Section 17 notices

This statement also appears in Tax Information Bulletin Vol.25, No.8 (September 2013).

All legislative references are to the Tax Administration Act 1994 (TAA) unless otherwise stated.

Introduction

1. This Operational Statement ("OS") outlines the procedures Inland Revenue will follow when issuing notices, including third party requests, under section 17. The section, which relates to requisitions for information, is one of Inland Revenue's information-gathering powers. Other information-gathering powers (such as section 16) can be and are used by the Commissioner in conjunction with section 17 but they are not discussed in this OS.
2. The OS has been updated to incorporate amendments to the legislation concerning these powers, to incorporate principles, particularly in respect of non-disclosure rights, established in cases that have been decided since Standard Practice Statement 05/08 Section 17 Notices was published in 2005. It also outlines the impact of the recently enacted Search and Surveillance Act 2012 (the SSA) on the Commissioner's power to obtain information under production orders.

Application

3. The OS applies from 14 August 2013 and replaces Standard Practice Statement 05/08 Section 17 Notices, published in Tax Information Bulletin Volume 17, No 6 (August 2005).

Background

4. Before the Commissioner can verify or make an assessment of a person's tax liability, information (including non-documentary information which is within a person's knowledge) is needed. The legislation provides the Commissioner with the necessary powers, including section 17, to collect information. Section 17 empowers the Commissioner to require any person to furnish in writing any information and to produce for inspection any documents that are considered "necessary or relevant" to exercise the Commissioner's statutory functions.
5. Inland Revenue staff will usually request information and documents without expressly relying on section 17. This practice fosters a spirit of reasonableness and mutual cooperation.
6. If, however, information is not provided voluntarily or in a timely manner the Commissioner is able to use section 17 to demand the information by issuing a notice under the section. In some cases the information gathering process may be commenced by issuing a section 17 notice. For example, this may occur where there have been prior instances of non-cooperation from the taxpayer and/or their advisers. Non-compliance with the section 17 notice will result in the Commissioner invoking the statutory remedies.
7. Any request for information with express reference to section 17 will generally contain reference to taxpayers' right to make a claim for non-disclosure to ensure that the recipient of the notice is aware of this statutory right belonging to the taxpayer. However in some cases the nature of a request may not warrant a reference to the right to claim non-disclosure, such as where the request is for information that relates purely to information which is not contained in tax advice documents.
8. SPS 05/07 Non-disclosure right for tax advice documents provides information on what constitutes a tax advice document, and sets out the process for making a claim of non-disclosure.

Legislation

Tax Administration Act 1994

9. The relevant sections are as follows:

3 Interpretation

(1) In this Act, unless the context otherwise requires,-

document means—

(a) a thing that is used to hold, in or on the thing and in any form, items of information:

(b) an item of information held in or on a thing referred to in paragraph (a):

(c) a device associated with a thing referred to in paragraph (a) and required for the expression, in any form, of an item of information held in or on the thing

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 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 document is treated as being in the knowledge, possession or control of a New Zealand resident if—

(a) The New Zealand resident controls, directly or indirectly, a non-resident; and

(b) The information 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)—

(a) in determining whether a non-resident is controlled by a New Zealand resident, the New Zealand resident is treated as holding anything held by a person who is resident in New Zealand, or is a controlled foreign company, and is associated with the New Zealand resident; and

(b) A law of a foreign country that relates to the secrecy of information must be ignored.

(1D) If information in writing is required, or documents must be produced, the Commissioner may require that the information be furnished, or the 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 documents produced for inspection under this section for so long as is necessary for a full and complete inspection of those documents.

(4) Any person producing any 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 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 documents produced for inspection in accordance with this section.

The Search and Surveillance Act 2012

10. The SSA came into effect on 1 October 2012, although for Inland Revenue it will take effect from 1 April 2014, or an earlier of the date if given effect by an Order in Council. The relevant sections are sections 3 and 123, and Schedule to the SSA.
11. The SSA contains a detailed list of basic powers that a person exercising search powers can make use of. Refer to Operational Statement 13/01 The Commissioner of Inland Revenue';s search powers, published in relation to section 16 concerning these powers.

Analysis of key changes

The new definition of 'document'

12. The definition of 'book and document' and 'book or document' in section 3(1) was repealed and replaced with 'document' effective from 29 August 2011.The words 'book and document' throughout the TAA were replaced with the new term 'document'. The reason for the update is to remove references to redundant technology and to future proof the definition as some of the old terminology refers to out of date technology such as computer reels and perforated reels.

