer can then exchange this new evidence when it becomes known or available.
    
    
79. Where the taxpayer is aware of a particular document which is significantly relevant to the dispute, but has difficulty in obtaining a copy of it, the taxpayer should include the following matters in their NOPA:
    
    
    • The nature of the document and its relevance to the disputes;
      
      
    • The reasonable steps taken by the taxpayer to obtain a copy of the document; and
      
      
    • The expected date of making the document available to the Commissioner.
      
    
    
80. However, the practice allowed in the immediate preceding paragraph should not be considered as dispensing with the requirements under section 89F(3)(d). The Commissioner expects the taxpayer to send a copy of the relevant documents mentioned in the taxpayer's NOPA. The Commissioner may reject the proposed adjustments if the taxpayer fails to do so.

 Election of small claims jurisdiction of taxation review authority

81. A taxpayer can issue a NOPA to the Commissioner and elect in the NOPA that any unresolved dispute will be heard by the Taxation Review Authority acting in the small claims jurisdiction under section 89E(1)(a), if the following requirements are met:
    
    
    • The taxpayer's NOPA is issued under section 89D, i.e. in respect of the Commissioner's assessment, a deemed assessment under section 80H or a "disputable decision" (not being an assessment); and
      
      
    • The amount in dispute is $30,000 or less.

 Receipt of taxpayer's NOPA

82. When a taxpayer's NOPA is received, the NOPA will usually be assigned to an actioning officer within five working days of receipt by Inland Revenue. Following receipt, the actioning officer will ascertain and record the following:
    
    
    • The date of issue of the NOPA, whether the NOPA has been issued within the applicable response period and the date by which a response is required to be issued; and
      
      
    • The salient features of the NOPA including any deficiencies as to content.
      
    
    
83. Where this is practicable, the taxpayer or their tax agent will be informed within 10 working days that the NOPA has been received by Inland Revenue either by phone call or in writing.
    
    
84. However, where the Commissioner is aware of any deficiencies as to the content of the NOPA, the taxpayer or their tax agent will usually be notified of these deficiencies as soon as practicable. They will also be notified of the expiry date of the response period, by which those deficiencies must be rectified in order for the NOPA to be valid. (Note: taxpayers are encouraged to issue their NOPA as soon as they have completed it. This is because if an invalid or deficient NOPA has been issued close to the expiry date of the response period, the taxpayer may not have sufficient time to rectify the invalidity or deficiency before the end of the response period.)

Deficiencies in the contents of a NOPA

85. Where a NOPA has been received and where Inland Revenue considers there are deficiencies (i.e. the requirements under section 89F(3) are not met), the actioning officer will take reasonable steps to obtain the information in the NOPA corrected before the expiry of the response period. The taxpayer will be notified of the need for the additional information and the impending crucial deadlines.
    
    
86. If a NOPA is not accepted by the Commissioner because there are deficiencies and the information is not corrected before the response period expires, the taxpayer will be treated as if the dispute has never been initiated (unless a late NOPA is issued and subsequently accepted by the Commissioner under one of the exceptional circumstances under section 89K). The reasons for not accepting the NOPA will be documented and the actioning officer will notify the taxpayer of these reasons in writing within 15 working days from the expiry of the response period for issuing a taxpayer's NOPA.

 NOPA issued by a taxpayer outside the applicable response period

87. Unless an "exceptional circumstance" in section 89K arises, the Commissioner will not accept a NOPA issued by a taxpayer under section 89D or section 89DA outside the applicable response period.

Exceptional circumstances under section 89K

88. The legislation defines exceptional circumstances very narrowly. Cases on "exceptional circumstances", such as Treasury Technology Holdings Ltd v CIR (1998) 18 NZTC 13,752, Milburn NZ Ltd v CIR (1998) 18 NZTC 14,005 and Fuji Xerox NZ Ltd v CIR (2001) 20 NZTC 17,470 (CA), are also relevant. For example, a taxpayer's misunderstanding or erroneous calculation of the applicable response period will usually not be regarded as an event or a circumstance beyond the taxpayer's control under paragraph (a) of section 89K(3).
    
    
89. Late NOPAs will be accepted only on rare occasions. Some examples of situations that may be considered "exceptional circumstances" beyond the control of a taxpayer are explained in Tax Information Bulletin Vol 8, No 3 (August 1996).
    
    
90. Section 89K(3) states:
    
    
    1. an exceptional circumstance arises if-
       
       1. an event or circumstance beyond the control of a disputant provides the disputant with a reasonable justification for not rejecting a proposed adjustment, or for not issuing a notice of proposed adjustment or statement of position, within the response period for the notice:
          
       2. a disputant is late in issuing a notice of proposed adjustment, notice of response or statement of position but the Commissioner considers that the lateness is minimal, or results from 1 or more statutory holidays falling in the response period:
          
       
       
    2. an act or omission of an agent of a disputant is not an exceptional circumstance unless-
       
       1. it was caused by an event or circumstance beyond the control of the agent that could not have been anticipated, and its effect could not have been avoided by compliance with accepted standards of business organisation and professional conduct; or
          
       2. the agent is late in issuing a notice of proposed adjustment, notice of response or statement of position but the Commissioner considers that the lateness is minimal, or results from 1 or more statutory holidays falling in the response period.
          
