Standard practice statements: General statements

SPS 05/07 - Non-disclosure right for tax advice documents (July 2005)

Introduction

1. This Standard Practice Statement (the "Statement") refers to the recently enacted statutory right enabling taxpayers to claim non-disclosure for certain tax advice contained in documents prepared by tax advisors. The statutory right also extends to certain documents created by taxpayers for the purpose of seeking tax advice from tax advisors. The right to claim non-disclosure is a statutory right introduced in the Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 and is effective from 22 June 2005 and enacted in sections 20B to 20G of the Tax Administration Act 1994 ("the Act"). The non-disclosure right belongs to taxpayers. It will apply to tax advice documents which the Commissioner seeks to have disclosed under his statutory powers to obtain information.
   
   
2. The requirement to disclose the information to the Commissioner will be made pursuant to a notice requiring either access to or disclosure of information under sections 16 - 19 of the Act (collectively referred to in this Statement as an "Information Demand"). An Information Demand should contain a legislative reference to one or more of sections 16 -19 of the Act. An Information Demand includes information sought under section 16 and 16B of the Act. Refer to paragraphs 87 - 88 which deal specifically with this type of Information Demand.
   
   
3. Documents or other communications which are legally privileged under section 20 of the Act are not subject to these requirements.
   
   
4. This Statement outlines the process and operational guidelines to be followed when the Commissioner issues Information Demands to taxpayers, tax advisors and third parties which require disclosure of documents which may contain tax advice and therefore may be subject to the right to claim non-disclosure.
   
   
5. This Statement should be read in conjunction with the SPS 05/08 - Section 17 Notices , or any updated equivalent statement if the Information Demand relates to a notice issued under section 17 of the Act.
   
   
6. The Commissioner sees this Statement as a reference guide for both taxpayers and officers of Inland Revenue. The practices outlined in this Statement will be followed by officers of Inland Revenue.

Application

7. This Statement applies to Information Demands issued after 21 June 2005 and to documents which may be tax advice documents whether created on, before or after 21 June 2005 created by or sent to tax advisors who are subject to an approved advisor group's code of conduct and disciplinary procedures. It replaces with effect from 22 June 2005 the protocol agreed with the New Zealand Society of Accountants, called Commissioner's Policy on Access to Advice and other Workpapers Prepared by Accountants (“the Protocol”), issued on 6 September 1993 to the extent that the Protocol does not apply to Information Demands issued after 21 June 2005. This Statement also applies to tax advisors who are not Chartered Accountants but are subject to an approved advisor group's code of conduct and disciplinary procedures.
   
   
8. Information Demands made prior to or on 21 June 2005 will remain subject to the Protocol.
   
   
9. This Statement is not intended to replace the Commissioner's policy statement on Access to Audit Work Papers , issued on 15 August 1991 because generally audit work papers should not include tax advice documents. However if an inconsistency arises between this Statement and the Access to Audit Work Papers policy statement in applying the Commissioner's policy in seeking tax advice documents, this Statement shall be applied where appropriate.
   
   
10. Unless specified otherwise, all legislative references in this Statement refer to the Act.

Background

11. The Act contains in addition to general administrative powers implied by the Commissioner's obligations in relation to the care and management of the Inland Revenue Acts, certain specific legislative provisions which deal with obtaining information related to taxpayers' affairs. These provisions play an important role in enabling Inland Revenue to administer the Inland Revenue Acts.
    
    
12. The Commissioner may choose to limit his inquiries in respect of independent advice on the interpretation of tax laws sought by taxpayers from tax advisors. Previously Inland Revenue, has where applicable, applied the Protocol to Information Demands. The Protocol provides limited administrative protection to accountants from disclosing their advice workpapers to Inland Revenue officers.
    
    
13. A request to a taxpayer specifically for tax advice documents should usually only be made when the information provided previously by the taxpayer, their tax advisor or a third party does not lead to a complete factual description of the transactions under review or where the taxpayer, their tax advisor or a third party refuses to answer questions in relation to the transactions under review. This factual information can include where appropriate information relevant to establishing the purpose or effect of the transaction or intent of the taxpayer involved if that is relevant to the statutory provisions under consideration (such as recording what has been stated to be the reason for acquiring an item of property). Where tax advice documents are referred to in an Information Demand, there will generally be a two-step process. This two-step process involves the taxpayer (or their authorised tax advisor) claiming the right of non-disclosure for documents eligible to be tax advice documents and then subsequently disclosing the factual content (ie the tax contextual information) of the tax advice documents if required to do so by the Commissioner. This process is outlined in paragraphs 50 - 64; 75 - 86 of this Statement.
    
