Section 17 notices (Aug 04) (WITHDRAWN)

Introduction

1. This Standard Practice Statement outlines the procedures Inland Revenue will follow when issuing notices, including third party requests, under section 17 of the Tax Administration Act 1994. Section 17, which relates to requisitions for information, is one of Inland Revenue's information-gathering powers. Other powers (such as section 16) which relate to the gathering of information can be, and are, used by the Commissioner in conjunction with section 17 but they are not discussed in this Standard Practice Statement.

Application

2. This Standard Practice Statement applies from 15 August 2004 and replaces INV-321 Section 17 Notices published in Tax Information Bulletin Vol 11, No 9 (October 1999).

Background

3. Before Inland Revenue can verify or make an assessment of a person's taxation liability, information is needed. The Tax Administration Act 1994 gives the necessary powers to collect information including section 17 which empowers the Commissioner of Inland Revenue to require any person to furnish in writing any information and produce books and documents for inspection where it is considered necessary or relevant for the Commissioner to exercise his statutory functions.
   
   
4. Section 17 has been amended by section 85 of the Taxation (Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Act 2003 and again by section 105 of the Taxation (GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003. The relevant changes are:
   
   
   • A new subsection (1B) provides that information or a book or document that is in the knowledge, possession or control of a non-resident who is controlled, directly or indirectly, by a New Zealand resident, is to be treated as being in the knowledge, possession or control of the New Zealand resident. Accordingly that New Zealand resident may be required to furnish information held by the non-resident that it controls.
     
     
   • Subsection (1C) sets out rules for determining when a person is controlled by a New Zealand resident and provides that foreign secrecy laws are to be ignored.
     
     
   • Subsection (1D) provides that Inland Revenue may require that the information requested is to be delivered to a particular office of the Department. Where this is required it will be stipulated, with the street or postal address, in the section 17 notice. Because this amendment may cause extra compliance costs to taxpayers by way of delivery charges, Inland Revenue may instead agree to the information being delivered to the office nearest the taxpayer or nearest to where the information is held. See paragraph 11 of this SPS.
   
   
   These changes took effect on 26 March 2003. Further background to and explanation of these changes can be found in Tax Information Bulletin Vol 15, No 5 (May 2003) at pages 53-56.
   
   
5. Inland Revenue will usually request information, books or documents without expressly relying on section 17. This practice fosters a spirit of reasonableness and mutual cooperation.
   
   
6. However, where information is not provided voluntarily or in a timely manner Inland Revenue will use the statutory authority in section 17 to demand the information. In this case Inland Revenue issues a section 17 notice. If not complied with, a section 17 notice will result in Inland Revenue invoking the statutory remedies. However, Inland Revenue reserves the right i n some cases to commence the information gathering process with a section 17 notice, e.g. in cases where it knows of prior instances of non-cooperation from the taxpayer and/or their advisers.

Legislation

Tax Administration Act 1994

3 Interpretation

1. In this Act, unless the context otherwise requires,- ..
   
   "Book and document" , and "book or document" , include all books, accounts, rolls, records, registers, papers, and other documents and all photographic plates, microfilms, photostatic negatives, prints, tapes, discs, computer reels, perforated rolls, or any other type of record whatever: ...

17 Information to be furnished on request of Commissioner

1. Every person (including any officer employed in or in connection with any Department of the Government or by any public authority, and any other public officer) shall, when required by the Commissioner, furnish in writing any information and produce for inspection any books and documents which the Commissioner considers necessary or relevant for any purpose relating to the administration or enforcement of any of the Inland Revenue Acts or for any purpose relating to the administration or enforcement of any matter arising from or connected with any other function lawfully conferred on the Commissioner.

1B. For the purpose of subsection (1), information or a book or document is treated as being in the knowledge, possession or control of a New Zealand resident if:

1. the New Zealand resident controls, directly or indirectly, a non-resident; and
   
2. the information or book or document is in the knowledge, possession or control of the non-resident.
   