13. The definition of 'document' is much wider than the repealed definition of 'book and document' as it clearly includes all forms of information storage.It does not, however, extend the old definition.Rather it updates it by removing references to redundant technology. The definition of 'document' should not, therefore, affect departmental practice as the repealed definition of 'book and document' included any records in electronic form. This view was confirmed by the High Court in Avowal Administrative Attorneys Ltd v District Court at North Shore (2009) 24 NZTC 23,252 where Venning J rejected the appellant's argument that a computer hard drive did not come within the old definition of 'book and document'. The Court of Appeal [2010] 3 NZLR 661 confirmed the position taken by Venning J that the definition of 'book and document' included 'any other type of record' which was wide enough to encompass computer hard drives.

Non-disclosure right

14. The Commissioner's wide information gathering powers under section 17 are subject to legal professional privilege (section 20) and to non-disclosure right for a tax advice document (sections 20B to 20G). The High Court in Blakeley v C of IR (2008) 23 NZTC 21,865 considered the scope of protection against disclosure of a tax advice document provided by sections 20B to 20G.The case concerned a section 17 notice issued to the appellant requiring him to provide a list of names and IRD numbers of clients to whom he had provided tax advice in respect of certain transactions.The appellant declined to provide the information on the basis that it would involve the disclosure of a tax advice document which was protected by section 20B. The High Court dismissed the appeal and confirmed the finding of the District Court that the right to non-disclosure of a tax advice document in respect of the information required is not available to the appellant. The following observations made by the Court indicate the scope of non-disclosure right:
    • The protection afforded by section 20B is more confined than legal professional privilege.It is not a new substantive right of equivalent utility to legal professional privilege. It was a creature of statute and protected defined parts of a limited category of written communications.
    • The plain words of the legislation gave no protection to the information from disclosure sought by the Commissioner.
    • Tax contextual information contained in the opinions would not be protected from disclosure even if the tax advice itself was.
    • Waiver did not arise under sections 20B to 20G. The protection against disclosure provided by the legislation was not susceptible to waiver.The right to disclosure must be claimed by following the detailed procedure set out in section 20D.If the procedure set out in the legislation was not followed, there would be no right to non-disclosure.

Litigation on an even basis

15. In a number of cases it has been argued that section 17 is subject to the principle that litigation should be conducted on an even basis and therefore the Commissioner should not be allowed to seek information once the proceedings have been issued.In Vinelight Nominees Ltd v C of IR (2005) 22 NZTC 19,298 the Commissioner viewed the taxpayer's returns as being fraudulent and misleading and sought to reissue assessments.After the taxpayer filed proceedings to challenge the Commissioner's decision, the Commissioner issued section 17 notices to seek information relating a statement made in the taxpayer's notice of response. The High Court declined to make a declaration, as sought by the taxpayer, that the Commissioner could not use section 17 to obtain information once the court proceedings had commenced.The Court considered that the Commissioner's dominant motivation was not to gain advantage as a litigant, but rather to assist the making of the revised assessments.The Court however concluded that the principle of litigation on an even basis limits the scope of section 17 and that a section 17 notice could not be issued for the sole purpose of extracting information to use in the legal proceedings; the principle to be applied on a case by case basis.
16. Chesterfield Preschool Ltd v C of IR (No 2) (2005) 22 NZTC 19,500 was another High Court case concerning the scope of section 17.Fogarty J's views on section 17 differed from those of Simon France J in Vinelight.Fogarty J considered that the principle of litigation on an even basis did not apply in the context of disputes concerning the recovery of unpaid tax.He said that section 17 was intended by Parliament to be an effective instrument for obtaining information, particularly documents, and that was its purpose.There was no basis of suspending the Commissioner's powers under section 17 even though some aspects of the proceedings have become subject to the High Court rules.
17. The High Court in Next Generation Investments Ltd (in liq) v C of IR (2006) 22 NZTC 19,775 noted the conflicting views in Vinelight and Chesterfield as to the scope of section 17 but did not endorse either of them. Priestley J preferred the balanced use of section 17 adopted by France J in Vinelight.He said that the Commissioner's powers could not be exercised in an unfettered way. As a statutory power, it would be subject to an application for a judicial review should it be used ultra vires or in some other improper manner.
18. In Foxley v C of IR (2008) 23 NZTC 21,813 the Court said that the Vinelight, Chesterfield and Next Generation cases established that the Commissioner may use section 17 to request information, at least until challenge proceedings are on foot, and potentially beyond, provided that the powers are exercised for a proper purpose.
19. The Commissioner's search and seizure powers were challenged in Tauber v C of IR (2011) 25 NZTC 20,071 by way of a judicial review.The applicants claimed that the conduct of the search by the Commissioner was a breach of the New Zealand Bill of Rights Act 1990 (NZBORA).Venning J referred to the decision of the Court of Appeal in Commerce Commission v Air New Zealand [2011] 2 NZLR 194 which involved the consideration of a non-disclosure order and the impact of section 27(3) of the NZBORA on the information gathering powers of the Commerce Commission.In that case the Court of Appeal approved the approach of Simon France J in Vinelight where hesaid that the principle of litigation on an even basis limits the scope of section 17, and it could not be used for the sole purpose of extracting information to use in the legal proceedings.
20. These cases confirm that Inland Revenue's information gathering powers may be exercised up until the time challenge proceedings are commenced.They may, on occasion, be exercised after the legal proceedings are commenced provided they are used for a proper purpose, not to gain an otherwise unachievable advantage, and not used for the purpose of extracting information for use in the proceedings.