    
14. In general, Inland Revenue officers are not concerned with the substance of the tax advice contained in the tax advice documents, but rather with the relevant facts which relate to the taxpayer's tax positions. Tax advice documents often contain factual information. Tax advice documents may therefore be required to be disclosed in an Information Demand (subject to the right to claim non-disclosure) to resolve issues in more complex situations and where there are apparent material gaps in the factual material otherwise available to the Commissioner.
    
    
15. Where an Information Demand is issued directly to a taxpayer's tax advisor, Inland Revenue will be as specific as practicable based on the information already held by Inland Revenue about the transactions to which the Information Demand relates and in a manner consistent with the Commissioner's information gathering powers and standard practices. While not limited to cases of potential evasion or avoidance, such requests will generally involve more complex matters and will usually only be made when direct inquiry from the taxpayer has not yielded the level of information which in the Commissioner's view is reasonably required to complete his inquiry.
    
    
16. The issuing of the Information Demand must be approved by the appropriate delegated Inland Revenue officer on behalf of the Commissioner after careful consideration of the statutory requirements of the provisions which provide for the information-gathering powers of the Commissioner (ie sections 16-19) and the Commissioner's Standard Practice and other policy statements if any.

Standard Practice and Analysis
Contents

Non-disclosure right for tax advice documents

Heading	Paragraphs
Meaning of Key Terms
Meaning of tax advisor	17 - 20
Meaning of approved advisor group	21 - 25
Meaning of tax advice document	26 - 37
Meaning of tax laws	38 - 40
Meaning of tax contextual information	41 - 47
Meaning of information holder	48 - 49
Process for Claiming the Right of Non-Disclosure
Step 1: The Commissioner must issue an information demand	50 - 54
Step 2: Notification to Commissioner that Taxpayer is claiming the non-disclosure right	55 - 64
Limitations on the right to claim non-disclosure	65 - 68
Treatment of potential tax advice document	69 - 74
Step 3: Provisions of tax contextual information	75 - 86
Special rules for section 16 Information Demands	87 - 88
Voluntary Disclosures	89 - 90
Challenge by Commissioner	91 - 92
Disclosure of information to approved advisor group	93 - 94

The right to claim non-disclosure is set out in the following diagram.

Click on the image below to get full sized view.

MEANING OF KEY TERMS

MEANING OF TAX ADVISOR

17. A "tax advisor" is defined in subsection 20B(4) to mean a natural person who is subject to the code of conduct and disciplinary process of an "approved advisor group" (refer to paragraphs 21 – 25 for the definition of "approved advisor group").
    
    
18. Generally, due to the professional standards imposed through the approved advisor group's code of conduct in giving tax advice, a tax advisor will be someone who is technically qualified, experienced and competent to advise on the operation and effect of tax laws.
    
    
19. The definition covers tax advisors in public practice such as tax advisors within professional firms but also professionals holding in-house positions who are involved in tax planning or tax advisory work for their employer.
    
    
20. When complying with an Information Demand, in-house tax advisors will need to ensure that they distinguish documents which are commercial or transactional in nature such as a sale and purchase agreement as opposed to those documents being created for the main purpose of giving tax advice such as a tax opinion.

MEANING OF APPROVED ADVISOR GROUP

21. The entitlement of a taxpayer to exercise their right to claim non-disclosure depends on the tax advisor who gave the advice being subject to an approved advisor's group code of conduct and disciplinary procedures at the time the tax advice document was created.
    
    
22. Typically, a tax advisor will be subject to an approved advisor group's code of conduct and disciplinary procedures because they are a member of the approved advisor group. Some organisations may allow non-members to be subject to an approved advisor group's code of conduct and disciplinary procedures under certain circumstances such as where a non-member is practising in partnership with a member of an approved advisor group.
    
    
23. An "approved advisor group" is defined in section 20B(5) as a group that includes natural persons who meet all of the following requirements:
    • have a significant function of giving advice on the operation and effect of tax laws; and
    • are subject to a professional code of conduct in giving that advice; and
    • are subject to a disciplinary process that enforces compliance with the code of conduct.
    
    
24. The group must be approved by the Commissioner before a tax advisor who is subject to an approved advisor group's code of conduct and disciplinary procedures can claim the right of non-disclosure on behalf of a taxpayer. The Commissioner will exercise this power of approval at a high level of delegated authority having regard to the statutory requirements and such other relevant considerations as may be applicable.
    
    
25. A list comprising of the groups that have been approved by the Commissioner as approved advisor groups will be available on Inland Revenue's website www.ird.govt.nz

MEANING OF TAX ADVICE DOCUMENT

26. Any given book or document either is or is not a "tax advice document". If it is not a tax advice document it must be disclosed if required to be disclosed under an Information Demand. This depends on careful application of the eligibility rules discussed below.
    