1C. For the purpose of subsection (1B) and sections 143(2) and 143A(2) -

1. in determining whether a non-resident is controlled by a New Zealand resident
   1. anything in the knowledge, possession or control of [1] a person who is resident in New Zealand, or is a controlled foreign company, and is associated with the New Zealand resident is treated as being in the knowledge, possession or control of the New Zealand resident; and
   2. a person is treated as being associated with the New Zealand resident if the person and the New Zealand resident are associated under section OD 7, interpreted as if "relative" had the meaning set out in paragraph (b) of the definition in section OB 1, or OD 8(3) of the Income Tax Act 1994; and
2. a law of a foreign country that relates to the secrecy of information must be ignored.

1D. If information in writing is required, or books and documents must be produced, the Commissioner may require that the information be furnished, or the books and documents be produced, to a particular office of the Department.

2. Without limiting subsection (1), the information in writing which may be required under this section shall include lists of shareholders of companies, with the amount of capital contributed by and dividends paid to each shareholder, copies of balance sheets and of profit and loss accounts and other accounts, and statements of assets and liabilities.

3. The Commissioner may, if the Commissioner considers it reasonable to do so, remove and retain any books or documents produced for inspection under this section for so long as is necessary for a full and complete inspection of those books and documents.

4. Any person producing any books or documents which are retained by the Commissioner under subsection (3) shall, at all reasonable times and subject to such reasonable conditions as may be determined by the Commissioner, be entitled to inspect the retained books or documents and to obtain copies of them at the person's own expense.

5. The Commissioner may require that any written information or particulars furnished under this section shall be verified by statutory declaration or otherwise.

6. The Commissioner may, without fee or reward, make extracts from or copies of any books or documents produced for inspection in accordance with this section.

Standard Practice

Section 17 Notice

7. Section 17 gives the Commissioner of Inland Revenue the power to require persons to produce for inspection books and documents which the Commissioner considers necessary or relevant for any purpose relating to the administration or enforcement of the Inland Revenue Acts. Included within the expression "book and document" are all books, accounts, rolls, records, registers, papers, and all photographic plates, microfilms, photostatic negatives, prints, tapes, discs, computer reels and perforated rolls. It is considered that "discs" would include any kind of recordable disc, i.e. compact and floppy discs, and DVDs, etc.
   
   
8. Where information is to be demanded under section 17 a notice will be issued (refer to Notice "A" in the attached Appendix). Prior to issuing a section 17 notice Inland Revenue will consider the following points.
   
   
   1. The reason for requiring the information
      Inland Revenue will only request information considered necessary or relevant and that is reasonably required in the circumstances of the case.
      
      
   2. The impact of the demand on the suppliers of information
      Inland Revenue will be reasonable in relation to the quantity of information sought and the timeframe for providing that information. Inland Revenue will reconsider parts of the demand where there is genuine difficulty in obtaining and/or providing that information.
      
      
   3. Previous requests for information or attempts to resolve disputes
      Generally, a section 17 notice will only be issued following a failure to provide information previously requested, or where specific issues have been identified and an attempt to resolve those issues has failed. There will be occasions where a section 17 notice may be issued without a prior request, e.g. where there have been prior instances of non-cooperation from the taxpayer and/or their advisers, or where the Commissioner otherwise considers that delay, or a less formal approach, may unreasonably increase the risk of non-compliance. (Depending on the circumstances, a refusal or failure to comply with an informal request for information would be non-cooperation and a refusal or failure to comply with a more formal request for information, i.e. one mentioning section 17, would be non-compliance as well.) Where the taxpayer's adviser has in the past been uncooperative (including in respect of matters unrelated to the taxpayer) this may be a factor to be taken into account in considering whether a section 17 notice may be issued without a prior request.
      
      An example of a case where a notice might be issued without a prior request is where an audit has been in progress for some time without a request under section 17 having been made. It would then be appropriate, because the matter may proceed to adjudication, that a notice be issued to ensure that all relevant information has been gathered.
      
      
   4. Whether the information is available publicly
      Inland Revenue will generally not use section 17 where information is available publicly and will meet the usual charges, for example where the information is held by the Land Transfer Office, the Companies Office and Quotable Value New Zealand. Public availability of information does not, however, prevent Inland Revenue from requiring information to be provided under section 17.
      
