Draft Operational Statement ED 0152: The Commissioner of Inland Revenue's Search Powers

Transcription

1 24 June 2013 Team Manager, Technical Services Office of the Chief Tax Counsel National Office Inland Revenue PO Box 2198 WELLINGTON Draft Operational Statement ED 0152: The Commissioner of Inland Revenue's Search Powers 1. The New Zealand Law Society (Law Society) welcomes the opportunity to comment on Inland Revenue's draft operational statement, The Commissioner of Inland Revenue's search powers (ED 0152) (Statement). 2. Statutory references are to the Tax Administration Act 1994 unless otherwise stated. Summary of submissions 3. In summary, the Law Society s submissions are as follows: (d) (e) (f) Crown Law Office input: Given the importance of the issues and desirability of the Crown Law Office adhering to the Commissioner's stated practices and interpretation, we suggest that it would be worthwhile for the Crown Law Office to review the Statement and provide comments if it has not already. Statement should consider when it will be reasonable to exercise the section 16 power: The Statement should address the question of when it will be reasonable for the Commissioner to exercise her powers under section 16 of the Act. Further, the nature of the substantive tax issues being investigated should not in itself justify recourse to section 16 rather than to less intrusive means for the Commissioner to obtain information. Applications for a warrant: The Statement should record the Commissioner's obligation of candour and completeness when applying for a warrant. References to legal professional privilege need to acknowledge section 20 of the Act is not a complete code: The statement needs to acknowledge that section 20 is not a complete code regarding the scope of legal professional privilege, and that documents or communications that are privileged at common law but outside the scope of section 20 will also be protected from disclosure under section 16. Search of persons: The Statement should acknowledge that section 16 of the Act does not confer a power to search persons. Power to exclude: The Statement should clarify the Commissioner's power of exclusion of persons from the search area and when non-compliance will amount to an offence. In particular, the Statement should: (i) acknowledge that any direction to "keep away from others" must be reasonable;

2 2 (ii) refer to a person's rights under section 116(2) of the Search and Surveillance Act 2012 (SSA); and (iii) clarify when the offence of obstruction is committed. (g) (h) Photographing items: Inland Revenue must have reasonable grounds before photographing cash and valuable items found during any search. Occupier's ability to consult a lawyer: The Statement should acknowledge an occupier's right under the New Zealand Bill of Rights Act 1990 (Bill of Rights) to consult and instruct a lawyer if he or she is required to answer questions. The Crown Law Office should review the Statement 4. Paragraph 35 of the Statement recognises the intrusive nature of the exercise of the section 16 powers and the need to use those powers in a way that recognises the importance of rights and entitlements affirmed in other enactments, including the Bill of Rights. Given: the fundamental importance of section 21 of the Bill of Rights; the need for search and seizure powers to be exercised consistently by all government departments; and that the Statement refers to Police powers, the Crown Law Office (if it has not already) should review the Statement. From the perspective of persons who may be subject to the exercise of these powers, input from the Crown Law Office should provide a greater level of assurance that in a given situation Inland Revenue and the Crown Law Office will not seek to resile from the practices set out in the Statement. 1 The Statement should address the question of when it is reasonable to exercise powers under section 16 of the Act 5. Paragraphs 30 to 35 of the Statement are headed "When Inland Revenue will use section 16". But only paragraph 31 gives some indication of the factors the Commissioner may consider when deciding to exercise her search powers. The Statement would be more useful if it described the factors considered when the Commissioner decides to exercise her section 16 search powers as opposed to using less intrusive powers. Such a discussion should be consistent with factors identified by the Court of Appeal in Tauber Paragraph 31 states that the Commissioner will use section 16 where it is considered appropriate including to "address problems of aggressive tax planning and tax avoidance". The Commissioner may only exercise her section 16 power if it is reasonable in the circumstances. 3 As section 16 is an information gathering power, the relevant considerations should relate to the Commissioner's ability to obtain information to carry out her duties under the Inland Revenue Acts. The substantive taxing provision in issue (for example section BG 1) is not in itself relevant to the Commissioner's ability to gather information. The Commissioner should consider such factors as: The Commissioner has previously argued (successfully) before the Courts that she is not bound to follow practice statements such as this Statement. See, for example, ANZ National Bank v CIR (No 2) (2006) 22 NZTC 19,835. Tauber v CIR [2012] NZCA 411 at [39]. See also the Court's comments at [86] concerning Ms Bockett and the relevance of her status as a professional adviser. Avowal Administrative Attorneys Ltd v District Court at North Shore [2010] NZCA 183 at [23].