    
27. A "book or document" is defined in section 3 of the Act (in this Statement the use of the term "document" refers to the items included in this definition) and includes:

    All books, accounts, rolls, records, registers and 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:

28. The definition therefore applies to both paper and electronic recorded communications such as letters, faxes, reports, memos, file-notes, photographs, images, e-mails and other data however stored.
    
    
29. The right of non-disclosure only applies to books and documents that are "tax advice documents". It is not intended to limit the Commissioner's ability to ask general questions about a taxpayer's affairs either to a taxpayer or their tax advisor.
    
    
30. Under section 20B(3), in order for a document to be a tax advice document, three requirements must be met. These are:
    • the document is eligible to be a tax advice document; and
    • the person (ie either the taxpayer or their authorised tax advisor) makes a claim that the document is a tax advice document (refer to paragraphs
    • 59 -60 which set out the claim requirements); and
    • the person satisfies according to law the disclosure requirements for tax contextual information (if such a disclosure is required) and disclosure of documents or parts of documents that do not meet the tax advice document requirements (refer to paragraphs 42 - 43 which set out the disclosure requirements).
    
    
31. In order to be eligible to be a tax advice document the document must meet the following requirements:
    • the document was intended to be confidential, ie it was intended to be treated as a private document for non-public purposes in the same way that a section 20 communication is required to be a confidential communication before privilege attaches to it. Typically, tax advice is given to clients by a tax advisor other than for the purpose of disclosure of that tax advice to the public at large; and
    • the document was created by a person ("the client") for the main purpose of instructing a tax advisor to act for the client by giving the client advice about the operation and effect of tax laws; or
    • the document was created by a tax advisor (or where the tax advisor is in public practice, an employee of the tax advisor's firm whether this is a company, partnership or other business entity) for the main purpose of giving the client confidential advice about the operation and effect of tax laws; and
    • the document records tax advice previously provided to the taxpayer by their tax advisor; or
    • the document records research or analysis of tax laws by a tax advisor (or where the tax advisor is in public practice, an employee of the tax advisor's firm) and the document was created for the main purpose of the tax advisor providing tax advice to the client; and
    • the document was not created for the purpose of committing, or promoting or assisting the committing of, an illegal or wrongful act. Tax evasion would be an example of an illegal or wrongful act, but it would also extend to tax advice given in the course of committing some other illegal or quasi-illegal act, such as a wider act of fraud or some other crime.
    
    
32. Therefore the types of confidential documents to which the right to claim non-disclosure attaches will be those which are created in order to seek or obtain tax advice, and would not have been created except for such purpose, even though they may serve ancillary functions such as conveying factual information.
    
    
33. Documents which simply record decisions or transactions, set out calculations or summarise facts, whether or not they are part of the process of generating tax advice will not be eligible to be tax advice documents. Document or forms completed for the main purpose of meeting tax compliance obligations will also not be eligible to be tax advice documents.
    
    
34. Other examples of documents which will not be tax advice documents are: tax calculations and worksheets, transfer pricing reports, reports on factual matters in support of tax returns, financial statements (including the tax notes, tax worksheets and tax provisioning calculations), board minutes, valuation reports, invoices, agreements and other transaction documents, structure diagrams, memoranda of understanding, tax indemnity agreements, term sheets, guarantees, compliance forms and certificates, communications with third parties, employment contracts, confidentiality agreements, bank statements and other similar documents. All these types of documents will still need to be disclosed in full (any advice referred to or contained in them may not be deleted or blanked out) if subject to an Information Demand. The above list is not intended to be an exhaustive list.
    
    
35. It is fundamental that the document must have been intended to be and remain confidential between the tax advisor and the taxpayer, and not intended to be read by third parties or members of the public. The expression "third parties" in this context however does not include the taxpayers' other advisors such as their legal advisors, financial advisors, employees of the taxpayer or the taxpayers' shareholders or owners or where the third party is subject to a confidentiality agreement. The way in which the document is treated by the taxpayer and/or the tax advisor is relevant in determining whether confidentiality has been maintained. A confidentiality obligation should exist on the part of the third party, such as is commonly the case in due diligence exercises, joint venture arrangements, insurance proposals etc.
    
    
36. If the document is eligible to be a tax advice document, the taxpayer or their authorised tax advisor must make a claim that the document is a tax advice document. Refer to paragraphs 55 - 64 which outline the procedure for making a claim. If the claim is not made in the required time period the right to claim non-disclosure will not apply to the document after the expiry of that period even if a further Information Demand is issued in relation to the same document or a claim for the right of non-disclosure is later made.
    
