Technical tax area: Prosecution framework
Our prosecution framework establishes a structured approach for all prosecution activity Inland Revenue undertakes.
Prosecution is one of several responses we use to protect the integrity of the tax and social policy systems we administer. It is an enforcement activity used to improve the compliance of taxpayers who have decided not to comply. It also reassures the majority of our customers who do meet their obligations that we will detect non-compliant behaviour and take appropriate action against it.
Our prosecution framework sets out:
- the inter-dependencies with Inland Revenue's strategic goals and direction
- the key factors and types of non-compliance that may result in a decision to prosecute
- our general approach to publicising prosecution results
- how we will measure prosecution activity.
The framework applies to all decisions to prosecute made by Inland Revenue and ensures a consistent and impartial process for all our prosecution activity nationally. We recognise there are sections of Inland Revenue which will be more actively involved in case identification, selection and investigation, and in effective management of litigation.
The relationship with Inland Revenue's strategic goals and direction
Inland Revenue's guiding document, IR for the future, details our desired future and our strategic direction, for 2011 and beyond. IR for the future provides the ongoing focus for us to deliver the services the government and our customers expect, as well as ensuring we are prepared to meet the challenges of tomorrow. It is directed at achieving our primary and intermediate outcomes:
- to contribute to the economic and social wellbeing of New Zealand by collecting and distributing money
- making revenue available to fund government programmes through people meeting payment obligations of their own accord
- people receiving payments they are entitled to, enabling them to participate in society.
The prosecution framework supports the achievement of our primary and intermediate outcomes through taking appropriate action against customers who do not comply.
Compliance is when a customer:
- registers with us when they are supposed to
- reports or provides complete and accurate information
- files returns or other information required on time
- claims and receives only what they are entitled to
- pays correct amounts on time.
The compliance model (below) guides us in tailoring how we deal with our customers by taking account of the factors that influence customers' decisions and behaviours. We use responses that are appropriate to customer's behaviour in each situation.
Inland Revenue's compliance model
We know the majority of our customers want to comply with their obligations. Our activities are aimed at making it easy for customers to get it right and hard to get it wrong.
We also know some of our customers are reluctant to comply. Where we detect non-compliant behaviour we enforce the law to help move customers who have decided not to comply (the top of the compliance model) to a position where they are more likely to in the future (the bottom of the compliance model).
Our enforcement activities ensure the integrity of the tax and social policy laws are protected and show we take non-compliance seriously.
Our prosecution framework
Our prosecution framework contributes to Inland Revenue's strategic direction and outcomes by ensuring prosecution activity:
- is the appropriate action to be taken for the type and level of non-compliance identified
- positively influences future compliance behaviour
- affirms compliant behaviour
- is publicised where appropriate
- is an integral component of a balanced compliance programme.
We can take a prosecution for illegal activity or non-compliance in any of the tax and social policy areas we administer. These are listed in the Schedule to the Tax Administration Act 1994. Charges can be laid under any legislation relevant to the administration of those Acts, including the Tax Administration Act 1994 and Crimes Act 1961 as well as other responsibilities the Commissioner has.
We apply an evidence-based risk approach to the management and improvement of customer compliance. This allows us to focus our resources and risk responses (education, assistance and enforcement) on the areas that are the greatest threat to the integrity of the tax and social policy systems we administer. We will prosecute if we consider this to be an effective and appropriate response.
By doing this we aim to promote compliance, minimise possible future offending and deny the financial gain or benefits which are the result of non-compliant actions. We will seek the appropriate legal remedies to achieve this.
We are committed to working with other law enforcement agencies in the administration of the Revenue Acts and our compliance approach. In particular, subject to the requirements of section 81 of the Tax Administration Act 1994, we will refer cases to the Serious Fraud Office and New Zealand Police.
Our decision-making framework
We have an inherent discretion to prosecute for offences against the tax and social policy laws we administer consistent with sections 6 and 6A of the Tax Administration Act 1994 and with the Solicitor-General's Prosecution Guidelines as published by the Crown Law Office.
The focus of our decision-making framework is to exercise discretion in relation to cases that will:
- protect the integrity of the tax and social policy systems we administer
- maximise the impact on future compliance behaviour of the taxpayer involved
- show the wider community that we take non-compliance seriously.
We will consider each case on its own merits when making the decision to prosecute. We will take into account the factors set out in the Solicitor-General's Prosecution Guidelines (including the facts of each case, the relevant legislation, evidential sufficiency and the public interest) as well as the presence of one or more identified risk factors, the level of non-compliance and the focus of our compliance strategy.
Some of the key factors and non-compliant behaviours that would contribute towards a decision to prosecute include:
- degree of deliberation and planning
- falsification of documents
- false representation, concealment or obstruction
- misuse of revenue collected and held in trust, including PAYE, GST and employee KiwiSaver contributions
- misuse of GST
- non-filing of returns with intent to evade the establishment of a liability, including child support and/or payment of obligations
- misuse of corporate entities
- attempts to undermine the administration of the Revenue Acts
- attempts to frustrate the Commissioner in exercising his legislated powers
- organised or systematic attacks on the tax or social policy systems
- emerging risks
- those who work in, advise or hold positions of trust
- Inland Revenue employees who have a higher duty of care in complying with their tax and social policy obligations and maintaining the community's perception of integrity in the administration of the tax system.
Other factors include the tax dollar value, regularity and scale and/or repetitiveness of offending.
No one factor will solely determine whether a decision to prosecute is made.
We will also take a serious view where a third party (someone other than the taxpayer or claimant):
- facilitates an offence to take place
- aids, abets, or conspires in the commission of an offence, or incites, counsels or procures any person to commit an offence
- does any of the above in relation to the concealment of an offence
- does any of the above in relation to the concealment or laundering of the proceeds or evidence of an offence.
Inland Revenue will actively seek to collect overdue tax or social policy payments and, where necessary, use legal recovery remedies to do so.
Decisions to prosecute will be made within an organisational structure that provides for: impartial consideration of each case
- efficient and effective use of Inland Revenue resources
- alignment with the Solicitor-General's prosecution guidelines
- national consistency
- robustness to withstand challenges
- Inland Revenue being seen to treat customers fairly, impartially and according to the law.
We will publicise the outcomes of prosecution cases where we consider it appropriate. When deciding to publicise a prosecution, we will consider the public interest, including deterring future non-compliance, encouraging and reinforcing compliant behaviours and maintaining the community's perception of the integrity of the tax and social policy systems we administer.
Measuring our outcomes and performance
We will periodically review:
- our decision-making frameworks and processes to ensure they remain robust, impartial and in accordance with the law, strategies and responsibilities
- the effective and efficient use of our resources in undertaking these activities
- the range and nature of prosecution cases taken
- the outcomes of these cases through the courts
- the positive influence of these outcomes on compliant behaviour in the community and protecting the integrity of the tax and social policy systems.
Date published: 10 Jun 2011
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