      
   5. The effect upon the disputes resolution process
      The disputes resolution process relies on full and prompt disclosure by both the Commissioner and the disputant. Where previous requests have not been met with full and prompt disclosure Inland Revenue will use section 17 notices to obtain information. The use of section 17 prior to the commencement of the disputes resolution process may mean that the number of matters entering that process will be reduced.
      
      Under proposed legislation the disputes process may be truncated where a taxpayer has failed to comply with an information request. However there may be instances where, with a statute bar approaching, it is considered necessary that the disputes resolution proceedings (including adjudication) be completed and a final decision whether to issue an assessment or not be made within time. Section 17 may also be used in such cases to ensure that all relevant information is gathered.
      
      
   6. Inland Revenue's intention to ensure compliance with the notice
      Generally, Inland Revenue will use section 17 only where it is prepared to invoke the statutory remedies in the event of non-compliance.
      
      
   7. The use of section 16 powers
      In some cases Inland Revenue will not request information but will access the books and documents under section 16 which gives the Commissioner the power to enter all places for the purpose of inspecting any books and documents.

9. Nothing in section 17 precludes Inland Revenue from seeking information from multiple sources and from sources other than the affected taxpayer.
   
   
10. Separate section 17 notices may be issued for different information and books or documents. If the Commissioner requires the information to be delivered to Inland Revenue, the notice will state that the information be furnished, or the books and documents be produced, to a particular office of the Department.
    
    Requests for significant amounts of documentation
    
    
11. If a significant amount of documentation is requested, the person providing the information will be permitted to send the documents to the nearest Inland Revenue office, which will arrange for them to be forwarded to the office conducting the investigation. Where the delivery costs would be reduced by $20 or more by sending to the nearest Inland Revenue office then it is considered that the amount of documentation is significant. In this circumstance we would generally accept the request to send the information to the nearest office.[2]
    
    
12. The decision whether or not to issue a section 17 notice will generally be the responsibility of a team leader and approval to issue the notice should be given by an officer at or above that level.
    
    Legal professional privilege
    
    
13. A taxpayer is entitled, and should have sufficient time, to seek legal advice in respect of whether particular books or documents are subject to legal professional privilege. Section 20 of the Tax Administration Act 1994 covers the topic of solicitor-client privilege, i.e. privilege of confidential communications between legal practitioners and their clients. Briefly, it provides that information is privileged from disclosure if it is a confidential communication between a legal practitioner and another legal practitioner (acting in their professional capacities) or a legal practitioner in the practitioner's professional capacity and the practitioner's client and it is made or brought into existence for the purpose of obtaining or giving legal advice or assistance. However financial information and investment records kept in connection with solicitors' trust accounts are not privileged. The other kind of privilege, litigation privilege which relates to pending or contemplated litigation, is not covered by section 20.
    
    Advice and other work papers prepared by accountants
    
    
14. The Commissioner has also adopted certain administrative rules concerning the use of section 17 to gain access to advice and other work papers of accountants for their clients.
    
    Correction of information
    
    
15. Where a taxpayer has complied with an information requisition then, in accordance with section 6 of the Privacy Act 1993 (Information Privacy Principle No. 3), the taxpayer will be allowed to seek access to and correction of that information where Inland Revenue has incorrectly recorded the information.

Changes to Section 17 Notice

16. In following the above process every attempt will be made to maintain contact with the taxpayer so as to provide an opportunity for concerns to be raised. Inland Revenue expects holders of information to contact Inland Revenue where there is genuine difficulty in complying with the demand.
    
    
17. Any change to the date for compliance must be agreed before the expiration of the original date. Beyond this, the offence for non-compliance has already occurred and an extension of time will not be given.
    
    
18. Where modification of the notice is agreed it will be recorded in writing (refer to specimen Notice "B" in the attached Appendix).

Requests to persons other than the taxpayer

19. Some holders of information, such as banks, are willing to provide information but require Inland Revenue to state its legal authority before they will release the information. Generally, where information is required from persons other than the taxpayer and cooperation is likely, Inland Revenue will initially seek the information by a letter (refer to specimen Letter "C1" and the slightly more formal Notice "C2" in the Appendix). The letter may follow a discussion. Letter "C1" i s provided by way of example and may be varied according to the circumstances, and it may or may not contain a reference to section 17.
    
