Part three - Key strategies and charter report: Paying tax and receiving entitlements
Tackling the harder end of compliance
Only a small percentage of our customers deliberately decide not to meet their obligations or engage in evasion - these people form the "top" of the compliance model. In many cases, our only way forward is to use the full force of the law.
Using our powers
Inland Revenue has broad powers under the Tax Administration Act 1994 to ensure that people meet their obligations. These include the power to access premises to obtain information, to remove and copy documents, and to require information in writing[21]. It is important that we use them carefully when making decisions that directly impact on the customer and consider how they help to create an environment which promotes compliance. This year, we used our powers 632 times (815 in 2005-06) of which 87% was a requirement to supply information in writing under s17 of the Tax Administration Act 1994.
Using the Companies Act 1993
We also take action under the Companies Act 1993, where it is necessary to ensure we are in the best possible position to recover any tax or penalties due at the end of an investigation.
Some of the larger cases we have looked at this year have involved arrangements made around complex property development projects. These typically begin with major property developments having very little capital and poor corporate governance. The developers then work out ways to obtain GST refunds and evade payment of subsequent output tax, resulting in large tax debts.
We are working with the insolvency industry to ensure that they comply with their recovery obligations, and are prepared to challenge those who don't. We are also preparing for the pending changes to insolvency law.
Legal action
When appropriate, we use the legal system to encourage compliance with the tax laws. We take legal action ranging from large and complex cases challenging arrangements designed to reduce or eliminate a tax liability, to prosecutions of individual taxpayers under the Tax Administration Act 1994 and Crimes Act 1961.
The Court of Appeal upheld the earlier decision of the High Court that the Trinity forestry scheme was a tax avoidance arrangement - a positive outcome for Inland Revenue. The appellants have applied for leave to appeal to the Supreme Court. If this leave is granted it will be the first tax avoidance case to be heard by the Supreme Court. A significant number of other Trinity cases are awaiting the final outcome of these test cases.
The Court of Appeal also upheld the earlier Taxation Review Authority and High Court findings of GST tax avoidance in Ch'elle Properties (NZ) Limited. The case involved a GST claim of $9 million. The taxpayer has made an application for leave to appeal to the Supreme Court.
An accountant, Lindsay Norman Kirk Chapman, was charged with 159 charges under the Tax Administration Act 1994, including falsifying and failing to file tax returns, fraudulently obtaining Working for Families Tax Credits, evading student loan payments and rebate fraud. The total tax evaded was $252,000. Chapman pleaded guilty and was sentenced to two years imprisonment.
Roydon Glenn McLaughlin was charged with 44 representative charges under the Crimes Act 1961 of using a document with intent to defraud, for filing false GST returns, declaring fictitious income and expenses, and obtaining $503,976. McLaughlin pleaded guilty and was sentenced to two years and 10 months imprisonment.
Peter William Bicknell faced 73 charges of failing to account for income tax and GST, and failing to file income tax and GST returns. He was sentenced to 18 months imprisonment after pleading guilty to tax evasion totalling nearly $150,000.
21 A full list of our powers can be found in the additional information section.
Date published: 23 Oct 2007
Back to top