Corporate Enterprises Ltd v Commissioner of Inland Revenue
[2020] NZHC 2915
•5 November 2020
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IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2020-485-333
[2020] NZHC 2915
IN THE MATTER OF an appeal under s 26A of the Taxation Review Authorities Act 1994 BETWEEN
CORPORATE ENTERPRISES LIMITED
Appellant
AND
COMMISSIONER OF INLAND REVENUE
Respondent
CIV-2020-485-334 IN THE MATTER OF
an appeal under s 26A of the Taxation Review Authorities Act 1994
BETWEEN
PLIM BUILDERS LIMITED
Appellant
AND
COMMISSIONER OF INLAND REVENUE
Respondent
Hearing: 9 October 2020 Counsel:
A C Beck for appellants
M Deligiannis and K I S Naik-Leong for respondent
Judgment:
5 November 2020
RESERVED JUDGMENT OF DOBSON J
CORPORATE ENTERPRISES LTD v COMMISSIONER OF INLAND REVENUE [2020] NZHC 2915
[5 November 2020]
The preliminary issue
[1] This judgment determines a discrete challenge brought by the respondent (the Commissioner) disputing the entitlement of the appellants to bring their appeals to this Court from a decision of the Taxation Review Authority (the TRA).
[2] The decision in question upheld a determination by the Commissioner that there were no exceptional circumstances for the late filing of notices of proposed adjustment (NOPA) and that the NOPAs in question were not in any event filed as soon as reasonably practicable.1
[3] The appeals have been brought under s 26A of the Taxation Review Authorities Act 1994 (the TRAA). The appellants seek reversal of the TRA’s decision, with the outcome being that the Commissioner would be required to accept their belated NOPAs, thereby giving them standing to advance their substantive disputes with the Commissioner.
[4] Those disputes relate to belated claims made by the appellants for refunds of goods and services tax (GST) which they contend were wrongly paid in GST periods:
·for Corporate Enterprises Limited – between February 1988 and February 1995; and
·for Plim Builders Limited – between September 1990 and September 1994.
[5] The NOPAs seeking the GST refunds were filed on 20 December 2018. Both appellants had participated in what became known as Russell template tax avoidance arrangements,2 and the claimed entitlement to GST refunds arguably arose out of the Commissioner’s recharacterisation of taxable activities undertaken by the appellants.
1 Corporate Enterprises Ltd and Plim Builders Ltd v Commissioner of Inland Revenue [2020] NZTRA 1.
2 As designed by Mr J G Russell, and the subject of numerous litigated disputes between taxpayers and the Commissioner. The template is described by Judge Sinclair in Corporate Enterprises Ltd and Plim Builders Ltd v Commissioner of Inland Revenue, above n 1, at [21].
[6] Under the former regime of procedures applying to taxpayer challenges to the Commissioner’s decisions, and under the current procedure under the Tax Administration Act 1994 (the TAA) for engaging in the disputes procedure, time limits are stipulated with limited prospects for avoiding the consequences of non-compliance. In the case of the time for filing a NOPA, the previous strict requirement for compliance with the time limit has been ameliorated by the provisions in s 89K of the TAA, the first version of which appeared in that Act in October 1996. Subsection (1) empowers the Commissioner to treat actions, including the filing of a NOPA, that were taken outside the statutory time limit as if they were filed in a timely way where the Commissioner considers an exceptional circumstance has prevented a disputant from taking the step within the statutory time limit. There is a definition of “exceptional circumstance” within s 89K and in addition to having to make out such a circumstance, a disputant is required to have filed the late notice as soon as reasonably practicable.
[7]Section 89K(4) of the TAA applied in this case. That provides:
89K Late actions deemed to occur within response period
(4) If the Commissioner decides to not issue a notice in favour of the disputant under subsection (1), the Commissioner must issue a notice of that decision (the refusal notice) within 1 month of the disputant sending the relevant notice or statement under subsection (1)(b).
[8] The Commissioner issued refusal notices to the appellants on 24 and 25 January 2019, refusing to treat their late NOPAs as if given within the requisite time limits. That brought s 89K(6) into play, which provides that:
(6)The disputant may challenge the Commissioner’s refusal notice by filing proceedings, in accordance with the Taxation Review Authorities Regulations 1998, within 2 months of the notice’s issue. For the purposes of this subsection, the Taxation Review Authorities Act 1994, and the Taxation Review Authorities Regulations 1998, the refusal notice is treated as a notice of disputable decision and the challenge is treated as a challenge under Part 8A.
[9] The appellants filed proceedings in the TRA on 25 March 2019. On 5 June 2020 the TRA dismissed their challenges, finding in a fully reasoned judgment that exceptional circumstances were not made out. In any event, the TRA found that the late NOPAs had not been filed as soon as reasonably practicable.
[10] On 2 July 2020, the appellants filed a notice of appeal from the TRA decision in this Court. The Commissioner has taken the preliminary point that there is no right of appeal and the question as to whether jurisdiction does exist has been argued as a separate question.
Competing contentions on scope of appeal right
The Commissioner
[11] Section 89K of the TAA provides for the limited circumstances in which a taxpayer can rely on a NOPA filed out of time to advance a dispute with the Commissioner. Before August 2011, a disputant wishing to challenge the Commissioner’s refusal to accept a late filed NOPA could only do so by seeking judicial review of the Commissioner’s decision.