    
20. The letter is not a formal section 17 demand. However, generally where the letter is not complied with, a section 17 notice based on specimen Notice "A" will be issued so the third party recipient is informed of the consequences of their non-compliance before further action is initiated.
    
    Controlled non-residents
    
    
21. Under section 17(1), Inland Revenue may require a New Zealand resident to provide information in circumstances where the resident's non-resident employees or agents hold the information for the resident. Section 17(1B) now gives Inland Revenue the further power to require a New Zealand resident to provide information held by a non-resident entity controlled, directly or indirectly, by that New Zealand resident.[3] For example, a husband and wife have 51% of the shares in a foreign company. Inland Revenue can issue a section 17 notice to them requiring that they furnish information held by the foreign company. Subsection (1C) sets out further rules for determining whether a non-resident is controlled, in particular it provides that foreign secrecy laws are to be ignored.
    
    
22. If obtaining the information would be a costly or difficult exercise then generally it would not be required where the tax at stake is immaterial, or when Inland Revenue has access to this information through other sources.
    
    Medical information
    
    
23. In rare instances Inland Revenue may seek access to an individual's medical records. For example, it may be necessary to inquire into the genuineness of a medical certificate. Such requests need careful consideration.

Non-compliance with Section 17 Notice

24. It is an offence not to comply with a section 17 notice. Sections 143 and 143A of the Tax Administration Act 1994 state that an offence has occurred where a person does not provide, or knowingly does not provide, information to the Commissioner when required to do so by a tax law. Furthermore section 143B provides that it is an offence for a person knowingly not to provide information to the Commissioner or any other person when required to do so under section 17, where that person or any other person does so intending to evade the assessment or payment of tax. However, sections 143 and 143A of the Act state that no person may be convicted of an offence for not providing information, or knowingly not providing information (other than tax returns and tax forms) to the Commissioner if that person proves they did not, as and when required to provide the information, have that information in their knowledge, possession or control. Control here is used in its wider sense and includes material held by others on one's behalf.
    
    
25. Where non-compliance occurs, Inland Revenue will not reissue a section 17 notice in a different format. An offence is committed if a section 17 notice is not complied with. However those receiving section 17 notices have the ability to request a new due date for compliance with the notice before expiration of the original due date as mentioned above (paragraph 17).
    
    
26. Where non-compliance occurs, a follow-up notice will generally be issued before further action is taken. The follow up notice will state that the section 17 notice has not been complied with, court orders are being sought and/or prosecution action is being considered (refer Notice "D" attached). A follow-up notice or letter will not be issued in all cases, e.g. one situation would be where there have been delays in supplying information previously.
    
    
27. Where Inland Revenue has issued a follow-up notice, an application for a court order for compliance with the section 17 notice may be made and/or prosecution action may be taken. There are different time limits for laying informations to begin prosecution action:
    
    
    • for the offence of knowingly not providing information when required to do so the time limit is 6 months,
    • for the absolute liability offence of not providing information when required to do so the time limit is 10 years, and
    • for the offence of knowingly not providing information when required and the offender does so, for example, intending to evade the assessment or payment of tax, there is no time limit.
    
    
    
28. Once the offence is committed prosecution action should be commenced within a reasonable time of the date of non-compliance unless there are special circumstances, e.g. the offence not being discovered until a later time.
    
    
29. In general where a person complies with the requirement to provide information after the stipulated time but prior to the issue of a summons by the Court commencing the prosecution action foreshadowed in Notice "D", the prosecution would not be commenced.

This Standard Practice Statement is signed by me on 12 August 2004.

Margaret Cotton
National Manager
Technical Standards

 [1] The Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill which was introduced on 29 March 2004 proposes (clause 71) to amend s17(1C)(a)(i) by replacing "in the knowledge, possession or control of" with the words "held by" in both places where they occur. This would simply reverse the amendment effected by the Taxation (GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003.

 [2] This paragraph is included in accordance with Inland Revenue's statement in Tax Information Bulletin Vol 15, No 5 (May 2003) at page 56 that there would be administrative guidelines on this point.

 [3] See Tax Information Bulletin Vol 15, No 5 (May 2003) at pages 55 and 56 for a brief discussion of this amendment.