    
    
91. The exception for lateness as a result of a statutory holiday is self explanatory. The Commissioner can also accept a late NOPA if the Commissioner considers that the lateness is minimal, i.e. the document was only one or two days late. Besides the degree of lateness, the Commissioner will consider the following factors when exercising the discretion under section 89K:
    
    
    • the date on which the NOPA was issued; and
      
      
    • the response period within which the NOPA should be issued; and
      
      
    • the reasons why the taxpayer failed to issue the NOPA within the response period; and
      
      
    • the compliance history of the taxpayer in relation to the tax type under consideration (e.g. has the taxpayer paid tax late or filed late tax returns, late NOPAs in the past?)
      
    
    
92. For example, a taxpayer issued a NOPA to the Commissioner two days later than the applicable "response period". The taxpayer failed to provide a legitimate reason for the lateness. It was also found that the taxpayer had a history of filing late NOPAs within the minimal lateness allowable (i.e. no more than two days outside the applicable "response period") and had been advised on the calculation of the "response period" on more than one occasion. Although the lateness was minimal on each occasion, the taxpayer's NOPA would not be accepted in this case. This ensures that the exception under section 89K(3)(b)(ii) is not considered to be an extension of the "response period" in all situations.
    
    
93. Where an application for consideration of exceptional circumstances is made under section 89K, the reasons for accepting or rejecting it will be documented and the actioning officer will notify the taxpayer of the decision in writing within 15 working days of receipt of the taxpayer's application by Inland Revenue.
    
    
94. If the taxpayer's application under section 89K is rejected, the validity of the taxpayer's tax position must nevertheless be considered in terms of the Commissioner's practice on applying section 113. The Commissioner's practice on the application of section 113 is set out in a separate Standard Practice Statement. Also note that the Commissioner's decision under section 89K is not a "disputable decision".

 Timeframes to complete the disputes resolution process

95. Once the disputes resolution process has commenced (i.e. where a NOPA has been issued by the taxpayer to the Commissioner and the dispute has not been resolved by agreement between the taxpayer and the Commissioner), where practicable, a time line should be negotiated between the taxpayer and Inland Revenue officers involved to ensure timely and efficient progression of the dispute.
    
    
96. Negotiating time lines for the timely resolution of disputes is an administrative practice encouraged by the Commissioner. Inland Revenue officers and taxpayers should endeavour to meet the agreed time lines. Where the negotiated time line cannot be achieved, this will be discussed with the taxpayer with a view to agreeing a new time line. However, failure to negotiate an agreed time line or adhere to the agreed time line will not prevent a case from progressing through the disputes resolution process.
    
    
97. In addition to the above administrative practice, the Commissioner is bound by section 89N. The law requires that where the Commissioner and the taxpayer cannot agree on the proposed adjustments, the Commissioner cannot amend an assessment without completing the disputes resolution process, unless one of the exceptions in section 89N applies. These exceptions are explained in the Commissioner's practice as stated in SPS 05/03 - Disputes resolution process commenced by the Commissioner of Inland Revenue.
    
    
98. Although the adjudication process is not legislated as part of the disputes resolution process, it is the Commissioner's administrative practice to go through the adjudication process for the purpose of resolving a dispute after the statements of position phase, where practicable. However, where the adjudication process cannot be completed (e.g. because the statutory time bar is imminent), the Commissioner can amend an assessment, provided that the taxpayer's statement of position has been considered. This means that Inland Revenue officers should act in good faith and genuinely consider the facts and legal arguments in the taxpayer's statement of position before deciding whether to amend an assessment.

 The Commissioner's response to a taxpayer's NOPA: Notice of response

99. If the Commissioner disagrees with the taxpayer's proposed adjustment, then under section 89G, the Commissioner must notify the taxpayer that any or all of the proposed adjustments are rejected by issuing a notice of response ("NOR") within the two-month response period, i.e. within two months starting on the date of issue of the taxpayer's NOPA. The Commissioner interprets this as requiring receipt of the NOR by the taxpayer. For instance, if a taxpayer issues a NOPA on 8 April 2005, the Commissioner must notify the taxpayer of the rejection by issuing a NOR to the taxpayer for receipt on or before 7 June 2005.
    
    
100. Where it is practicable (e.g. the issue in dispute is straight-forward), the Commissioner will make reasonable efforts to contact the taxpayer or their tax agent within two weeks prior to the expiry of the response period for the taxpayer's NOPA and advise whether the Commissioner intends to respond to the NOPA by issuing a NOR. Contact may be made by way of a phone call or a letter.
     
