VMQD and Commissioner of Taxation (Taxation)
[2017] AATA 1430
•31 August 2017
VMQD and Commissioner of Taxation (Taxation) [2017] AATA 1430 (31 August 2017)
Division:TAXATION & COMMERCIAL DIVISION
File Number: 2016/5637
2016/5638
Re:VMQD
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:The Hon. Dennis Cowdroy OAM QC, Deputy President
Date:31 August 2017
Place:Sydney
The application made by the applicant for a stay is dismissed. The applicant is to file its Statement of Facts, Issues and Contentions within 21 days the date of this decision.
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The Hon. Dennis Cowdroy OAM QC, Deputy President
CATCHWORDS
PRACTICE AND PROCEDURE – appeal of interlocutory decision to the Federal Court of Australia – application for a stay until proceedings in the Federal Court of Australia are finalised – application for Respondent to file Statement of Facts, Issues and Contentions first – whether applicant will be denied procedural fairness if stay is not granted – whether the T documents contain sufficient particulars to enable the applicant to file a Statement of Facts, Issues and Contentions
LEGISLATION
Administrative Appeals Tribunal Act (Cth), s 33, 37
Taxation Administration Act 1953 (Cth), ss 14ZQ, 14ZZF, 14ZZO
CASES
Bailey v The Commissioner of Taxation of the Commonwealth of Australia (1978) 136 CLR 214
Binetter v Federal Commissioner of Taxation [2016] FCAFC 163; 104 ATR 145
Cash World Gold Buyers Pty Ltd v Commissioner of Taxation [2017] AATA 736
Christie and Federal Commissioner of Taxation [2008] AATA 320
Federal Commissioner of Taxation for the Commonwealth Of Australia v Dalco (1990) 168 CLR 614
George v Federal Commissioner of Taxation (1952) 86 CLR 183
Glennan v Commissioner of Taxation [2003] HCA 31; 198 ALR 250
Rio Tinto Ltd v Federal Commissioner of Taxation [2004] FCA 335; 55 ATR 321
Seymour and Migration Agents Registration Authority [2012] AATA 86
Uratoriu v Commissioner of Taxation [2010] FCA 1157
VLKG and Commissioner of Taxation [2011] AATA 915VMQD and Commissioner of Taxation [2017] AATA 846
REASONS FOR DECISION
The Hon. Dennis Cowdroy OAM QC, Deputy President
31 August 2017
By Application for Review of Decision filed on 14 October 2016, the applicant (“VMQD”) sought review of decisions made by the respondent (“the Commissioner”) in respect of assessments made by the Commissioner for the taxable income of the applicant for the years ended 30 June 2001 and 30 June 2002. Notices of assessment were issued on 21 December 2015 in respect of the relevant financial years. As to the assessment raised for the financial year ended 30 June 2001, the applicant’s objection was allowed in part. The objection for the year ended 30 June 2002 was disallowed.
By letter dated 8 December 2016, the applicant claimed that certain documents had not been included in the documents filed in the Tribunal in the application for review (the “T documents”). Subsequently the applicant applied to the Tribunal for orders directing the Commissioner to furnish documents which it claimed were missing from the T documents.
By decision delivered on 19 May 2017, the written reasons for which were provided on 9 June 2017, the Tribunal dismissed the application: see VMQD and Commissioner of Taxation [2017] AATA 846. The applicant has appealed to the Federal Court of Australia again such decision seeking judicial review.
Present application
The applicant claims that the proceedings currently before this Tribunal for review of the Commissioner’s decision should be stayed pending determination of its application for judicial review to the Federal Court of Australia. In support of such submission, it submits that if the decision of the Tribunal is set aside and if the Commissioner is ordered to supply additional documents, it may lead to a restructuring of its application for review. This may include not only the submission of additional documents to the Tribunal in support of its contentions but also it may result in entirely different submissions being made in respect of the issues for consideration.
In the alternative, should the Tribunal be disinclined to grant a stay, the applicant claims that the Commissioner should be requested to file its Statement of Facts, Issues and Contentions (“SFIC”) before the applicant provides its SFIC to the Tribunal.
