FYMS and Commissioner of Taxation (Taxation)
[2022] AATA 456
•14 March 2022
FYMS and Commissioner of Taxation (Taxation) [2022] AATA 456 (14 March 2022)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2020/4162
Re:FYMS
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Deputy President Bernard J McCabe
Date:14 March 2022
Place: Perth
The application for orders under s 37(2) of the AAT Act or for the issue of a summons directed to the respondent is refused.
.........................[SGD]..........................
Deputy President Bernard J McCabe
CATCHWORDS
PRACTICE AND PROCEDURE –– whether the Tribunal can direct the respondent to produce the identified documents pursuant to s 37(2) of the AAT Act – whether the Tribunal can agree to a request from the applicant to issue a summons to the respondent requiring production of the documents in question pursuant to s 40A(1)(b) of the AAT Act – the application for orders directed to the respondent is refused.
LEGISLATION
Administrative Appeals Tribunal Act 1975
Income Tax Assessment Act 1936
Taxation Administration Act 1953
CASES
Australian Prudential Regulatory Authority v VBN [2005] FCA 1868
Commissioner of Taxation v ACN 154 520 199 Pty Ltd (in liq) (formerly EBS & Associates Pty Ltd) [2018] FCA 1140
Hawkins v Commissioner of Taxation [2019] FCA 627
Secondary Materials
REASONS FOR DECISION
14 March 2022
FYMS, the applicant in these proceedings, has asked the Tribunal to require the Commissioner of Taxation to provide access to certain documents. (One of the documents, which I will discuss below, was included – inadvertently, the Commissioner says – in the documents filed pursuant to s 37(1) of the Administrative Appeals Tribunal Act 1975. The Commissioner has asked for that document to be uplifted from the ‘T’ documents and returned.) FYMS says the documents it seeks are potentially probative and relevant to the Tribunal’s review. It says it would be convenient and appropriate to see the documents at this stage of proceedings which challenge the objection decision made in relation to the amended assessments.
Specifically, FYMS has asked the Tribunal to either:
·direct the Commissioner to produce the identified documents pursuant to s 37(2) of the AAT Act; or
·agree to a request from the applicant to issue a summons to the Commissioner requiring production of the documents in question pursuant to s 40A(1)(b) of the AAT Act.
The documents in question include the final audit report (currently document T164) prepared by the Commissioner’s officers in October 2016 that analyses the taxpayer’s affairs. The taxpayer is also after legal advices provided to the Commissioner (including associated correspondence and documents and minutes of meetings with counsel) in 2015 and 2016. The applicant has also asked for:
·copies of any legal advices mentioned in the audit report that are not included in the categories referred to above; and
·documents referred to in the audit report which were obtained from law enforcement agencies.
I deliberately refrained from reading document T164 in advance of the interlocutory hearing, but I have since done so with the agreement of the parties.
I am not prepared to accede to the Commissioner’s request to uplift document T164. The taxpayer’s request to produce additional documents is premature. I explain my reasons below.
BACKGROUND
The Commissioner issued amended assessments and penalty assessments with respect to the 2006-2009 and 2011-2013 years of income. The amended assessments were issued pursuant to s 167 of the Income Tax Assessment Act 1936 (ITAA36) following a lengthy audit of the applicant’s affairs. I note the Commissioner decided to include amounts in the taxpayer’s assessable income after making a formal finding under s 177F of ITAA36. Section 177F is found in Part IVA of the legislation. The finding is made when the Commissioner is satisfied there was a scheme resulting in a benefit. The applicant subsequently objected to the amended assessments. The objections were disallowed.
That brings us to the Tribunal’s review. A series of payments lie at the heart of the dispute on review. The Commissioner says the payments should be attributed to the taxpayer and included in his assessable income in the relevant years. Some of the payments were described by the taxpayer as consultancy fees and paid to a company controlled by the taxpayer; some of the payments were made into bank accounts (including foreign bank accounts) controlled by persons said to be associates. There is also necessarily a question of fraud and evasion because the Commissioner would otherwise be prevented from issuing amended assessments in the ordinary course after such a long delay.