     
101. The contents of a NOR are prescribed under section 89G(2). The Commissioner must state concisely in the NOR:
     
     
     1. the facts or legal arguments in the taxpayer's NOPA that the Commissioner considers are wrong; and
        
        
     2. why the Commissioner considers those facts and arguments to be wrong; and
        
        
     3. any facts and legal arguments relied upon by the Commissioner; and
        
        
     4. how the legal arguments apply to the facts; and
        
        
     5. the quantitative adjustments to any figure referred to in the taxpayer's NOPA that result from the facts and legal arguments relied upon by the Commissioner.
        
102. The requirement of quantitative adjustment under section 89G(2)(e) establishes, in the Commissioner's opinion, by how much the taxpayer's adjustment in the NOPA is incorrect. There is no requirement that the amount referred to be exact, however every attempt should be made to ensure that it is as accurate as possible. As the dispute progresses, the amount in dispute may be altered. For example a new figure may be worked out at a conference between the parties.
     
     
103. Nevertheless, the Commissioner believes that Inland Revenue has a statutory obligation to inform the taxpayers adequately. In keeping with that obligation, where the Commissioner issues a NOR to reject the proposed adjustments in the taxpayer's NOPA, the NOR will be relatively brief but at the same time detailed enough to cover all the relevant facts, quantitative adjustments, issues and law.

 Deemed acceptance

104. If the Commissioner does not issue a NOR within the two-month response period, the Commissioner is deemed to have accepted the proposed adjustments in the taxpayer's NOPA. Section 89H(2) states:
     
     
105. If the Commissioner does not, within the response period for a notice of proposed adjustment issued by a disputant, reject an adjustment contained in the notice, the Commissioner is deemed to accept the proposed adjustment and section 89J applies.

 Exception to deemed acceptance

105. Notwithstanding section 89H(2), the Commissioner may apply to the High Court for an order allowing him to issue a NOR outside the two-month response period. Section 89L applies only if an exceptional circumstance applies or has prevented the Commissioner from issuing the NOR to the taxpayer within the response period.
     
     
106. Under section 89L(3), an "exceptional circumstance":
     
     
     1. Is an event or circumstance beyond the control of the Commissioner or an officer of the Department that provides the Commissioner with a reasonable justification for not rejecting an adjustment proposed by a disputant within the response period; and
        
     2. Without limiting paragraph (a), includes a change to a tax law, or a new tax law, or a decision of a court in respect of a tax law, that is enacted or made within the response period.
        
     
     
107. For example:
     
     
     • During the applicable response period to a taxpayer's NOPA, a flood occurred and damaged one of the Inland Revenue offices. The taxpayer's NOPA was also lost in the flood. Inland Revenue officers could not obtain another copy of the NOPA within the applicable response period. The absence of information has prevented the Commissioner from forming a view on the subject matter in dispute. The Commissioner may apply for a High Court order under section 89L for further time to issue a NOR.
       
       
     • In a NOPA issued to the Commissioner, a taxpayer proposes to claim additional tax depreciation on computer software. During the two-month response period, a High Court decision was made in respect of another taxpayer. The High Court held that such depreciation claim amounted to tax avoidance and should be disallowed. The Commissioner may apply to the High Court for further time to issue a NOR to the taxpayer, so as to consider the full effect of the High Court decision.

 Implication of section 89J

108. Where the Commissioner accepts or is deemed to accept the proposed adjustments in the taxpayer's NOPA, the Commissioner must include or take account of the adjustments in a notice of assessment issued to the taxpayer. The dispute is brought to an end.

 Rejection of the Commissioner's NOR

109. Where the Commissioner has issued a NOR under section 89G to reject the proposed adjustments in the taxpayer's NOPA, the taxpayer must reject the Commissioner's NOR within the applicable response period, i.e. within two months starting on the date of the Commissioner's NOR. Otherwise, the taxpayer is deemed to have accepted the Commissioner's NOR under section 89H(3) and the dispute comes to an end.
     
     
110. The Commissioner will make reasonable efforts to contact the taxpayer or their tax agent two weeks prior to the expiry of the response period for the Commissioner's NOR to ascertain whether the taxpayer will reject the Commissioner's NOR in writing. Contact may be made by way of a phone call or in writing.
     
     
111. The taxpayer must reject the Commissioner's NOR in writing. Where it is practicable, the taxpayer's rejection will be forwarded to the actioning officer within five working days of receipt by Inland Revenue and will be acknowledged as received within 10 working days.
     
     
112. In the case of deemed acceptance (i.e. where the taxpayer has not rejected the Commissioner's NOR in writing), the Commissioner will make reasonable efforts to advise the taxpayer of this within two weeks after the expiry of the response period to the Commissioner's NOR.)