    
37. If the taxpayer or their authorised tax advisor has made a claim that a document is a tax advice document, the taxpayer or their authorised tax advisor must in some cases also satisfy the tax contextual information disclosure requirements if required to do so by the Commissioner. The tax contextual information disclosure requirements are outlined in paragraphs 42 - 43.

MEANING OF TAX LAWS

38. "Tax law" is a defined term in section 2 of the Act and means:
    1. A provision of the Inland Revenue Acts or an Act that an Inland Revenue Act replaces:
    2. An Order in Council or a regulation made under another tax law:
    3. A non-disputable decision:
    4. In relation to an obligation to provide a tax return or a tax form, also includes a provision of the Accident Rehabilitation and Compensation Insurance Act 1992 or a regulation made under that Act or the Accident Insurance Act 1998 or a regulation made under that Act of the Injury Prevention Rehabilitation and Compensation Act 2001 or a regulation made under that Act.
39. The tax advice must only be about New Zealand tax rules as they affect the taxpayer in question. Advice about the effect and application of tax laws in another jurisdiction (such as a country in which a controlled foreign company is resident) will not be subject to the right to claim non-disclosure.
    
    
40. Advice provided to taxpayers about non-tax issues such as accounting treatment (including materiality, provisioning, related party disclosures), insolvency law, company and trust law will constitute tax contextual information, as discussed below. If the main purpose of the document is to give such advice, it will not be subject to the right to claim non-disclosure.

MEANING OF TAX CONTEXTUAL INFORMATION

41. Tax contextual information may be required to be disclosed as a result of one of the following:
    • in special cases, where the Commissioner issues a subsequent Information Demand requiring disclosure of the tax contextual information after the taxpayer or their authorised tax advisor has made a claim for the non-disclosure right; or
    • in rare cases, where the Commissioner requires the tax contextual information as part of the original Information Demand.
    
    The circumstances in which Inland Revenue may require disclosure of the tax contextual information under either of the above situations is discussed at paragraphs 77 - 78.
    
    
42. Tax contextual information from a tax advice document is to be disclosed to the Commissioner in a statutory declaration in the prescribed form (form IR 520). A copy of this form can be found on Inland Revenue's website www.ird.govt.nz.
    
    
43. Tax contextual information means information relating to a tax advice document ie the information is either contained in or necessarily implied (by reference from the words used in the document), that falls into any of the following categories:
    • Facts or assumptions relating to the transaction identified in the Information Demand and to which the advice relates, whether the transaction has occurred, will or is expected to occur or is assumed to have occurred by the creator of the tax advice document (i.e. either the tax advisor or the taxpayer);
    • A description of steps involved in the performance of the transaction whether the transaction has occurred will or is expected to occur or is assumed to have occurred by the creator of the tax advice document (ie either the tax advisor or the taxpayer);
    • Advice related to the operation and effect of laws other than tax laws on the taxpayer and any related facts or assumptions that this advice is based on;
    • Advice related to the operation and effect on the taxpayer of tax laws relating to the collection of debts payable to the Commissioner (ie debt recovery issues) and any related facts or assumptions that this advice is based on;
    • Facts or assumptions from, or relating to the preparation of the taxpayer's financial statements, supporting worksheets or other source documents or documents containing information that the taxpayer is required to provide the Commissioner under an Inland Revenue Act. This is intended to apply equally to advisors' accounting and tax workpapers which support the financial statements and/or tax return.
    
    
44. Generally, the Commissioner will seek tax contextual information in order to establish the facts relating to a transaction or series of transactions (though Information Demands may relate to wider matters) including relevant information such as whether the transaction took place, who were the parties, the purpose of the transaction, relevant dates, amounts, conditions, formulae, etc.
    
    
45. "Assumptions" are statements or propositions that have been accepted or assumed as true for the purpose of the tax advice whether the basis for the statement or proposition is factual or not.
    
    
46. Tax contextual information may be provided in relation to one or more tax advice documents requested in the same Information Demand.
    
    
47. If an authorised tax advisor is providing the tax contextual information, the tax contextual information should reflect the tax advisor's understanding of the transaction. Verbatim extracts from transaction documents may be included if the tax advisor considers that the extracts are the best representation of the information in order to meet the disclosure requirements of the tax contextual information. This is optional and is a matter for the judgment of the tax advisor.

MEANING OF INFORMATION HOLDER

48. An Information Holder is a person who has been issued with an Information Demand pursuant to sections 16 to 19 requiring the Information Holder to disclose information in relation to a taxpayer. The Information Holder may be a taxpayer, a taxpayer's tax advisor or an unrelated third party such as a bank.
    