Applicant’s submissions
The applicant submits that its application to the Federal Court of Australia is a “seriously arguable case” that, if successful, the applicant will be denied procedural fairness in these proceedings should he be required, pending the decision of the Federal Court, to proceed with the preparation and presentation of its case before the Tribunal.
The applicant refers to s 14ZZF of the Taxation Administration Act 1953 (Cth) (“TAA”) which provides that the Commissioner, in reviewing proceedings in respect of an objection, is to file his material first, including a statement as required by s 14ZZF(1)(a)(i) and other documents which the Commissioner considers relevant to the review.
The applicant also relies upon s 37(2) of the Administrative Appeals Tribunal Act (Cth) (“AAT Act”) as modified by section 14ZZF(1)(b) of the TAA in support of its contention that the Commissioner is to file its material for use in the application for review in priority to an applicant in such proceedings.
The applicant asserts that if a stay is not granted, it should not be required to file its SFIC until such time as the Commissioner has “particularised his allegations of evasion”. The reasons for such claim are set out in paragraph 5 above.
Consideration
The procedures of the Tribunal usually requires that the decision-maker who made the decision against whom the application for review is sought is to provide an SFIC: see s 37(1)(a) of the AAT Act, as is relevantly set out hereunder.
However the provisions of s 37(1)(b) were modified by s 14ZZF(1)(a) of the TAA in those cases where the primary decision is a “reviewable objection decision” within the meaning of s 14ZQ of the TAA. Instead of being obliged to lodge copies of documents set out in s 37(1)(b) of the AAT Act, the Commissioner is required, pursuant to section 14ZZ F(1)(a)(v) to lodge:
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...
The statutory amendment to s 37(1)(b) is therefore displaced and substituted by the requirement to lodge documents which the Commissioner considers relevant: see Re Christie and Federal Commissioner of Taxation [2008] AATA 320 at [9]. The Commissioner is therefore invested with a subjective power to determine relevance of the documents. Nevertheless, there is a safeguard provided by s 37(2) of the AAT Act (set out later in this decision) and this section has not been altered or amended by the provisions of s 14ZZF.
Such section has been considered in VLKG and Commissioner of Taxation [2011] AATA 915 at [6] (VKLG); Cash World Gold Buyers Pty Ltd v Commissioner of Taxation [2017] AATA 736 (Cash World Buyers). In summary, it has been clearly established that there is a distinction to be drawn between the operation of s 37(1) as amended by s 14ZZF(1)(b)(ii) of the TAA, compared to the operation of s 37(2) of the AAT Act. The former gives the discretion to the Commissioner to produce such documents as he considers relevant: the latter gives the Tribunal power to require production of documents.
In order for the latter provision to apply, the Tribunal, prior to giving notification, must formulate its direction to the Commissioner following a process of evaluation: see Cash World Gold Buyers at [25].
The question of the need for production of additional documents has been considered by the Tribunal and its decision is now the subject of the application to the Federal Court. The basis of the application now before the Tribunal is that the applicant will suffer disadvantage of procedural unfairness in the event that the Federal Court sets aside the Tribunal’s decision.
Such assertion must be considered against the process that has been invoked in the Tribunal by the applicant. It is the applicant’s Application for Review; that is, the applicant has initiated the proceedings claiming relief before the Tribunal from the decision of the Commissioner. At this stage of the proceedings the parties are expected to place before the Tribunal all relevant documents, and an applicant is required to provide a statement of the facts circumstantial and issues which it sees arising in the application. The Commissioner has already filed documents considered by him to be relevant (the “T Documents”).
The applicant submits that it does not have sufficient information for it to respond to the Commissioner’s documentation, nor to file its SFIC. This assertion raises the question of the information which has been provided to the applicant.
Information supplied
The challenged assessments arise out of a transaction with a group of companies including one particular company (“Company X”). Monies were paid by the West Australian Government to Company X in 1999 and in 2001 in respect of a termination payment for a car and bus leasing transaction. Other companies incorporated in Singapore and in the Cayman Islands were involved with other companies. An entity, to be referred as “Entity X”, was involved in some capacity. Another entity is involved, known as “Entity Y”. The precise involvement of Entity Y with Company X and the interlocking relationship between those companies and of the other companies with the taxpayer is yet to be determined. However what is apparent is that the applicant objected to assessments raised by the Commissioner and such objection suggests that the applicant has a detailed knowledge of the matters relied upon by the Commissioner.