Conference

 Conduct of a conference

113. Where a dispute remains unresolved following the taxpayer's rejection of the Commissioner's NOR, the conference phase follows. The Commissioner will usually initiate the conference phase within one month of receipt of the notice of rejection of the Commissioner's NOR. The time suggested for the conference phase is an average of three months. However, the time will vary depending on the facts and the complexity of the specific case.
     
     
114. There is no legislative requirement for a conference. The conference phase is an administrative process which aims to clarify and if possible, resolve the issues in the dispute.
     
     
115. The conduct of the conference should be as flexible as possible, consistent with the taxpayer's wishes and other factors such as the scope of the audit. Conferences may range from a phone call to several meetings. Discussions in conferences must be recorded or otherwise documented and agreed upon if possible. These may include any agreement on facts, common grounds for the dispute to proceed, timeframes for completing the disputes resolution process and agreed adjustments.

 Legal and other advisers attending a conference

116. If a dispute is not settled earlier, the Commissioner and the taxpayer may want to obtain expert legal or other advice. These advisers may attend any meetings in relation to the dispute. The Commissioner accepts that it is appropriate in these circumstances for a certain amount of "back tracking" to take place, i.e. some items already discussed (but which are not agreed in writing or otherwise accepted) between the parties may be revisited by the newly introduced advisers.

 Conference not held or abridged

117. The Commissioner considers the conference phase to be an important part of the disputes resolution process.
     
     
118. In some circumstances the Commissioner will not hold further discussions or a conference, even though agreement has not been reached post the taxpayer's rejection of the Commissioner's NOR. This does not mean that the disputes resolution process will come to an end, as the disclosure notice and statement of position phase will still be undertaken. Where the dispute is not resolved in the statement of position phase, the Commissioner and the taxpayer will endeavour to have the dispute resolved via the adjudication process.
     
     
119. Conferences may not be held or may be abridged in one or more of the following situations:
     
     
     • There may be revenue losses incurred as a result of delaying tactics used by a taxpayer to frustrate the collection of tax.
       
       
     • The Commissioner is satisfied that the taxpayer or the taxpayer's agent is acting in a frivolous or vexatious manner. For example where, the taxpayer or their agent is setting unreasonable demands as to the time and place, or terms of such meeting(s), or refuses to conduct themselves reasonably at any meeting.
       
       
     • The taxpayer contests the Commissioner's policy and it is agreed to disagree, or where it is otherwise agreed that a conference would be of no benefit.
       
       
     • The taxpayer advises the Commissioner that they do not want a conference to be held.
       
     
     
120. Where it is practicable, the decision whether or not the conference phase will be dispensed with or abridged will be communicated in writing to the taxpayer or their tax agent within seven days of that decision being made. The reasons for the decision not to hold, or abridge, any conference must be documented.

 Disclosure notices

121. The Commissioner must issue a disclosure notice under section 89M(1), unless the Commissioner is not required to complete the disputes resolution process under section 89N (as discussed in SPS 05/03 - Disputes resolution process commenced by the Commissioner of Inland Revenue). Another restriction on issue of a disclosure notice by the Commissioner is set out in section 89M(2). The Commissioner may not issue a disclosure notice in respect of a taxpayer's NOPA if the Commissioner has already issued a notice of disputable decision that includes or takes account of the adjustment proposed in that NOPA. Sections 89M(1) and (2) state:
     
     
     1. Unless subsection (2) applies, and subject to section 89N, the Commissioner must issue a disclosure notice in respect of a notice of proposed adjustment to a disputant at the time or after the Commissioner or the taxpayer, as the case may be, issues the notice of proposed adjustment.
        
        
     2. The Commissioner may not issue a disclosure notice in respect of a notice of proposed adjustment if the Commissioner has already issued a notice of disputable decision that includes, or takes account of, the adjustment proposed in the notice of proposed adjustment.
        
     
     
122. A disputable decision is:
     
     • an assessment; or
       
       
     • a decision of the Commissioner under a tax law, except for a decision -
       
       
       1. to decline to issue a binding ruling; or
          
          
       2. that cannot be the subject of an objection or challenge; or
          
          
       3. that is left to the Commissioner's discretion under sections 89K, 89L, 89M(8) and (10) and 89N(3).
       
       (Refer to paragraphs 40 to 42 in this Standard Practice Statement.)
     
     
     
123. Where the Commissioner decides to issue a disclosure notice, the taxpayer will usually be advised of this within 2 weeks from the date of the issue of the Commissioner's disclosure notice.

 Evidence exclusion rule

124. A disclosure notice is the document that triggers the application of the evidence exclusion rule. The rule restricts what the Commissioner and the disputant may raise as evidence in a court challenge to matters raised in their respective statements of position. (Note that the Commissioner and the taxpayer may refer to evidence that has been raised by either party.) As this is one of the guiding principles of the disputes resolution process, the Commissioner must explain the effect of the evidence exclusion rule and refer to section 138G in the Commissioner's disclosure notice.
     