    
49. Irrespective of the relationship of the Information Holder to the taxpayer, the non-disclosure right must be claimed by the taxpayer to whom the Information Demand relates or their authorised tax advisor. In circumstances where the taxpayer and their authorised tax advisor disagree or dispute the right to claim non-disclosure or any of the disclosure requirements related to the right to claim non-disclosure, the taxpayer's position will take precedence.

PROCESS FOR CLAIMING THE RIGHT OF NON-DISCLOSURE

STEP 1: THE COMMISSIONER MUST ISSUE AN INFORMATION DEMAND REQUIRING DISCLOSURE OF A DOCUMENT WHICH MAY BE ELIGIBLE TO BE A TAX ADVICE DOCUMENT

50. In order for a claim that a document is a tax advice document to be made, the Commissioner must have issued the Information Holder with an Information Demand under any of the following sections:
    • section 16 inspection and section 16B warrant;
    • section 17 notice requiring production of information;
    • section 17A Court order for production of information or return;
    • section 18 inquiry before a District Court Judge; or
    • section 19 inquiry by the Commissioner.
    
    
51. If the Information Demand is a section 17 notice then the Commissioner must follow the practice set out in the Standard Practice Statement SPS 05/08 - Section 17 Notices , or any statement published in substitution for that Standard Practice Statement.
    
    
52. Any Information Demand may in specific cases be issued directly to a tax advisor but this action must be approved in accordance with the exercise of delegated powers conferred to Inland Revenue officers by the Commissioner. Generally, Inland Revenue will only issue an Information Demand direct to a tax advisor seeking documents which may be eligible to be tax advice documents in circumstances where the information has not been provided voluntarily or in a timely manner by the Information Holder and cannot reasonably (in the opinion of the Commissioner) be obtained or verified elsewhere. For example records may have been lost, the taxpayer may no longer be available or may have left the country, or the taxpayer or Information Holder is being uncooperative with reasonable inquiries made by the Commissioner.
    
    
53. Other examples of when an Information Demand may be issued to a tax advisor include cases involving suspected tax evasion or fraud, suspected tax avoidance, and cases involving complex international transactions or transfer pricing.
    
    
54. In certain circumstances the Information Demand may require from the outset disclosure of the tax contextual information for any document that is subject to a non-disclosure right claim (discussed below at paragraphs 77 - 78). This requirement will be clearly stated in the Information Demand, and the issue of such an Information Demand must be approved under the appropriate delegated authority.

STEP 2: NOTIFICATION TO COMMISSIONER THAT TAXPAYER OR THEIR AUTHORISED TAX ADVISOR IS CLAIMING THE NON DISCLOSURE RIGHT

55. A claim that a document is a tax advice document for a taxpayer must be made by either the taxpayer or a tax advisor who is authorised to act on the taxpayer's behalf for the purposes of the non-disclosure right. This is also the case where the Information Holder is a third party, as a third party cannot make such a claim. The Commissioner's view is that the taxpayer must make the claim either directly or through the agency of an authorised tax advisor.
    
    
56. It is expected that on most occasions taxpayers will direct their tax advisor to claim the non-disclosure right on their behalf. When making the claim, a tax advisor must also include a statement that the tax advisor is authorised to act on behalf of the taxpayer for the purposes of the non-disclosure right.
    
    
57. The Commissioner expects and prefers that the tax advisor authorised to claim non-disclosure should be the tax advisor who created the tax advice document. However if this tax advisor is unavailable because the tax advisor is not in New Zealand, or has left the organisation originally instructed to provide the advice or that organisation has ceased to operate, then an appropriate alternative tax advisor may be the authorised tax advisor.
    
    
58. Although the legislation does not provide for the claim to be made on a prescribed form, the Commissioner suggests that the claim that a document is a tax advice document should be made on the form IR 519 which has been designed for this purpose. A copy of the form is available on Inland Revenue's website www.ird.govt.nz
    
    
59. The claim that a document is a tax advice document must contain certain information. If the document was created by the taxpayer (ie a document instructing a tax advisor to provide advice on the operation and effect of tax laws), the claim must contain the following:
    • a brief description of the form (such as a letter, email, report) and content (such as request for tax advice concerning fringe benefit tax) of the document;
    • the name of the tax advisor for whom the document was intended; and
    • the date on which the document was created (that is, finalised or sent to the taxpayer's tax advisor).
    
    
60. If the document was created by a tax advisor or by an employee of a tax advisor's public practice firm, the claim must contain the following:
    • a brief description of the form (such as a letter, research paper, summary of phone conference, email) and content (such as tax advice concerning fringe benefit tax, depreciation, treatment of bloodstock) of the document; and
    • the statute, enactment or regulation and the type of revenue such as income tax, fringe benefit tax, GST, PAYE or withholding tax which was the subject of the tax advice; and
    • the name and if possible the contact details of the tax advisor who gave the tax advice in relation to the document; and
    • the name of the approved advisor group that the tax advisor belonged to when the document was created; and
    • the date on which the document was created (that is, finalised or sent to the taxpayer) .
    