3 3 what, if any, steps to obtain information have already been taken and the results of those steps; whether the information is "at risk"; and whether it is likely the case involves an element of fraud or deceit. 7. The relevant substantive taxing provision (including a general or specific avoidance provision) will not, in itself, result in an exercise of an intrusive power being warranted. The last sentence of paragraph 31 of the Statement should therefore be deleted. The Statement should record the Commissioner's obligation of candour and completeness when applying for a warrant 8. An application for a warrant under section 16(4) or section 16C(2) of the Act is an ex parte application. Accordingly, the Commissioner has an obligation of candour and completeness in respect of the content of a warrant application. 4 The Statement should expressly record this obligation. Recording this obligation in the Statement will inform the public of the Commissioner's obligations and will serve as a useful reminder to Inland Revenue officers completing warrant applications. Section 20 of the Act is not a complete code regarding the scope of legal professional privilege 9. Paragraph 125 of the Statement states that: For the purposes of the Commissioner's search powers, the only limitations on Inland Revenue's ability to access and seize documents are those provided for in sections 20 to 20G of the TAA and section 102 of the SSA. 10. Paragraph 125 therefore suggests that legal professional privilege will limit Inland Revenue's ability to access and seize documents only to the extent recognised by section 20 of the Act. And other passages in the Statement could similarly be read as suggesting that the only relevant category of legally privileged documents will be documents within the scope of section 20. (See for example paragraphs 126, 129, 132 and 134.) 11. Section 20(4) provides: Except as provided in subsection (1), no information or document shall for the purposes of sections 16 to 19, 143(1), 143A(1), 143B(1), and 143F be privileged from disclosure on the ground that it is a communication passing between one legal practitioner and another legal practitioner or between a legal practitioner and the practitioner s client. [Emphasis added.] 12. In the context of a predecessor to section 17 (and prior to the enactment of section 20) the Court of Appeal held that the Commissioner's section 17 power was subject to the protection of legal professional privilege. 5 The basis for the Court's decision was that as a matter of statutory interpretation, Parliament could not be presumed to have overridden a fundamental principle such as the protection for legally privileged communications, except by clear and express words. This approach was recently endorsed by the Privy Council If the Court of Appeal's and Privy Council's approach is applied to section 20(4), section 20 must be interpreted as a partial code only, in that it is confined to communications between two or more legal practitioners or between a legal practitioner and that practitioner's client. ("Legal practitioner" is See Tauber v CIR at [49]. CIR v West-Walker [1954] NZLR 191 (CA). B v Auckland District Law Society [2003] UKPC 38 at [59].

4 4 defined as a barrister or solicitor of the High Court of New Zealand and includes a firm or an incorporated law firm.) Thus, section 20 is restricted to communications to which New Zealand legal practitioners are directly party. In respect of other categories of privileged communications (for example, communications involving foreign legal practitioners, and documents created for the dominant purpose of advising or assisting on reasonably apprehended litigation (i.e., "litigation privilege")) the common law position remains, unaffected by section 20. At common law, such documents are protected from disclosure. 14. The Law Society recommends that the Statement be amended to acknowledge that there are categories of documents and communications outside the scope of section 20, but which are nonetheless privileged at common law, and consequently are protected from the Commissioner's section 16 search powers. The categories of documents and communications should include: correspondence and other documents subject to litigation privilege; communications between a foreign legal practitioner and either their client or another legal practitioner (including a New Zealand legal practitioner) created for the dominant purpose of providing legal advice or assistance; and documents that record, or the contents of which reveal, the contents of a legally privileged communication. Section 16 of the Act does not confer a power to search persons 15. The search of a person is a far greater intrusion than the search of a person's office or home. 7 This is reflected in sections 124 to 126 of the SSA, which provide additional requirements in respect of the exercise of a power to search a person. 16. Paragraph 62 of the Statement states that it is not the Commissioner's "current practice" to search persons. Section 16 does not confer on the Commissioner power to search persons. While a person may be required to provide assistance, say, by giving up a cellular phone, the Commissioner has no power to verify this by search. The Statement should be amended expressly to record that the Commissioner does not have the power to search a person. The Statement should clarify the Commissioner's power of exclusion of persons from the search area and when non-compliance will amount to an offence Issue 17. Paragraphs 93 to 97 of the Statement address the Commissioner's power to exclude persons from the search area during a search and the offence of obstruction. Given that these paragraphs deal with the Commissioner's ability to restrict a person's movement and restrict who a person associates with and also deal with criminal offences, the Statement should be clear as to how and when these powers will be exercised. Direction to "keep away from others" must be reasonable 18. Paragraph 93 of the Statement paraphrases section 116 of the SSA. Paragraph 94 states that: In practice, this means that occupiers may be asked to remain outside a specified area, to keep away from other occupiers or Inland Revenue officers, or to leave the premises. Failing to do any of these things could result in the occupier being liable to prosecution for obstruction. 7 R v Pohoretsky [1987] 1 SCR 945, cited in Law Commission Search and Surveillance Powers (NZLC R97, 2007) at paragraph 8.1.