     
125. In a dispute commenced by a taxpayer, section 89M(6B) states that "evidence" in the context of the evidence exclusion rule refers to the available documentary evidence and does not include a list of potential witnesses or types of witnesses. Therefore the identities of both the taxpayer's and the Commissioner's witnesses in sensitive cases will continue to be protected, without undermining the effect of the evidence exclusion rule.

 Issue of a disclosure notice

126. It is possible for the Commissioner to issue a disclosure notice at any time on or after the issue of a NOPA by either the taxpayer or the Commissioner.
     
     
127. Generally such a notice will be issued after receipt of a NOR and its rejection, following the conference phase and in accordance with the agreed time line between the Commissioner and the taxpayer. Where a disclosure notice is issued earlier (e.g. the facts are clear, the taxpayer agrees, or a conference is not required) the reasons must be documented.

 Statement of position

128. Pursuant to section 89M(5), where a taxpayer commences a dispute and the Commissioner issues a disclosure notice, the taxpayer must issue the Commissioner with a statement of position ("SOP") in the prescribed form Statement of Position (IR 773) within the response period, i.e. within two months starting on the date of issue of the disclosure notice.
     
     
129. Unless an "exceptional circumstance" in section 89K applies, where the taxpayer issues the Commissioner with a SOP outside the response period, the dispute will be treated as if it has not been commenced by the taxpayer. The Commissioner is not required to issue an assessment to include or take account of the taxpayer's proposed adjustments. Section 89M(7)(b) states:
     
     
     7. A disputant who does not issue a statement of position in the prescribed form within the response period for the statement of position, is treated as follows:
        
        ...
        
        
        2. if the disputant has proposed the adjustment to the assessment, the disputant is treated as not having issued a notice of proposed adjustment.

 Contents of taxpayer's statement of position

130. The contents of a SOP are binding. Under the principle of the "evidence exclusion rule" if the matter proceeds to court, the parties are limited to the facts, evidence (excluding oral evidence), issues and propositions of law which are relied on (by either party). The SOP must be in the prescribed form and must contain sufficient detail to fairly inform the Commissioner of the facts, evidence, issues and propositions of law that the taxpayer wishes to rely on.
     
     
131. Section 89M(6) states:
     
     A disputant's statement of position in the prescribed form must, with sufficient detail to fairly inform the Commissioner,-
     
     
     1. Give an outline of the facts on which the disputant intends to rely; and
        
     2. Give an outline of the evidence on which the disputant intends to rely; and
        
     3. Give an outline of the issues that the disputant considers will arise; and
        
     4. Specify the propositions of law on which the disputant intends to rely.
        
     
     
132. The minimum contents requirements of a SOP are an outline of the relevant facts, evidence, issues and propositions of law. However, to enable the Adjudication Unit to successfully reach a decision, it is important that the SOP contains full, complete and detailed submissions. An outline of frank and complete discussion of the issues, the law, arguments and evidence supporting the arguments is implicit in the spirit and intent of the disputes resolution process.
     
     
133. Under the principles of the evidence exclusion rule, arguments and evidence that are not present in the SOP will be excluded from consideration by a court.
     
     
134. The list of evidence that is required to be submitted with the SOP does not include a list of potential witnesses. Section 89M(6B) states:

     In subsection 4(b) and 6(b), evidence refers to the available documentary evidence on which the person intends to rely, but does not include a list of potential witnesses, whether or not identified by name.

135. Therefore, only documentary evidence needs to be listed in the SOP. Witnesses' identities will continue to be protected without undermining the effect of the evidence exclusion rule.

 Receipt of taxpayer's statement of position

136. The Commissioner will make reasonable efforts to contact the taxpayer or their tax agent two weeks prior to the expiry of the response period to ascertain whether the taxpayer will issue a SOP in response to the Commissioner's disclosure notice. Contact can be made by phone or in writing. Where the taxpayer has issued a SOP, it will be forwarded to the actioning officer within five working days of receipt by Inland Revenue. Following receipt, the actioning officer will ascertain and record the following:
     
     
     • the date of issue of the SOP;
       
       
     • whether the SOP has been issued within two months starting on the date of issue of the disclosure notice; and
       
       
     • the salient features of the SOP including any deficiencies as to content.
       
     
     
137. Where it is practicable, a taxpayer's SOP will be acknowledged as received within 10 working days of receipt by Inland Revenue. However, where the Commissioner is aware of any deficiencies as to the content of the SOP, the taxpayer or their tax agent will usually be notified of these deficiencies as soon as practicable. They will also be notified again of the expiry date of the response period, by which those deficiencies must be rectified in order for the SOP to be valid and whether the Commissioner intends to issue a SOP in reply to the taxpayer's SOP.
     