THE REQUIREMENT TO PRODUCE DOCUMENTS
When the application for review was filed, the Commissioner was notified in the ordinary course. That notice triggered the obligation under s 37(1) of the AAT Act to produce the ‘T documents’. Section 14ZZF(1) of the Taxation Administration Act 1953 (the Administration Act) modifies the usual criteria in s 37(1) of the AAT Act. Under the modified rule, the Commissioner is required to produce the documents identified in ss 14ZZF(1)(a)(i)-(iv) of the Administration Act and:
…(v) every other document that is in the Commissioner’s possession or under the Commissioner’s control and is considered by the Commissioner to be necessary to the review of the objection decision concerned;…
Section 37(1) is directed to the decision-maker. It is the Commissioner’s opinion of what is necessary that is significant. The sub-section does not give the Tribunal the power to form and substitute a view and require production of documents. The Tribunal’s power to form a view and require the production of documents that are (or which may be) relevant is found in s 37(2).
The taxpayer points out that whoever compiled the documents on the Commissioner’s behalf pursuant to s 37(1) must have assumed document T164 – the final audit report – was “necessary to the review of the objection decision”. The taxpayer says that opinion is unsurprising given the document referred to factual conclusions and legal advice that appeared to provide a basis for the decision to issue the amended assessments. If the document was included in the T documents following an ordinary decision-making process under s 37(1) of the AAT Act, the taxpayer said the document should remain there because there was a presumption of regularity that has not been displaced in the circumstances.
The Commissioner, for his part, points out the Commissioner’s internal records system says document T164 was created on 14 October 2016. The same system shows that approval to issue the amended assessments was given days earlier, on 5 October 2016. In those circumstances, I was told, document T164 could not have formed the basis of the decision to issue the amended assessments. It was therefore irrelevant and should be uplifted from the T documents.
I have no reason to doubt the chronology provided by the Commissioner, and so I accept the document was not before the primary decision-maker when the decision was made to issue amended assessments. But s 14ZZF(1)(a)(v) focuses on whether an opinion was formed at the time the T documents were created that the document in question was “necessary to the review”. The fact the document had not been created when the primary decision was made does not inevitably mean it is unnecessary to the review. It may be that a later-created document conveniently summarises factors that were before the original decision-maker in a different form. It is also important to keep in mind that document T164 was in existence at the time of the objection decision, which is the decision under review. In those circumstances, a document might be necessary in the sense that it would positively assist the Tribunal in its conduct of the review.
Section 37(2) of the AAT Act includes a power to require a decision-maker to lodge additional documents “[w]here the Tribunal is of the opinion that …[those] other… documents…may be relevant to the review of the decision by the Tribunal…” (emphasis added). While s 14ZZF(1)(b) of the Administration Act modifies the way in which the Tribunal might go about calling for the documents in question, the criterion of relevance is still applicable where the Tribunal contemplates asking for additional documents that were not included in the T documents.
The use of the word ‘relevant’ in this context requires some further explanation. It is not enough that the document relate to or describe the taxpayer’s affairs. The power to require additional documents is not a discovery power. To be disclosable, the document must be relevant to the task at hand, which is establishing the taxpayer’s true assessable income. The taxpayer is generally in the best position to know what that is: the Commissioner’s officers conducting an audit are attempting to reconstruct what occurred, whereas the taxpayer is presumably familiar with its own affairs. The taxpayer usually has access to evidence that is relevant and probative. He would not ordinarily require the Commissioner’s assistance in working out the true state of those affairs. To the extent the audit report records the Commissioner’s impression of what occurred, it is evidence of the impression. But that is of limited assistance in the review.
There is a danger that prioritising the audit report will focus attention on the Commissioner’s decision-making process rather than on the substance of the decision. Having said that, there may be some point in accessing an audit report where there is a question over whether the Commissioner had a basis for his opinion that a taxpayer engaged in fraud or evasion or whether there was a scheme.
In any event, it is much easier to judge relevance when one is clear about the taxpayer’s case. That case is articulated in the statement of facts, issues and contentions. While there may be an argument for obtaining further documents from the Commissioner or others before the statement of facts, issues and contentions is compiled, the statement (and the Commissioner’s statement in reply) obviously provides a useful framework for analysis: see, generally, Hawkins v Commissioner of Taxation [2019] FCA 627 at [25]-[30] per Logan J. It will often make sense to wait for one or both statements to be provided before the Tribunal makes a decision about what is required in order to avoid the cost and complications associated with a context-less debate about relevance. Mr Peden, for the taxpayer, says waiting in this case might be inefficient since the taxpayer would prefer to produce a single document that articulated its case in more-or-less final form. The skirmishing over production of the documents in advance of the statement being prepared has probably dissipated any gains.