    
61. Different versions of the "same" tax advice document created by either a taxpayer or their tax advisor in the course of finalising tax advice, may each need to be separately identified in the form IR 519 where the content of the different versions of the tax advice document is significantly different from other versions.
    
    
62. The following table sets out the time periods for which a claim that a document is a tax advice document must be made by:

Information Demand issued under s 16 and/or s 16B	Information Demand issued under s 17	Information Demand issued under s 17A or s 18	Information Demand issued under s 19
The date for either of the following: the date on which the s 16 and/or s 16B power is exercised; or a later date with agreement by the Commissioner	The date which is the later of the following: the date specified in the s 17 notice; or 28 days after the date of the s 17 notice	The date on which the Court requires production of the information	The date on which the Commissioner requires production of the information

63. If the taxpayer or their authorised tax advisor does not notify the Commissioner within the above stated time periods, the claim that a document is a tax advice document is invalid. If the taxpayer or their authorised tax advisor fails to make a claim that a document is a tax advice document within the above time periods, the taxpayer or their authorised tax advisor may not make a further claim that the document is a tax advice document at a later date (even if the document happens to be the subject of a later Information Demand) and the document can no longer be treated as a tax advice document. Accordingly it is anticipated that the taxpayer or their authorised tax advisor will notify the Commissioner as soon as practicable of a claim that a document is a tax advice document.
    
    
64. The Commissioner may extend the above time periods for making a claim of non-disclosure if requested to do so by the taxpayer. An extension will be granted at the discretion of the Commissioner and any change to the time period should be notified to the taxpayer in writing. The Commissioner may take the following matters into account when extending the time period for making a claim of non-disclosure:
    • the complexity of the situation;
    • the compliance history of the taxpayer;
    • issues related to the timing of the notice;
    • the difficulty which the taxpayer may have in making the claim; and
    • other factors generally relevant to the exercise of the relevant statutory power.

LIMITATIONS ON THE RIGHT TO CLAIM NON-DISCLOSURE

65. If a document required to be disclosed under an Information Demand does not meet the requirements of being a tax advice document, that document is ineligible to be a tax advice document. In such circumstances, the Information Holder is required to disclose that document pursuant to the requirements of the Information Demand. This includes attachments to tax advice documents where the attachment is not eligible to be a tax advice document.
    
    
66. Examples of documents (including those that are attached to another document which is a tax advice document) that are not eligible to be tax advice documents include, but are not limited to:
    • business and management records;
    • financial statements, workpapers, and notes to the financial accounts;
    • letters of engagement;
    • numerical calculations compiled for the purpose of calculating a taxpayer's tax liability;
    • transfer pricing calculations;
    • legal transaction documents such as contracts, licence agreements, loan documentation, guarantees, deeds, title documents, tax indemnity agreements and letters between the transaction parties;
    • databases and spreadsheets;
    • diagrams demonstrating transactions;
    • documents created by the tax advisor for main purposes other than giving a client advice on the operation and effect of tax laws, such as advising on employment law, company law, securities law, other regulatory requirements, or the accounting or financial treatment of transactions, etc.
    
    
67. Documents attached to or forming part of a tax advice document and which are themselves ineligible to be tax advice documents, are required to be disclosed as separate documents (refer to paragraphs 26 - 37 which deal with the meaning of tax advice document). This includes appendices, schedules and notes attached to tax advice documents where those appendices, schedules and notes are not themselves tax advice documents. Attaching or incorporating a document capable of being treated as a separate document to a tax advice document does not extend the right to claim non-disclosure to that attached or incorporated document when that attached or incorporated document does not independently meet the tax advice document requirements.
    
    
68. If the taxpayer or their authorised tax advisor does not disclose the documents or part of a document which are not a tax advice document by the required date set out in the Information Demand, the taxpayer or their tax advisor may be liable for penalties as set out in Part IX of the Act. It is therefore critical that care is taken in identifying documents which may be tax advice documents and documents or parts of documents which are ineligible to be tax advice documents.

TREATMENT OF POTENTIAL TAX ADVICE DOCUMENT

69. Section 20C contains specific provisions dealing with the treatment of a potentially eligible tax advice document while the claim that the document is a tax advice document is being established.
    
    
70. The document must be treated as a tax advice document from the date of the Information Demand until the earlier of:
    • the date by which the taxpayer or their authorised tax advisor is required to claim the document is a tax advice document; or
    • the date on which the taxpayer or their authorised tax advisor informs the Commissioner that the person is waiving the right to claim non-disclosure over the document.
    