     
138. Where a SOP has been issued outside the applicable response period, the taxpayer may apply for consideration of exceptional circumstances under section 89K. The reasons for accepting or rejecting the application will be documented and the actioning officer will make reasonable efforts to notify the taxpayer of the decision in writing within 15 working days of receipt of the taxpayer's application by Inland Revenue.
     
     
139. As mentioned above, the dispute will be treated as if it has not been commenced by the taxpayer, if they fail to issue a SOP within two months starting on the date of the issue of the disclosure notice and none of the exceptional circumstances under section 89K apply. Where practicable, the Commissioner will make reasonable efforts to notify the taxpayer of this within two weeks after expiry of the response period for the disclosure notice.

 Commissioner's statement of position

140. Where the dispute remains unresolved, the Commissioner will usually issue the taxpayer with a SOP in reply to the taxpayer's SOP within the response period, i.e. within two months starting on the date of issue of the taxpayer's SOP.
     
     
141. However, the Commissioner may apply to the High Court for further time to reply to the taxpayer's SOP under section 89M(10), provided the application is made before expiry of the response period, and the Commissioner considers it unreasonable to reply within the response period because of the number or complexity or novelty of matters raised in the taxpayer's SOP.
     
     
142. Such applications are expected to be rare but may arise where a taxpayer is less than co-operative with supplying information, and/or has failed to maintain proper and adequate records.
     
     
143. The Commissioner's SOP must be in the prescribed form and must contain sufficient detail to fairly inform the taxpayer of the facts, evidence, issues and propositions of law that the Commissioner wishes to rely on.
     
     
144. Section 89M(4) states:
     
     The Commissioner's statement of position in the prescribed form must, with sufficient detail to fairly inform the disputant,-
     
     1. Give an outline of the facts on which the Commissioner intends to rely; and
        
     2. Give an outline of the evidence on which the Commissioner intends to rely; and
        
     3. Give an outline of the issues that the Commissioner considers will arise; and
        
     4. Specify the propositions of law on which the Commissioner intends to rely.
        
     
     
145. In addition to the Commissioner's SOP, it is possible for the Commissioner to provide the taxpayer with additional information in response to matters raised in the taxpayer's SOP under section 89M(8) within two months starting on the date of issue of the taxpayer's SOP. This is intended to cover the situation where the Commissioner has already issued a SOP within the applicable response period and then new evidence becomes available before the expiry of the response period. Any additional information must be provided as far as possible in the same format as the SOP of which it becomes a part.
     
     
146. However, in a dispute commenced by a taxpayer, the Commissioner will endeavour to include all the relevant details (including any additional information) in the Commissioner's SOP.
     
     
147. It must be noted that the taxpayer does not have a right of reply to the additional information provided by the Commissioner or the Commissioner's SOP, unless there is an agreement between the Commissioner and the taxpayer that additional information will be accepted. (Refer to "Agreement to include additional information" below.)

 Agreement to include additional information

148. There is scope to agree to add any additional information to the SOPs. Despite the absence of any statutory time limit, the Commissioner's practice is to allow one month (from the date of the issue of the Commissioner's SOP or the date of the provision of additional information by the Commissioner under section 89M(8)) for such agreement to be reached and information provided. However, this will be applied after taking into account the taxpayer's prior conduct, in particular, whether the taxpayer could have provided the information earlier through the application of due diligence.
     
     
149. The Commissioner will also consider the materiality and relevance of the additional information, and its capacity to help resolve the dispute.
     
     
150. The primary concern of the disputes resolution process is that both parties apply proper cooperation and due diligence in resolving the matters at issue. Additional information will therefore not be accepted unless proper cooperation and due diligence have been demonstrated.
     
     
151. Where a taxpayer requests to have additional information added and the request is declined, the reasons will usually be communicated to the taxpayer or their tax agent. The reasons will also be documented with detailed reference to the taxpayer's conduct, level of cooperation prior to the request and the reason for the information not being provided earlier.
     
     
152. Where the additional information is agreed to be added to the SOPs, the agreement will be made subject to the taxpayer agreeing that the Commissioner may include a response to the additional information to the SOP, if required.

 Preparation for adjudication

153. Within the disputes resolution process, the role of the Adjudication Unit in Inland Revenue's National Office is to take a fresh look at tax disputes in an impartial and independent manner, and to provide technically accurate decisions. The Commissioner's practice is to refer all disputes to the Adjudication Unit, where practicable. (Please refer to paragraph 154 of this Standard Practice Statement.)
     
     
154. Where the dispute commenced by the taxpayer is not resolved after both the taxpayer and the Commissioner have issued a SOP, the taxpayer may challenge the assessment by commencing proceedings in a court or Taxation Review Authority under section 138B(3). In this situation, the dispute will be heard by a court or Taxation Review Authority, rather than going through the adjudication process first.
     