Use of section 17 notice post liquidation/bankruptcy

21. The Commissioner may use her section 17 powers to obtain documents/information from a liquidator without first obtaining an order under section 256(1)(a) of the Companies Act 1990 for the purpose of giving effect to her statutory duties such as to ascertain a correct tax liability, for prosecution and other related matters: Next Generation Investment Ltd (in liq) &Ors v C of IR (2006) 22 NZTC 19,775.

Access to audit work papers

22. Since the publication of SPS 05/08 the Commissioner's policy on access to audit working papers has been updated to provide guidelines effective from 29 April 2008. The Protocol on Access to Audit Working Papers (Protocol) was signed between the New Zealand Institute of Chartered Accountants (NZICA) and Inland Revenue on 29 April 2008.Requests to access to audit working papers will be made on the basis of the policy outlined in the Protocol. A copy of the document can be found on the Inland Revenue website.
23. Documents that are prepared solely for audit purposes in relation to a client's accounting or tax positions and exposures constitute 'audit working papers'.They are the property of the auditor and not of the client.Working papers in relation to other work undertaken by an external auditor are referred to as 'other working papers'.They may include tax work papers, such as papers compiled in order to complete the tax return or to provide tax advice.Other working papers form part of the taxpayer's records, whether they are held by the auditor, the taxpayer or a third party.

Relationship between SSA production orders and TAA production orders

24. Section 71 of the SSA contains a production order power that is similar to the Commissioner's power under section 17A of the TAA.
25. The SSA production order can only be used where there are reasonable grounds to believe that the documents sought constitute evidential material in respect of an offence,and that the documents are or will be in the possession or control of the person to whom the production order is used.Failure to comply with a production order under section 71 of the SSA carries with it a one year sentence of imprisonment.
26. However, because sections 16 and 17 provide very broad powers of obtaining information, Inland Revenue will generally use section 17 and not rely on a production order under the SSA, unless there are circumstances that may warrant the use of an SSA production order instead of one under the TAA. A production order power under the SSA will only be used with the approval of the Group Tax Counsel or Group Manager, Investigation and Advice.