    
71. As advised above, if the taxpayer or their authorised tax advisor fails to make a claim within the statutory time frame as provided for in the Information Demand, the document loses its tax advice document status, and is no longer subject to the right to claim non-disclosure.
    
    
72. If the taxpayer or their authorised tax advisor claims a document is a tax advice document within the statutory time frame provided for in the Information Demand, the document must be treated as a tax advice document from the date the Commissioner is advised of the claim until one of the following events occurs:
    • the District Court rules that the document is not a tax advice document;
    • the taxpayer or their authorised tax advisor agrees in writing that the document is not a tax advice document;
    • the taxpayer or their authorised tax advisor withdraws in writing the claim that the document is a tax advice document;
    • an approved advisor group informs the Commissioner that the authorised tax advisor is or was not a member of the approved advisor group at the time that the authorised tax advisor claimed and was required to be a member of the approved advisor group.
    
    
73. If the document is required to be treated as a tax advice document a copy of the document must be held in a secure place for the period that the document is treated as a tax advice document by a tax advisor.
    
    
74. A "secure place" includes a lockable cupboard, locker or safe at the tax advisor's business premises but can also include the non-public parts of a tax advisor's offices where access to that area is limited, and protected or controlled by the tax advisor.

STEP 3: PROVISION OF TAX CONTEXTUAL INFORMATION IN STATUTORY DECLARATION

75. An Information Holder who is required to disclose information under an Information Demand must also disclose tax contextual information from a document that the taxpayer or their authorised tax advisor claims to be a tax advice document, if required to do so by the Commissioner . The Commissioner may require disclosure of the tax contextual information either as part of the original Information Demand or may require disclosure through a subsequent Information Demand at a later date.
    
    
76. The discretion to require disclosure of the tax contextual information 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, exercising this discretion will be limited to officers at an appropriately high level of delegated authority.
    
    
77. The Commissioner will notify the taxpayer or their authorised tax advisor if disclosure of the tax contextual information is required either as part of the original Information Demand or in a separate Information Demand. The Commissioner will require disclosure of the tax contextual information generally after having assessed the information otherwise provided under the Information Demand and considered the nature of the documents for which the right to claim non-disclosure has been claimed. Generally the Commissioner may require the disclosure of tax contextual information after the Information Demand has been issued if, for example:
    • he believes there are material gaps in the information available to the him;
    • there is an issue of credibility in respect of the information already held by Inland Revenue;
    • inconsistent information provided needs to be verified; or
    • there is considerable factual complexity requiring clarification and there are no other reasonable sources for that information
    
    
78. In some unusual cases where the Commissioner considers it necessary to protect the integrity of the Inland Revenue Acts, he may require the tax contextual information to be disclosed as a requirement of the original Information Demand. This is likely to occur:
    • in circumstances involving suspected evasion or other suspected criminal action;
    • where sections 16 or 16B are being applied;
    • where the transactions in question are particularly complex and the evidence is inconsistent, and there may reasonably be thought to be insufficient time for the Inland Revenue to properly complete the investigation within the timebar period; and/or
    • where there is a history of non-compliance by the taxpayer or associated persons.
    
    
79. Refer to paragraph 43 for the definition of tax contextual information for the detail of what is required in the tax contextual information.
    
    
80. The disclosure of the tax contextual information must be in a statutory declaration in the prescribed form. The prescribed form is the IR 520. A copy of this form can be found on Inland Revenue's website: www.ird.govt.nz
    
    
81. The statutory declaration contained in form IR 520 must be made by an authorised tax advisor who has not been barred from making a statutory declaration. A tax advisor may be barred from making a statutory declaration if a Court has so ordered where the tax advisor has previously been convicted of an offence under one or more of the following provisions:
    • section 111 of the Crimes Act 1961 [ false statements or declarations ];
    • section 143(1)(b) [not supplying information when required to by tax law ];
    • section 143A(1)(b) or (c) [ knowingly does not provide information when required to by law or knowingly provides altered, false, incomplete or misleading information ];
    • section 143B(1)(b) or (c); [ knowingly not supplying information when required to by tax law, or providing altered, false, incomplete or misleading information ]; or
    • section 143H [ obstruction ].
    
    
82. Generally, the Commissioner prefers that the authorised tax advisor making the statutory declaration should be the same tax advisor or a member of the same firm which created the tax advice document for which the non-disclosure right is claimed (and where possible be the same authorised tax advisor who claimed the non-disclosure right on behalf of the taxpayer).
    