I do not need to engage further on the question of the relevance of document T164 for the purposes of s 37(2). There is no point wasting effort trying to un-ring the bell now the document has already been disclosed. While it remains unclear whether the document will be of any genuine assistance in the proceedings, I am not satisfied it is appropriate to uplift it from the T documents at this point. (The taxpayer questioned whether the Tribunal has the power to do so in any event. I do not need to resolve that question now, given the course I propose taking. But it seems to me the Tribunal would have such a power under s 33 of the AAT Act.) The document will not be admissible if it is irrelevant. The Commissioner is always free to seek orders under s 35 of the AAT Act preventing wider dissemination of the document (or part of it) if there is an issue. I would add that, subject to what follows, the Commissioner has not yet articulated a valid claim of legal professional privilege as it has not been demonstrated that the document was created for the dominant purpose of giving or receiving legal advice, or for the dominant purpose of using it in litigation. (The Commissioner’s written submissions did not disavow a claim for privilege but nor did those submissions make a positive case. I will return to this issue below.)
THE LEGAL ADVICES
The position is more complicated with respect to legal advices and associated materials and the material from law enforcement agencies referred to (expressly or by inference) in document T164.Those other documents have not been provided. The question is whether they should be, under either s 37(2) or s 40A(1)(b) of the AAT Act. I will deal with the legal advices first.
The taxpayer relied on the decision in Australian Prudential Regulatory Authority v VBN [2005] FCA 1868. In that case, the Federal Court reviewed the Tribunal’s decision to direct the decision-maker to produce documents pursuant to s 37(2). The documents included advices from counsel that were relied on by the decision-maker when it made its decision to disqualify the applicant from playing a role in relation to a superannuation fund. The advices dealt with process issues, amongst other things, and included advice about the relevant law and principles that governed the decision. The Tribunal had said the advice about the application of the law was relevant within the meaning of s 37(2) and therefore disclosable. The Tribunal was not prepared to require production of advices going to process issues. As Ryan J explained (at [11]) on appeal, the Tribunal’s thinking was summarised as follows: “If [the documents] are relevant to the interpretation of the law, they are relevant to the review of the decision."
Ryan J accepted the Tribunal could order production of the legal advices to the Tribunal under s 37(2) if it was satisfied the documents were relevant to the review. His Honour accepted that legal professional privilege was not a ground for resisting production of the document to the Tribunal in that event albeit the document might be withheld from the other party if there was an application for orders under s 35. His Honour also pointed out that only advices actually taken into account by the decision-maker were potentially the subject of an order under s 37(2). His Honour explained that limitation as follows (at [32]):
…the reach of the sub-section does not extend to expressions of legal opinion or advice which may have been available to the decision-maker but were not considered in the course of arriving at the impugned decision. To hold otherwise would be to oblige the decision-maker to search out and lodge with the Tribunal and supply to the other parties, copies of every document containing a pertinent expression of legal opinion in the decision-maker’s possession or power even if the existence of the document had not been present to the mind of the decision-maker when making the decision under review. That obligation would extend to legal texts or journals which had been available to the decision-maker but not consulted by him or her.
The Commissioner has not at this stage made an application under s 35 in relation to any of the documents. (It is too late in any practical sense to make an application for orders under s 35 that would prevent disclosure of the contents of document T164 to the taxpayer.) The Commissioner has instead resisted:
·the application for orders under s 37(2) and
·the request to issue a summons
on the basis the documents are not relevant. The taxpayer, for its part, says the argument about relevance cannot stand in light of the Federal Court’s decision in VBN.
I agree the decision in VBN makes clear I have power to make orders under s 37(2) (or, for that matter, to direct the issue of a summons under s 40A) if I am persuaded the documents in question may be relevant to the review.