Operational practice

Section 17 Notices

27. Section 17 gives the Commissioner the power to require persons to produce for inspection documents which the Commissioner considers necessary or relevant for any purpose relating to the administration or enforcement of the Inland Revenue Acts. It is most often used in the context of the investigation of a taxpayer's correct tax position, but can also be used, for example, in liquidation/insolvency situations to obtain information/documents, provided it is not used for improper purposes. However a section 17 power cannot be invoked for questionable or improper purpose, such as to gain advantage over other creditors or for debt recovery.
28. We would generally not use the section 17 powers for the sole purpose of requiring taxpayers to provide outstanding returns as the Commissioner can, under section 17A(3), apply for a court order requiring the taxpayer to provide the tax return if a taxpayer does not provide a tax return on time.
29. The new definition of "document", although broad, does not extend the old definition of "book or document" but instead updates it by removing references to redundant technology. The new definition does not, therefore, affect Inland Revenue’s current practice as it is considered that the repealed definition included any records in electronic form.
30. Case law confirms that the Commissioner may exercise the information gathering powers pursuant to section 17 up until the time challenge proceedings are commenced. They may, on occasion, be exercised after the legal proceedings are commenced provided they are used for a proper purpose, not to gain an otherwise unachievable advantage, and not used for the purpose of extracting information for use in the proceedings.
31. Section 17 authorises Inland Revenue to require written answers to questions relating to the documents requisitioned under the section, and also written answers relating to other information. Such answers, if self-incriminatory, are nevertheless admissible against the person who made them: Singh v C of IR (1996) 17 NZTC 12,471; R v Sew, Hoy, CA 315/91 & CA 316/91, 6 December 1991. However section 17 does not authorise questions unrelated to the documents, such as questions that directly seek to compel confession to elements of offending that may have been committed by, e.g. using the documents
32. Where information is to be demanded under section 17, a notice will be issued in writing. Prior to issuing a section 17 notice, Inland Revenue will consider a number of factors that are outlined below:
    
    The reason for requiring the information
33. The Commissioner will only require disclosure of information considered necessary or relevant and that is reasonably required in the circumstances of the case.
    
    The impact of the demand on the suppliers of information
34. The Commissioner will be reasonable in relation to the quantity of information sought and the timeframe for providing that information. Reasonable time will be allowed where there is genuine difficulty in obtaining and/or providing the information requested.
    
    Reasons an informal request is not appropriate
35. 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 attempts to resolve these issues have failed. However, there will be occasions where a section 17 notice may be issued without a prior informal request. For instance where:
    • there have been prior instances of non-cooperation from the taxpayer. A refusal or failure to comply with an informal request or more formal request (that is one mentioning section 17) may be regarded as non-co-operation; or
    • the Commissioner considers that a delay, or a less informal approach may unreasonably increase the risk of non-compliance; or
    • the taxpayer’s adviser has been uncooperative in the past (including in respect of matters unrelated to the taxpayer) may be a relevant factor in deciding whether a section notice should be issued without a prior informal request.
    
    Whether information is available publicly
36. Inland Revenue will generally not use section 17 where information held by public bodies such as Land Information New Zealand, the Companies Office and Quotable Value New Zealand is available publicly. Public availability of information does not, however, prevent Inland Revenue from requiring information to be provided under section 17.
    
    Whether the disclosure of tax contextual information is required
37. Where a section 17 notice contains a reference to the non-disclosure right for tax advice documents, the notice will also refer to when the tax contextual information (as defined in section 20F(3)) is required to be disclosed. If the Commissioner does require such a disclosure, that requirement will generally be the subject of a subsequent notice. However, in rare cases the notice will contain a requirement to disclose the tax contextual information as part of the disclosure requirement for the section 17 notice. For further information on the operation of the right to claim non-disclosure and the definition of key terms refer to the SPS 05/07 Non-disclosure right for tax advice documents and to the discussion below.
38. Where the disclosure of the tax contextual information is required as part of the disclosure requirements in the section 17 notice, the tax contextual information must be provided on the form Tax contextual information disclosure (IR 520) which contains a statutory declaration.
    
    The effect on the dispute resolution process
39. The dispute resolution process relies on full and prompt disclosure by both the Commissioner and the disputant. Inland Revenue will use a section 17 notice where previous requests for information have not been complied with. The use of a section 17 notice prior to commencement of the dispute resolution process may mean that the number of matters entering the process will be reduced.
40. The disputes resolution process may be truncated and an amended assessment issued where a taxpayer has failed to comply with a section 17 notice during the dispute process: section 89N(1)(c)(vi).
    
    Inland Revenue’s intention to ensure compliance with the notice
41. Generally, Inland Revenue will use a section 17 notice only where it is prepared to invoke statutory remedies in the event of non-compliance.
    
    The use of section 16 powers
42. In some cases, rather than demanding information under section 17 Inland Revenue will access the documents under section 16, which gives the Commissioner the power to enter all places (in the case of a private dwelling, either the consent of an occupier or a warrant is required) for the purposes of inspecting documents. For further information on the Commissioner’s policies in respect of section 16 please refer to OS 13/01.
    
    Multiple sources
43. Nothing in section 17 precludes Inland Revenue from seeking information from multiple sources and from sources other than the affected taxpayer, whether before or after seeking the information directly from the relevant taxpayer.
    