The documents provided to the Tribunal record that objections were lodged by the taxpayer to assessments issued in respect of the years ended 30 June 2001 and 30 June 2002. By notice of objection decision dated 19 August 2016 the Commissioner gave reasons for his decision (“the decision”). The reasons include approximately 170 paragraphs of detailed reasoning and the factual basis for such reasoning. The decision is 38 pages in length and contains extensive factual material including references to documents. The decision contains all of the material upon which the Commissioner relies to justify his assessments.
In addition to the original assessments, on 8 December 2015 an officer within the office of the respondent produced a document described as “Fraud or Evasion Opinion” (“the Opinion”) which resulted in the Commissioner forming the view that the applicant had been involved in evasion in respect of the financial years ended 2001 and 2002.
Significantly, both the decision and the Opinion are contained within the T documents. Prima facie, such documents therefore include all of the factual matters to be relied upon by the Commissioner in support of the assessments which are challenged.
Need for Particulars
It is a basic principle that a party should not be required to answer or defend a charge or claim unless the defendant has been supplied with sufficient particulars to know the nature of the case that is being alleged against him. In these proceedings the applicant claims that it has insufficient particulars to enable him to respond by filing his SFIC.
The applicant has relied upon the decision of the High Court of Australia in Bailey v The Commissioner of Taxation of the Commonwealth of Australia (1978) 136 CLR 214 wherein the High Court referred to the obligation of the Commissioner to give appropriate particulars of the basis of his assessment.. At page 219 Gibbs J (as he then was) stated:
Particulars fulfil an important function in the conduct of litigation. They define the issues to be tried and enabled the parties to know what evidence it will be necessary to have available and to avoid taking up time with questions that are not in dispute. On the other hand, they prevent the injustice that may occur when a party is taken by surprise; on the other hand they save expense by keeping the conduct of the case within due bounds…
The fact that the taxpayer bears the onus of proving that the assessment is excessive makes it all the more necessary that he should be given particulars of the basis of the assessment…
Mason J (as he then was) said at page 220:
Like any other litigant he [the Commissioner] may be ordered to give particulars in any appropriate case, that is, when they are required so that the other party to the litigation, and for that matter the court itself, may be acquainted with the nature of the case that is intended to be presented, so that the issues to be determined may be defined.
At page 221 Mason J said:
To this it is not an answer to say that all the relevant facts are within the knowledge of the taxpayer…. Under s 190 the taxpayer bears the onus of showing that the Commissioners assessment is excessive. Consequently the relevant facts in the appeal include the view the facts on which the Commissioner has based his assessment, the manner in which she has arrived at his assessment. These facts are not within the knowledge of the taxpayer; they are within the knowledge of the Commissioner.
Indeed, there is very much to be said for the view that fairness to the taxpayer demands that the Commissioner should be compelled to give particulars of his assessment when it issues so that the taxpayer is adequately informed as to the manner in which the assessment has been arrived at and may then determine whether he will object to the assessment and subsequently appeal.
At page 221 Jacobs J referred to the purpose of particulars as follows:
Their purpose is to concentrate and define the issues of fact and to prevent surprise and consequent delay.