    
83. The statutory declaration must be sworn before one of the following:
    • a Solicitor of the High Court of New Zealand ;
    • a Justice of the Peace; or
    • any other person authorised by law under the Oaths and Declarations Act 1957 to take a statutory declaration but not including officers of Inland Revenue.
    
    
84. If the Information Demand requires disclosure of the tax contextual information, this may be delivered together with any documents which are not tax advice documents and that are required to be disclosed under the Information Demand to the officer of the Department authorised by the Commissioner to receive the documents within the time periods outlined below. This generally will be the officer listed in the Information Demand.
    
    
85. The following table sets out the time periods for which disclosure of the tax contextual information must be made by:

Information Demand issued under s 16 and/or s 16B	Information Demand issued under s 17	Information Demand issued under s 17A or s 18	Information Demand issued under s 19
The date determined by the Commissioner when requiring the statutory declaration	Where the Information Demand requires disclosure of the tax contextual information, the date which is the later of the following: the date specified in the s 17 notice (where applicable); or 28 days after the date of the s 17 notice (where applicable) OR	The date on which the Court requires production of the information	The date on which the Commissioner requires production of the information
	Where the Commissioner subsequently requires disclosure of the tax contextual information, the date which is the later of the following: the date specified in the notice requiring disclosure of the tax contextual information; or 28 days after the date specified in the notice requiring disclosure of the tax contextual information

86. The Commissioner may extend the above time periods for providing the tax contextual information in exceptional circumstances if requested to do so by the taxpayer. An extension will be granted at the discretion of the Commissioner and any change to the time period will be notified to the taxpayer in writing. The Commissioner may take the following matters into account when extending the time period for making a claim of non-disclosure:
    • the complexity of the situation;
    • the compliance history of the taxpayer;
    • issues related to the timing of the notice;
    • the difficulty which the taxpayer may have in making the claim; and
    • other factors generally relevant to the exercise of the relevant statutory power.

SPECIAL RULES FOR SECTION 16 INFORMATION DEMANDS

87. Where the Commissioner exercises his powers under sections 16 or 16B, the Commissioner will automatically require disclosure of the tax contextual information in the Information Demand related to the exercise of the section 16 or 16B powers.
    
    
88. A taxpayer or their authorised tax advisor will need to ensure that they have met the following requirements by the relevant statutory time period(s) set out in the Information Demand in relation to sections 16 and 16B:
    • provided all documents required to be disclosed under the Information Demand which are not eligible to be tax advice documents;
    • notified the Commissioner if the non-disclosure right is being claimed and provided the required information in the form IR 519; and
    • provided the tax contextual information for all documents which are subject to the non-disclosure right.

VOLUNTARY DISCLOSURES

89. Nothing in this Statement precludes a taxpayer or their authorised tax advisor from voluntarily disclosing documents which may be eligible to be tax advice documents. However taxpayers and their authorised tax advisors should be aware that any voluntary disclosure of documents which may be eligible to be tax advice documents constitutes a waiver of the right to claim non-disclosure over these particular documents.
    
    
90. Nothing in this Statement precludes a taxpayer from meeting their obligations under Part IX of the Act. For example, it will commonly be the case that tax advice documents need to be disclosed to demonstrate that the taxpayer took reasonable care in taking a particular tax position.

CHALLENGE BY COMMISSIONER

91. The legislation provides that the Commissioner may apply to the District Court (this may be included in the course of a section 18 inquiry) for an order determining one or more of the following:
    • Whether the document is a tax advice document for the taxpayer;
    • Whether information provided by a taxpayer or their authorised tax advisor is tax contextual information for a tax advice document; or
    • Whether the taxpayer or their authorised tax advisor is required to provide a more detailed or better description of tax contextual information in relation to a document.
    
    
92. As part of the application by the Commissioner, the District Court Judge may require disclosure to the court of the document which is the subject of the order.

DISCLOSURE OF INFORMATION TO APPROVED ADVISOR GROUP

93. The secrecy provisions contained in section 81 have been amended to allow the Commissioner to supply information to an approved advisor group about an action or omission by a person who is or purports to be a member of the approved advisor group and the Commissioner considers that act or omission to be a breach of the tax advisor's responsibilities in relation to the non-disclosure right.
    
    
94. The Commissioner would only consider this type of disclosure in specific circumstances such as:
    • providing false or incomplete information in the statutory declaration required for the disclosure of tax contextual information;
    • knowingly failing to disclose facts or assumptions relating to a transaction which is the subject of the tax advice document; or
    • failing to provide tax contextual information when required to do so by the Commissioner under or pursuant to an Information Demand.

This Standard Practice Statement is signed on 13 July 2005 .

Graham Tubb
National Manager
Technical Standards

 

 

Date published: 25 Jul 2005

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