    Multiple notices
44. Separate section 17 notices may be issued for different information and documents. If the Commissioner requires the information to be delivered to Inland Revenue, the notice will state that the information is to be delivered, or the documents to be produced, to a particular office of the Inland Revenue.
    
    Request for significant amount of documentation
45. Where a significant amount of documentation is required, the person providing the information will be permitted to send documents to the nearest Inland Revenue office. That office will arrange for the documents to be forwarded to the office conducting the investigation. Where the delivery cost would be reduced by $20 or more by sending documents to the nearest Inland Revenue office then it is considered that the amount of documentation is significant. In this circumstance Inland Revenue would generally accept the request to send the documents to the nearest office.
    
    Delegation
46. The decision whether or not to issue a section 17 notice has been delegated to various responsible officers. A decision to issue a section 17 notice will generally be peer reviewed by the delegated officer’s team leader. The exercise of the discretion to require disclosure of the tax contextual information is limited to officers at appropriately high level of delegated authority and any decision to require tax contextual information is signed off by Manager, Investigations or by Team Leader, Legal and Technical Services.
    
    Legal professional privilege
47. A taxpayer is entitled, and should have sufficient time, to seek legal advice in respect of whether any information or documents are subject to legal professional privilege. Section 20 covers the solicitor-client privilege. It provides that information is privileged from disclosure if it is a confidential communication passing between a legal practitioner and another legal practitioner (acting in their professional capacities) or a legal practitioner and a client, and it is brought into existence for the purpose of obtaining or giving legal advice or assistance. There are, however, exceptions to the privilege. Privilege does not apply when the communication was brought into existence for the purpose of committing some illegal or wrongful act. Also financial information and investment records kept in connection with solicitors’ trust accounts are not privileged.
48. The privilege recognised by section 20 is not a complete code as it does not cover litigation privilege and other communications protected from disclosure at common law. Inland Revenue considers that the Commissioner’s powers under section 17 are subject to legal professional privilege contained in section 20 and litigation privilege at common law. In practice, however, Inland Revenue regards the section 20 privilege as extending to litigation privilege where New Zealand lawyers (as defined by the Lawyers and Conveyancers Act 2006) are involved. For this purpose, litigation privilege is regarded as covering documents created for the dominant purpose of advising or assisting on reasonably apprehended litigation.
    
    Right to claim non-disclosure for tax advice documents
49. The Commissioner’s information gathering powers (including section 17) are subject to the statutory right to claim non-disclosure for tax advice documents. The right to claim non-disclosure relates to tax advice documents that are required to be disclosed under a section 17 notice. The right to claim non-disclosure belongs to the taxpayer. The statutory provisions contain time periods in which the taxpayer (or their authorised advisor) is required to make the necessary claim for non-disclosure. The taxpayer (or their authorised tax advisor) will be given at least 28 days to claim the non-disclosure right for those documents eligible to be tax advice documents, and required to be disclosed under the section 17 notice. This time period will be specified in the notice. The taxpayer or their authorised advisor can make the claim for non-disclosure by completing the form Tax advice document claim (IR 519).
50. The Commissioner will review the documents and information received in terms of the section 17 notice, and the information provided on the form IR 519. It will then be decided whether disclosure of the tax contextual information from the documents eligible to be tax advice documents is required. If the tax contextual information is required, a subsequent section 17 notice will be issued for the tax contextual information allowing at least another 28 days to provide the information.
51. The tax contextual information must be provided in the prescribed form, Tax contextual information disclosure (IR 520). The form IR 520 contains a statutory declaration which needs to be completed by a tax advisor. For further information on tax contextual information and the necessary disclosure requirements, refer to the SPS 05/07 Non-disclosure right for tax advice documents or consult your tax advisor.
52. In rare cases the Commissioner may require both the claim for the non-disclosure right and the disclosure of the tax contextual information from those documents that may be eligible to be tax advice documents in the one section 17 notice. In such cases, a taxpayer (and/or their authorised tax advisor) will be given at least 28 days to comply with all the disclosure requirements of the section 17 notice.
53. The discretion to require disclosure of the tax contextual information from documents eligible to be tax advice documents will be exercised sparingly in order to minimise compliance costs, and so as not to undermine the spirit of the non-disclosure right rules. Accordingly, an exercise of this discretion will be limited to officers of Inland Revenue at an appropriately high level of delegated authority.
54. There is no requirement for a person to disclose tax advice documents under a discovery obligation in challenge proceedings. The disclosure of tax contextual information may still be required.
    