It should be observed that in Bailey, the only information which was provided to the taxpayer were the amounts which the taxpayer was told it was liable to pay. Jacobs J referred to the fact that such detail was inadequate, saying at page 222:
In the present case it is therefore necessary for the taxpayer and the Court to know the basis of the assessments. Particulars in this sense have been given by the Crown Solicitor in his letter of 18 February 1976. The sums, it is stated, are included in the assessable incomes of the taxpayers by the operation of s 260. By the adjustment sheets it is further stated that the income is a proportion of a distribution of money made by Bailey Holdings Pty Ltd on 28th of April 1969. That is all the taxpayers have been told…
Particulars are needed which will define the manner in which s260 is claimed by the Commissioner to have operated so that payments made by Bailey Holdings Pty Ltd on 28th of April 1969 were income of the appellants. What payments? To him in fact – the taxpayers or to another or others? What contract, agreement or arrangement, or part or parts thereof, will the Court be asked to find void as against the Commissioner…
It should also be observed that the High Court in Bailey referred to its previous decision in George v Federal Commissioner of Taxation (1952) 86 CLR 183. In that decision the Court, referring to a claim that insufficient particulars had been provided said at 203-205:
But the judgement the Commissioner has formed is made abundantly clear by the assessments themselves. They each depend upon the amount which he has fixed and they stated. No particulars of the fact that he has formed a judgement of the amount or the amount is could possibly be required…
The fact is that unless the taxpayer discharges the burden laid upon him by s 190 (b) of proving that this ascertainment or judgement is excessive, he cannot succeed in a can be no part of the duty of the Commissioner to establish affirmatively what judgement he formed, much less the grounds of it, and even less still the truth of the facts affording the grounds.”
In Bailey the High Court drew a distinction between the facts in George (see Barwick CJ at 218). In the former decision of the High Court considered that the assessments provided the necessary detail; in Bailey, the High Court form the view that the mere statement of an amount owing was insufficient to constitute adequate particulars.
In Federal Commissioner of Taxation for the Commonwealth of Australia v Dalco (1990) 168 CLR 614 (Dalco) at page 633 the High Court referred to the Court’s discussion of George in the Bailey decision. In Dalco, Toohey J said (at 633):
But more significant is the finding by Yeldham J that the taxpayer “[a] the very least had control and benefit of the monies included by the Commissioner in his assessable income. Although such “control and benefit” they not be conclusive proof of the taxpayer’s liability, it does entail that the taxpayer do more than show that the Commissioner’s assessment was made on a wrong basis.
That is not to say that, in such circumstances, the Commissioner’s assessment is completely at large or that particulars of an assessment will not be ordered. If the Commissioner has simply plucked a figure “out of the air” or has proceeded “upon no intelligible basis”, the Commissioner may will be in breach of his statutory duty to make an assessment from the information in his possession… [Footnotes and authorities omitted).
Such principle has been confirmed by the High Court. In Glennan v Commissioner of Taxation [2003] HCA 31; 198 ALR 250 the Court (Gummow, Hayne and Callinan JJ) said at [30] in answer to an assertion by the taxpayer that the answers to his request for particulars may have had material bearing on the pleading of the case:
However, it is not ordinarily the function of particulars to enable a plaintiff to have an indication of the nature of the case which would be presented by the defendant at a hearing of a claim the plaintiff has yet to formulate. Nothing in Bailey v FCT suggests the contrary.
The applicant states that such decision was not apposite to the present circumstances as this was a case in which the taxpayer was arguing that the Commissioner had engaged in equitable fraud. Nevertheless, the Tribunal finds the aspect of the case, stated above, concerning particulars, has application.
The Tribunal is also mindful of the fact that s 14ZZO(b) requires an applicant to prove of all facts on which it seeks to rely, as was considered in the matter of Rio Tinto Ltd v Federal Commissioner of Taxation [2004] FCA 335; 55 ATR 321. In that proceeding, the Federal Court considered whether such requirement overcame the requirement contained in Order 52 of the Federal Court Rules which required that the Commissioner file a statement of his case. In this decision the Court drew the distinction between the onus of proof on the one hand, compared to the preliminary stage of the tax appeal and of the overriding requirements of O52. Sundberg J said at [30]:
The section is concerned with the ultimate disposition of the appeal. Unless the court otherwise orders, the appellant is limited to the grounds stated in its objection, and has the burden of proving that the assessment is excessive or incorrect. The rule, on the other hand, is concerned with the management of the appeal in its early stages. There are no pleadings in taxation appeals, and the rule was introduced to formalise the practice that had developed in the court of providing an alternative to pleadings so as to ensure that each party is aware of the other’s case: see, for example, Binetter (ATR 647). That the section and the rule (or the earlier practice) are dealing with different issues is reflected in Gibbs J’s observations in Bailey (at CLR 219) that the fact that the taxpayer bears the onus of proving that the assessment is excessive “makes it all the more necessary that he should be given particulars of the basis of the assessment.