The question of relevance is nuanced. In determining that which is relevant, one must keep in mind the compound question framed by s 14ZZK(b) of the Administration Act which lies at the heart of the review undertaken by the Tribunal: are the assessments excessive and, if so, by how much? The power in s 37(2) is not available simply because the taxpayer suspects documents somehow relate to a decision; nor is it enough that the documents are of interest to the taxpayer because they might reveal a less-than-elegant primary decision-making process. I do not doubt the legal advices mentioned in document T164 may have informed the Commissioner’s decision-making on objection, if not at first instance, but they are ultimately nothing more than evidence of counsel’s opinion. Once a matter comes before the Tribunal for a de novo review on the merits, the views of counsel who advised the primary decision-maker – indeed, the views of the decision-maker himself – are not generally relevant to my function, except insofar as they are rearticulated as submissions in the review. I ordinarily focus squarely on the taxpayer’s affairs rather than the machinations of the Commissioner because I am reviewing the decision, not the decision-maker
That being said, the taxpayer has attempted to establish relevance in this case. In written submissions, the taxpayer referred to the advices being useful and relevant to the review because they addressed the technical and legal position and also reflected on the strength of the Commissioner’s evidence, and perhaps on other matters. In that sense, I was told, they shed light on the issues before the Tribunal.
That is not an especially attractive argument given what I have said about the focus of the review on the objection decision, as opposed to the decision-making process.
The parties are free to make submissions on the law and evidence in these proceedings, and the Tribunal will make an objective determination for itself (having heard the submissions of the parties) about how it should evaluate the evidence and apply the law. The Tribunal performs that role having regard to the material before it at the hearing, as opposed to what may have been in the Commissioner’s mind when the decision was made. That makes sense given the nature of the Tribunal’s review, but also given the Commissioner is free to defend his objection decision on different grounds or having regard to different evidence, subject to the ordinary litigation fairness concerns. The Commissioner is not defending his decision-making process; to the extent he defends anything given the requirements of s 14ZZK(b) of the Administration Act in a de novo review, the Commissioner is contending for the correctness of the objection decision.
I am reluctant at this early stage of the proceedings to make a definitive ruling on relevance. The relevance of documents may yet become clear as the case proceeds. I anticipate at least two possible bases for such an argument. First, the Commissioner has made a determination under s 177F of ITAA36, which presumes the existence of a scheme under Part IVA. It is possible the legal advices and associated documents might be relevant to that aspect of the case (although it remains to be seen how) or to the general question of whether there was fraud or evasion. It is also possible the advices might be relevant to the question of whether the taxpayer had a reasonably arguable case, which might arise in relation to the penalty assessments. If the taxpayer could make out relevance on either of these grounds, there may well be a basis for ordering production, one way or another. In the course of making that argument, the taxpayer would need to address the concerns articulated in Commissioner of Taxation v ACN 154 520 199 Pty Ltd (in liq) (formerly EBS & Associates Pty Ltd) [2018] FCA 1140. In that case, Bromwich J doubted the basis for disclosing internal documents (including legal advices) that were said to be relevant to the Part IVA determination and penalties. His Honour explained (at [49]-[50]) that the Tribunal’s role was to make an objective decision on the material before it which was not assisted by material that might have been in the Commissioner’s mind.
I do not need to reach a concluded view on that issue now. It will be easier to make a judgment about the relevance of the documents on either of those bases – or on any other basis – once the statements of facts, issues and contentions have been exchanged. It may be appropriate at that point to revisit the need to make orders under s 37(2) (or to issue a summons) at which point I can also deal conveniently with any claim for privilege.
THE ADDITIONAL DOCUMENTS
The final audit report also refers to materials obtained from the Australian Crime Commission and the Criminal Asset Confiscation Task Force. The taxpayer says in submissions that those documents are relevant because I will need to have regard to them in order to work out whether a privilege claim is justified. If the documents were not accessed in accordance with the statutory regime, that may call into question any claim for privilege, or perhaps the admissibility of other evidence that forms part of the Commissioner’s case.
The requests for a summons or for disclosure of these documents under s 37(2) are premature. Any argument about the relevance of these documents will be easier to resolve once the statements of facts, issues and contentions have been exchanged. It will also be possible to deal with arguments that might arise about any confidentiality obligations which attach to those documents under the relevant statutory regime.
CONCLUSION
The application for orders under s 37(2) of the AAT Act or for the issue of a summons directed to the respondent is refused because the application is, in the circumstances, premature.
I certify that the preceding 31 (thirty -one) paragraphs are a true copy of the reasons for the decision herein of
..............................SGD..............................
Associate
Dated: 16 March 2022
Date(s) of hearing: 1 February 2022 Counsel for the Applicant: Christopher Peadon Solicitors for the Applicant: PricewaterhouseCoopers Counsel for the Respondent: Alain Musikanth SC Solicitors for the Respondent: Australian Government Solicitor
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