    Advice and other work papers prepared by accountants
55. SPS 05/07 Non-disclosure right for tax advice documents outlines the Commissioner’s policy on Access to Advice and other Workpapers Prepared by Accountants in respect of section 17 notices with effect from 22 June 2005.
    
    Access to audit work papers
56. Requests for access to audit working papers will arise only in the course of enquiries conducted by investigators or in other special cases, although a request for audit working papers will not be a routine part of Inland Revenue’s investigations. In the first instance the information will be requested from the taxpayer, and requests to a taxpayer’s auditor for access will only be made in exceptional circumstances.
57. This approach does not imply that audit working papers enjoy any privilege from disclosure unless they are tax advice documents to which section 20B to 20G apply. A request by an Investigator for access to audit papers will be made only after obtaining the authorisation of the appropriate manager who will need to consider whether the information requested is “necessary or relevant” for the administration of the Tax Acts.
58. Requests for audit working papers and other papers made pursuant to section 17 will be “formal requests”. They will include details such as when and where the records are to be made available.
    
    Correction of information
59. 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 Notices
60. In following the process concerning section 17 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 information holders to contact Inland Revenue where there is genuine difficulty in complying with the demand at the earliest possible time and not when the time for compliance has passed.
61. 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.
62. Where modification of the notice is agreed it will be recorded in writing.
63. Any change to the date for compliance set out in the section 17 notice should also consider the impact the change of date may have on the time periods allowed for claiming the right of non-disclosure.
    
    Requests to persons other than the taxpayer
64. 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, although the letter may follow a discussion and may contain reference to section 17.
65. That letter is not a formal section 17 demand. However, generally where the letter is not complied with, a section 17 notice will be issued so that the third party recipient is informed of the consequences of their non-compliance before further action is taken.
66. Any section 17 notice issued to a third party such as a bank should refer to the non-disclosure right. The recipient of the notice may then choose to contact the taxpayer to confirm whether the taxpayer or their authorised tax advisor wish to claim the non-disclosure right or legal professional privilege over documents required to be disclosed under the section 17 notice issued to the third party.
67. Where a formal section 17 notice is issued to a third party such as a bank it will be subject to an independent review by Legal and Technical Services before its issue.
    
    Controlled non-residents
68. 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/documents for the resident. Section 17(1B) gives Inland Revenue the power to require a New Zealand resident to provide information held by a non-resident entity controlled directly or indirectly by the New Zealand resident. For example, if a husband and wife have 51% of the shares in a foreign company, Inland Revenue can issue a section 17 notice requiring them to furnish information held by the foreign company. Section 17(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.
69. If obtaining of 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
70. In rare instances Inland Revenue may seek access to an individual’s medical records. For example, there may be medical reasons given by the taxpayer for the failure to provide information or documents, or for not meeting tax obligations. In some case Inland Revenue may consider it necessary to verify the medical reasons for such failures. Such requests will only be made after careful consideration and will be made by an appropriate delegated officer.
    