The observations of Sundberg J confirms that supply of particulars will enable an applicant to know the case which is required to be met. Such proposition accords with the observations of the Tribunal in Seymour and Migration Agents Registration Authority [2012] AATA 86 where the Tribunal at [11] referred to the procedures of the Tribunal contained in s 33(1AA) of the AAT act which provides:
in a proceeding before the Tribunal for a review of a decision, the person who made the decision must use his or her best endeavours to assist the Tribunal to make its decision in relation to the proceeding.
The Tribunal notes that during the course of this hearing, a request for particulars was formulated. Having considered such request, the Tribunal is satisfied that the decision and the Opinion contain all of the necessary information to enable the applicant to know the nature of the case it is required to meet.
Conclusion: Particulars
When the detail of the decision and of the Opinion are considered, the Tribunal is satisfied that the applicant already has sufficient information to enable him to provide his SFIC. It could scarcely be suggested that the applicant is ignorant of the nature of the case which he is required to answer. As was noted by McKerracher J in Uratoriu v Commissioner of Taxation [2010] FCA 1157 at [27] “…some facts concerning a taxpayer’s income are or should be peculiarly within the taxpayer’s knowledge…” In matters involving assessments issued as a result of alleged fraud or evasion, the burden of proof rests upon an applicant: see Binetter v Federal Commissioner of Taxation [2016] FCAFC 163; 104 ATR 145 . At [81] the Full Court referred to a submission of the Commissioner, which it accepted, that the taxpayer bears the burden of disproving fraud or evasion in consequence of s 14ZZK(b)(i) of the TAA. See also para [93].
Accordingly the Tribunal concludes that the obligation now rests upon the applicant to file its SFIC in support of the application which it has brought against the Commissioner.
Stay application
The applicant claims that unless the proceedings are stayed, it will suffer procedural unfairness. At this stage, the proceedings remain in a preliminary state. Only the applicant’s Application for Review has been filed, and the Commissioner has filed the T documents. However the applicant maintains that in the event that the Federal Court should reverse the Tribunal’s decision under review, it will suffer procedural unfairness.
It is difficult to see, how during the preparatory stages of the Application for Review, procedural unfairness will result even if the Federal Court of Australia sets aside the Tribunal’s decision. The applicant bears the onus of proving that there was no fraud or evasion. There should be no impediment to the applicant now preparing and filing its SFIC. Once that step has been taken, it is possible that issues raised by the applicant’s SFIC the could give rise to the need for further documentation to be filed: such possibility was referred to by the Tribunal VLKG, but that possibility is not a reason to delay the filing of the SFIC. No hearing is yet contemplated and the Commissioner does not suggest that the hearing should take place in advance of a decision of the Federal Court now before in respect of the adequacy of the documentation.
The Tribunal possesses power to stay proceedings in appropriate cases: see s 41(2) of the AAT Act. The Tribunal does not consider that a stay is warranted at this preliminary stage of the proceedings. However the applicant would be justified in seeking the stay of any hearing of the Application for Review in the event of the Commissioner sought to proceed to a hearing prior to delivery of the decision of the Federal Court. Accordingly the application for a stay is dismissed.
Decision
The Tribunal decides that:
(a)the application for a stay be dismissed.
(b)The applicant file its Statement of Facts, Issues and Contentions within 21 days of the date of this decision.
I certify that the preceding 41 (forty-one) paragraphs are a true copy of the reasons for the decision herein of The Hon. Dennis Cowdroy OAM QC, Deputy President
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Associate
Dated: 31 August 2017
Date(s) of hearing: 8 August 2017 Date final submissions received: 22 August 2017 Counsel for the Applicant: Ms R L Seiden SC and Ms E Bishop Solicitors for the Applicant: Mr C Suttie, Speed and Stracey Lawyers Pty Limited Counsel for the Respondent: Mr G O'Mahoney Solicitors for the Respondent: Ms R Clarke, Minter Ellison
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