     
155. A challenge under section 138B(3) can be made if the Commissioner has, within the applicable response period, rejected the taxpayer's proposed adjustments and does not subsequently issue an amended assessment. Pursuant to section 138B(3)(c), the decision to not issue an amended assessment is a disputable decision which can be challenged. A challenge under section 138C can be made if the Commissioner has, within the applicable response period, rejected the taxpayer's proposed adjustments in respect of the disputable decision.
     
     
156. However, where the dispute is referred to the Adjudication Unit in Inland Revenue's National Office, the actioning officer will prepare a cover sheet that will note all documents that need to be sent to the Adjudication Unit.
     
     
157. The cover sheet together with copies of the documents (NOPA, NOR, notes of conferences, the taxpayer's SOP, the Commissioner's SOP, additional information, material evidence, including expert opinions or specialist advice obtained, together with a schedule of all evidence held) will be sent to the Adjudication Unit.
     
     
158. A letter together with a copy of the cover sheet will be issued by the actioning officer to the taxpayer prior to the submissions and evidence being sent to the Adjudication Unit. The cover sheet and the letter are usually completed within one month from the date of issue of the Commissioner's SOP or the Commissioner's additional information provided under section 89M(8).
     
     
159. The purpose of this letter would be to seek concurrence on the material to be sent to the adjudicator-primarily in regard to documentary evidence that has been disclosed at the SOP phase. This letter will allow no more than 10 working days for response.
     
     
160. All materials to be forwarded to the Adjudication Unit will usually be forwarded within 12 working days of the issue of the letter to the taxpayer, advising the taxpayer that the materials are being forwarded to the Adjudication Unit.
     
161. Where an investigation has covered a number of issues, the cover sheet will outline which issues have been agreed upon between the Commissioner and the taxpayer and which issues are still in dispute. The adjudicator is then able to direct their attention to those issues in dispute. The adjudicator will not reconsider those issues that have been agreed upon.
     
     
162. The adjudicator usually only considers the material submitted by the Commissioner and the taxpayer. They do not usually seek out further information, although they may consider additional material which is relevant. However, if the additional material was not contained in the Commissioner or the taxpayer's SOP, and the matter proceeds to litigation, that material cannot be put forward as evidence in court (refer to discussion on the evidence exclusion rule above). The only exception is where the parties to the dispute agree to include it as additional information under section 89M.

 Adjudication decision

163. Once the Adjudication Unit has reached a conclusion the taxpayer and the actioning officer will be notified of the decision. The actioning officer will carry out any of the recommendations of the Adjudication Unit and follow up procedures where required. Where applicable, this includes issuing a notice of assessment to the taxpayer.
     
     
164. Where a decision is made by the Adjudication Unit against the Commissioner, the Commissioner must follow the Adjudication Unit's decision. The Commissioner is bound by the decision and cannot challenge that decision. The dispute will be at an end.
     
     
165. Where a decision is made by the Adjudication Unit against the taxpayer, the taxpayer may challenge the assessment (whether made by the Commissioner or the taxpayer).
     
     
166. In a dispute resolution process commenced by a taxpayer, the taxpayer if disagreeing with the Adjudicator's decision, may file proceedings in the Taxation Review Authority (either acting in its general or small claims jurisdiction) or the High Court if one of the following conditions is met:
     
     
     • the assessment was the subject of an adjustment proposed by the taxpayer which the Commissioner has rejected (section 138B(3)); or
       
       
     • a disputable decision other than an assessment was the subject of an adjustment proposed by the taxpayer that the Commissioner has rejected (section 138C).
       
     
     
167. The taxpayer must file proceedings with the Taxation Review Authority or High Court within the response period, i.e. two months starting on the date of issue of the assessment.

This Standard Practice Statement is signed on 23 March 2005.

Graham Tubb
National Manager
Technical Standards

 

 APPENDIX 1

Disputes resolution process commenced by a taxpayer: indicative administrative timeframes

Disclaimer: Except for those subject to statutes, the timeframes in this Appendix are intended administrative guides for Inland Revenue. Failure to meet these administrative timeframes will not invalidate subsequent actions of the Commissioner, or prevent the cases going through the disputes resolution process.