    Requests for certain information from tax agents
71. Inland Revenue may seek certain information from tax agents under section 17 where it becomes aware of particular transactions or arrangements entered into by taxpayers in order to identify other taxpayers who may have entered into similar transactions or arrangements.
72. In the first instance, Inland Revenue will attempt to identify those taxpayers without recourse to requesting information from tax agents. However Inland Revenue may ask tax agents likely to have involvement with the arrangements in question to provide a list of clients who may have entered into a particular (or similar) arrangement.
73. These requests will only be made in limited circumstances and only where it is considered the transactions or arrangements are likely to involve tax avoidance or evasion, or other offences leading to prosecution for offences. Before making such requests to tax agents, investigators must first take all reasonable steps to obtain the necessary or relevant information from the taxpayer(s) or other third parties.
74. Before making a request for information, staff will take into account a range of factors including:
    • the impact of the request on taxpayers’ perception of the integrity of the tax system;
    • the size of client bases involved, and the practicalities and the relative cost of compliance with the section 17 request;
    • the level of perceived risk of taxpayers seeking to remove assets or leave the jurisdiction;
    • the complexity of the arrangement, and the reasonableness of the expectation that the advisor will be able to identify the taxpayers in question;
    • the level of revenue considered to be at risk;
    • Inland Revenue’s ability to obtain the information from other sources.
75. An Inland Revenue officer will then arrange to meet with the particular tax agent to advise that a formal section 17 notice is to be made, to provide a draft copy of the notice, explain the scope and matters to be covered in the notice and whether a formal notice is in fact the best way of achieving Inland Revenue’s objectives. Subject to any changes made to the draft notice the final notice will be sent to the tax agent. Any changes to the draft notice will be approved by an appropriate delegated officer.
76. The tax agent will have the option to provide the information without a formal demand.
77. Before any request for information is made, an independent review of the proposed request will be carried out by appropriately delegated officers to ensure the necessary criteria have been applied. This will include determining that the arrangement in question is clearly described and the parameters of the request are clear (for example, the scope of the request, the time period covered, the form of the response and the level of the detail required). Reference to this approval will be stipulated in the notice to the particular firm.
78. The notice will offer where practicable Inland Revenue assistance to extract the information, and will also allow a reasonable time (to be specified) to provide the information.
79. The tax agent can either contact the Manager, Investigations and Advice or the Group Manager, Investigations and Advice if he/she wishes to query the scope or authority of the investigator to request the information in the notice.
    
    Non-compliance with a section 17 notice
80. It is an offence not to comply with a section 17 notice. 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: sections 143 and 143A. Furthermore it is an offence for a person knowingly not to provide information to the Commissioner or any other person when required to do so, with the intention of evading the assessment or payment of tax: section 143B. However, a person cannot be convicted of an offence for not providing information or knowingly not providing information (other than tax returns and tax forms) if the person proves that they did not have that information in their knowledge, possession or control: sections 143(2)(a) and (b) and 143A(2)(a) and (b). Control here is used in its wider sense and includes information held by others on one’s behalf.
81. If the non-compliance with a section 17 notice relates to a requirement to disclose tax contextual information from tax advice documents, as required by section 20F, a number of offences may have occurred, including:
    
    (a) Offences under sections 143 to 143B; or
    (b) An offence under section 143H (obstruction); or
    (c)An offence under the Crimes Act 1961 (false statements or declarations).
82. Where non-compliance occurs, Inland Revenue will not reissue a section 17 notice in a different format. However, those receiving section 17 notices will have the ability to request a new due date for compliance with the notice so long as the request is made before the expiration of the original due date.
83. In the event of non-compliance, a request for an explanation of why prosecution action should not be taken will generally be issued before further action is taken. A request for an explanation will state that as the section 17 notice has not been complied with an application for a court order under section 17A is being sought and/or prosecution action is being considered. A request for an explanation will not be issued in all cases, for example, where there have been delays in supplying information previously.
84. A request for an explanation does not entitle the taxpayer or their authorised tax advisor to claim (for the first time or to make a subsequent claim) the non-disclosure right for tax advice documents that were required to be disclosed under the original section 17 notice.
85. Before an application for a court order under section 17A can be made there is a requirement for the Commissioner to use section 17, and the person to whom the notice has been issued must have failed to provide the information requested under that section 17 notice.
86. If the Commissioner chooses to prosecute a person for not complying with a section 17 notice, then depending on the elements of the particular offence, there are different time limits within which the Commissioner must file charging documents to begin prosecution action:
    • the time limit is 6 months for the offence of not knowingly providing information when required to do so;
    • the time limit is 10 years for the absolute liability offence of not providing information when required to do so; and
    • there is no time limit for the offence of knowingly not providing information when required and the offender does so with the intention to evade the assessment or payment of tax.
87. Once the offence is committed prosecution action will be commenced within a reasonable time of the date of non-compliance. In general, prosecution would not be commenced where a person complies with the requirement to provide information after the stipulated time but prior to issue of a summons by the Court.
    
    ,Relevance of Search and Surveillance legislation to the information gathering powers
88. The rules in in the newly enacted SSA affect the TAA. For instance, the production order regime (Part 3, Subpart 2) and the power to seize items in plain view (section 123) in the SSA may be relevant to the Commissioner’s information gathering powers. However Inland Revenue will generally use section 17 and not rely on the production order under the SSA.

This Operational Statement is signed on 14 August 2013.

Graham Tubb
Group Tax Counsel
Legal & Technical Services – Investigations & Advice