5 5 19. A direction to keep away from other occupiers or Inland Revenue officers is not expressly contemplated by section 116 of the SSA. Accordingly, such a direction may be given only if it is an "other reasonable direction". The Statement should make it clear that under section 116(1) of the SSA any direction to "keep away" from someone may only be made if the Inland Revenue officer has reasonable grounds and the direction itself is reasonable. Statement should refer to person's rights under section 116(2) of the SSA 20. Section 116(2) of the SSA provides that a person affected by a direction under section 116(1) of the SSA may request certain information from the person exercising that power. The Statement should expressly refer to a person's rights under section 116(2) of the SSA. The Commissioner should also consider, as a matter of best practice, providing the information listed in section 116(2) of the SSA even when not expressly requested. Statement should clarify when the offence of obstruction may be committed 21. Paragraph 95 of the Statement states: Failing to keep away from other occupiers or Inland Revenue officers, or failing to remain outside a specified area will be regarded as committing an offence against section 143H of the TAA (obstruction). 22. Paragraph 95 is under a separate heading from paragraphs 93 and 94 (which deal with the power to exclude persons from the search area). Consequently, paragraph 95 should be amended to make it clear that the offence of obstruction may be committed if a person fails to comply with a reasonable direction; it is not the failing to keep away from someone in itself that gives rise to the offence. Inland Revenue should have reasonable grounds before photographing cash and valuable items found during any search 23. Paragraph 99 of the Statement states that Inland Revenue officers will count and photograph any cash or valuables found during a search on the basis that such items could be representative of undeclared income. 24. The automatic counting and photographing of cash and valuables merely because they could represent undeclared income is unreasonable. Section 110(j) of the SSA provides that a search power authorises a person exercising it:... to take photographs, sound and video recordings, and drawings of the place, vehicle, or other thing searched, and of anything found in or on that place, vehicle, or other thing, if the person exercising the power has reasonable grounds to believe that the photographs or sound or video recordings or drawings may be relevant to the purposes of the entry and search. [Emphasis added.] 25. In the absence of reasonable grounds Inland Revenue officers should not count or photograph cash or valuables found in the course of a search. The Statement should be amended to conform with section 110(j) of the SSA.

6 The Statement should acknowledge an occupier's right under the Bill of Rights to consult and instruct a lawyer if he or she is required to answer questions Paragraph 57 of the Statement states that, to ensure the Commissioner's search powers are exercised consistently with the Bill of Rights, an occupier will be advised of his or her ability to instruct and consult a lawyer. But paragraph 92 of the Statement states:... Inland Revenue does not consider that it is necessary to await the arrival of any adviser before asking any proper question. 27. The context in which paragraph 92 appears in the Statement is in discussing the questions that can be put to an occupier as an incident of a search under section 16 of the Act. Questions that can be asked in this context are described as proper questions. Proper questions are to be contrasted with investigative questions, which go beyond questions to facilitate the search and are directed at obtaining evidence relating to substantive matters (see paragraph 79 of the Statement). 28. Paragraph 85 states that "[i]f an occupier refuses to answer a proper question, or leaves without answering it, this could give rise to a prosecution for obstruction". If the person is not free to leave in the circumstances, then it would seem the person is "detained under [an] enactment" in terms of section 23(1) of the Bill of Rights. Accordingly, the person has, under the Bill of Rights, the right to consult and instruct a lawyer. 29. The suggestion (in paragraph 92 of the Statement) that Inland Revenue could simply proceed with questioning the occupier without enabling the occupier to seek and obtain legal advice is on its face inconsistent with section 23(1) of the Bill of Rights. And the Statement offers no justification for the inconsistency. It is submitted that the Statement should be amended to recognise the right conferred by section 23(1) of the Bill of Rights and to set out the steps Inland Revenue will take to facilitate the exercise of that right by occupiers who are required to answer questions. Conclusion 30. This submission has been prepared with the assistance of the Law Society s Tax Law Committee. If you have any queries please contact the committee convenor, Casey Plunket, through the committee secretary Jason Cooper by , jason.cooper@lawsoceity.org.nz or phone ( Yours sincerely Chris Moore President