Para in the SPS	Key actions	Timeframes
	The taxpayer's notice of proposed adjustment ("NOPA")
21,25, 31,38, 44 and 48	Taxpayer's response period to issue a NOPA in respect of an assessment or a disputable decision (not being an assessment).	Within 4 months from the date of the assessment or within 2 months from the date of the disputable decision (not being an assessment).
82	Forward the taxpayer's NOPA and assign it to an actioning officer.	Usually within 5 working days of receipt of the taxpayer's NOPA.
83	Acknowledge the receipt of the taxpayer's NOPA (either by phone call or in writing).	Usually within 10 working days of receipt of the taxpayer's NOPA.
84	Advise that the taxpayer's NOPA is invalid, but the applicable response period has not expired.	Inland Revenue officers will advise the taxpayer or their agent as soon as they become aware of the invalidity.
86	Advise the taxpayer in writing that their NOPA is invalid and that the taxpayer has not rectified the invalidity within the applicable response period.	Usually within 15 working days from expiry of the applicable response period for issuing a taxpayer's NOPA.
93	Consider the application of "exceptional circumstances" under section 89K, where a taxpayer's NOPA has been issued outside the applicable response period.	Usually within 15 working days of receipt of taxpayer's application.
	Commissioner's notice of response ("NOR")>
100	Advise the taxpayer (either by phone call or in writing) whether the Commissioner intends to issue a NOR.	Usually within 2 weeks before expiry of the response period to the taxpayer's NOPA.
99	The Commissioner issues a NOR.	Within 2 months starting on the date of issue of the taxpayer's NOPA.
	Taxpayer's rejection of the Commissioner's NOR in writing
110	Confirm whether the taxpayer will reject the Commissioner's NOR.	Usually 2 weeks prior to expiry of the response period to the Commissioner's NOR.
109	The taxpayer rejects the Commissioner's NOR in writing.	Within 2 months from the date of issuing the Commissioner's NOR.
111	Forward the taxpayer's rejection of the Commissioner's NOR to the actioning officer.	Usually within 5 working days of receipt of the taxpayer's rejection.
111	Acknowledge the receipt of the taxpayer's rejection of the Commissioner's NOR.	Usually within 10 working days of receipt of the taxpayer's rejection.
112	A taxpayer is deemed to accept the Commissioner's NOR, as the taxpayer fails to reject the NOR within the applicable response period and none of the "exceptional circumstances" apply.	2 weeks after expiry of response period to the Commissioner's NOR.
	Conference phase
113	Contact the taxpayer to initiate the conference phase.	A conference usually commences within 1 month of receipt of the taxpayer's rejection of the Commissioner's NOR. The suggested average timeframe of the conference phase is 3 months, subject to the facts and complexity of the dispute.
120	Communicate the decision not to hold, or abridge any conference must be documented in writing and conveyed by the Commissioner or agent.	Usually within 7 days from the Commissioner's decision.
	Disclosure notice
123	Advise the taxpayer that a disclosure notice will be issued.	Usually within 2 weeks from the date of the issue of the Commissioner's disclosure notice.
	Taxpayer's statement of position ("SOP")
128	The taxpayer must issue a SOP within the response period for the disclosure notice.	Within 2 months from the date of issuing the disclosure notice, unless one of the "exceptional circumstances" under section 89K applies.
136	Confirm whether the taxpayer will issue a SOP.	Usually 2 weeks before expiry of response period to the disclosure notice.
136	Forward the taxpayer's SOP to the actioning officer.	Usually within 5 working days of receipt of the taxpayer's SOP.
137	Acknowledge the receipt of the taxpayer's SOP.	Usually within 10 working days of receipt of the taxpayer's SOP.
137	Advise that the taxpayer's SOP is invalid, but the 2-month response period has not expired.	Inland Revenue officers will advise the taxpayer or their agent as soon as they become aware of the invalidity.
138	Consider the application of "exceptional circumstances" under section 89K, where a taxpayer's SOP has been issued outside the applicable response period.	Usually within 15 working days of receipt of taxpayer's application.
139	A taxpayer is treated as if it has not been commenced at all, if the taxpayer fails to issue a SOP within the applicable response period and none of the "exceptional circumstances" apply.	Usually 2 weeks after expiry of the response period to the disclosure notice.
	The Commissioner's SOP
140	Issue the Commissioner's SOP.	Within 2 months from the date of issuing the taxpayer's SOP, unless an application to the High Court has been made.
	The Commissioner's addendum
145	Provide additional information via addendum to the Commissioner's SOP within the response period for the taxpayer's SOP.	Where applicable, within 2 months from the issue of taxpayer's SOP.
148	Consider a taxpayer's request to add additional information to the taxpayer's SOP.	Usually within 1 month from the date of issue of the Commissioner's SOP or the date of issue of the Commissioner's addendum
	Adjudication
158	Prepare a cover sheet and issue a letter (including a copy of the cover sheet) to the taxpayer to seek concurrence of the materials to be sent to the adjudicator.	Usually within 1 month from the date of issue of the Commissioner's addendum (if any) or within 1 month from the expiry date of the response period for the taxpayer's SOP.
159	The taxpayer responds to the Commissioner's letter.	Within 10 working days from the date of issue of the Commissioner's letter.
160	Forward materials relevant to the dispute to the Adjudication Unit.	Usually within 12 working days from the date of issue of the Commissioner's letter.
	Adjudication of the disputes case.	Usually 4 months from the date of receipt of the dispute file by the Adjudication Unit, subject to the facts and complexity of the dispute.