15 February 2006
Judge refuses to jail Wellington Businessman in tax case taxpayer alleged to have " to have "utterly thwarted" New
Zealand IRD " New Zealand IRD
Angel Capital Corporation - District Court judge not satisfied that documents sought of taxpayer existed
15 February 2006 - LAWFUEL - The Law News Network - A reserved decision of Judge C N Touhy of the Wellington District
Court last week dismissed an application by the Commissioner of Inland Revenue to imprison a taxpayer, Scott Anderson,
for his company not supplying documents required by the Commissioner for an investigation.
The case was the first test by the Commissioner to see if he could utilise the penalty regime available to Judges under
the Contempt of Court rules as opposed to, or in parallel with the provisions of the Tax Administration Act, in which
section 143 prescribes five levels of penalty for offences relating to failure to file tax returns or supply
information.
The Commissioner had indicated that the Tax Administration Act regime did not always bring “particularly intransigent”
taxpayers into compliance. The Commissioner was looking for extra teeth and flexibility in order to get required
documents and returns filed.
James Coleman, prosecuting, submitted that an investigation had been “utterly thwarted” by the taxpayer’s failure to
provide certain documents. The Commissioner had claimed that a prison term in these circumstances is “not unduly
draconian”.
Angel Capital Corporation Limited, a company owned and directed by Anderson, had been ordered to supply 27 documents to
the Commissioner. Mr Anderson claimed he was overseas and unable to meet the timeframe, and so he instructed his
secretary to supply the company’s entire files, which were duly copied by the Commissioner and returned. The
Commissioner then conducted a voluntary interview with Anderson relating to the documents.
However, in March 2005 the Commissioner was granted a court order requiring 12 of the 27 documents that purportedly had
not been supplied.
Communications from Mr Anderson to the Commissioner in which he asserted that everything available had been provided
were put before the Court by the Commissioner. These included a letter, which the Commissioner claimed to have not
received, where Anderson advised that he had now supplied or answered six of the 12 items repeatedly, and that if the
remaining items were not in the company’s files they did not exist and could not be supplied.
The decision says that Douglas Ewen, counsel for the taxpayer, “argued strongly that the Commissioner had not proved
beyond reasonable doubt or by admissible evidence that the order had been breeched”.
Judge Touhy was satisfied that the Court does have the jurisdiction to commit taxpayers to prison for contempt, but the
decision did not address the issue of whether prior orders for a Court inspection of required documents would be needed,
or whether the Court’s discretion to make committal orders is affected by the existence of a parallel power for the
Commissioner to prosecute under the Tax Act.
In this case the Commissioner had failed to prove that the documents that were required either existed or were in the
possession or control of the taxpayer, and that descriptions of some of the items requested were “too vague to be
enforceable”. The Court was not satisfied that the taxpayer had breached the court order and the application for a
committal order was dismissed.
Anderson was central in the Actonz Software case that concluded in the Wellington High Court in 2003. At the time, it
was New Zealand’s second largest tax case, involving some 400 investors who claimed a share of losses that arose from
the depreciation of software during the technology bubble of the late 1990’s.
John Bowie
LawFuel.com
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