[12] Section 89K(6) was introduced in August 2011 to provide disputants with a right to challenge a refusal by the Commissioner by filing proceedings in the TRA.3 Because that section is in Pt 4A of the TAA, and proceedings before the TRA are defined as challenge proceedings which come under Pt 8A of the TAA, s 89K(6) included the stipulation that for the purposes of that subsection, as well as the TRAA and the TRA regulations, the Commissioner’s refusal notice was to be treated as a notice of disputable decision and the challenge to it “is treated as a challenge under Pt 8A”.4
[13] The case for the Commissioner is that the stipulation that a s 89K(6) challenge be treated as a challenge under Pt 8A is to be distinguished from other types of challenges that are brought under Pt 8A. That distinction was reflected by an amendment (also in August 2011) to the definition of “challenge” in s 3 of the TAA, which added a separate definition of “challenge” as “to commence proceedings under section 89K(6) challenging a refusal to issue a notice”.
[14] The scope of rights to appeal to the High Court from decisions of the TRA is governed by s 26A of the TRAA, which provides:
3 Through the Taxation (Tax Administration and Remedial Matters) Act 2011.
4 See s 89K(6) at [8] above.
26A Challenges appealed to High Court
(1)Unless subsection (2) applies, the determination by an Authority of a challenge may be appealed to the High Court if—
(a)the amount of tax involved in the appeal is $2,000 or more; or
(b)the amount of net loss involved in the appeal is $4,000 or more.
(2)The determination by an Authority of a challenge may not be appealed to the High Court if the determination was made by the Authority under a tax law that provides for the Authority’s determination to be final.
(3)This section applies only to challenges commenced under Part 8A of the Tax Administration Act 1994.
[15] The Commissioner contends that s 26A(2) applies in the present circumstances because there is a tax law that provides for the TRA’s determination to be final. That is found in s 138S of the TAA, which provides:
138S Challenge to be heard before Taxation Review Authority
(1)A challenge to a disputable decision made by the Commissioner under—
(a)the Student Loan Scheme Act 2011, or any provision of this Act that applies in relation to an employer’s obligation under the Student Loan Scheme Act 2011; and
(b)the Child Support Act 1991, or any provision of this Act that applies in relation to an employer’s obligation under the Child Support Act 1991; and
(c)any other tax law, where that tax law or another tax law specifies that the disputable decision is to be determined by a Taxation Review Authority,—
is to be commenced, heard, and finally determined by a Taxation Review Authority.
(2)Subsection (1) prevails over any other section in this Part.
[16] On the Commissioner’s analysis, s 138S(1)(c) applies here because s 89K(6) does not allow a disputant to elect to commence proceedings in either the TRA or the High Court, and instead stipulates only that such a challenge can be brought before the TRA.
[17] The Commissioner contrasts this mandatory stipulation (for such challenges to be brought only in the TRA) with the broader scope of the election for disputants provided for in ss 138B and 138C of the TAA, which may be commenced in either the TRA or the High Court. The scope of such disputes excludes, in s 138E of the TAA, any brought under s 89K, among other challenges. The relevant parts of s 138E are in the following terms:
138E Certain rights of challenge not conferred
(1) This Part does not confer a right of challenge with respect to—
…
(e) a matter which by a provision in—
…
any of sections … 89K …
is left to the discretion, judgment, opinion, approval, consent, or determination of the Commissioner; …
[18] The Commissioner treats the specific requirement under s 89K(6) for any relevant challenge to be brought only in the TRA (when that is contrasted against the wider discretion afforded to disputants to commence either in the TRA or the High Court), as a law specifying that the disputable decision is to be determined in the TRA for the purposes of s 138S(1)(c), with the consequence that it must be determined finally in that jurisdiction.
[19] Whether the jurisdiction exists to pursue an appeal from a TRA decision under s 89K has not been raised previously. Ms Deligiannis for the Commissioner submitted that the history of these various statutory provisions and the limited expansion on what was previously a decision in the Commissioner’s discretion, support the interpretation she contended for. She also submitted that consideration of the scope of rights of challenge in analogous contexts supports the Commissioner’s approach to the confined scope that excludes a right of appeal in the present circumstances.
The appellants
[20] Mr Beck for the appellants criticised the analysis of statutory provisions relied on by the Commissioner as convoluted and that it relied “on an interpretative juggling act, bringing together various sections and holding them in a precarious balance”. On the argument for the appellants, Mr Beck urged that the natural and ordinary meaning of s 89K(6) provided that the taxpayer’s challenge to the Commissioner’s refusal constituted a challenge under Pt 8A of the TAA. The consequence was that it was a determination on a challenge that could be appealed to the High Court because s 26A of the TRAA provided such a right of appeal.
[21] Mr Beck argued that if Parliament had intended to limit the extent to which the process under Pt 8A of the TAA applied, then it would have explicitly provided in s 89K(6) that the determination of the TRA was final. Given that s 89K(6) was a remedial provision intended to address the lack of an adequate process for dealing with late NOPAs, it could be expected that the remedial provision would be carefully phrased to address the previous deficiency in a comprehensive way. Arguably, that had been achieved by characterising a challenge under s 89K(6) as a challenge for the purposes of Pt 8A of the TAA.
[22] Provision of a right of appeal could be expected as Mr Beck contended because a first right of appeal is recognised under s 27(2) of the New Zealand Bill of Rights Act 1990 (NZBORA). That presumption heightened the expectation that if Parliament had intended not to extend a right of appeal to decisions under s 89K(6), then it would have explicitly stated that limitation.
[23] Consistently with his characterisation of s 27(2) of NZBORA, Mr Beck submitted that the Court of Appeal has recently recognised that appeal rights are not to be lightly disregarded. He cited that Court’s decision declining to transfer Mr Borrowdale’s judicial review (on the lawfulness of government lockdown orders in response to COVID-19) into that Court:5
[14] The question this application begs is whether this Court should now limit the available judicial steps to two (Court of Appeal, and perhaps Supreme
5 Borrowdale v Director-General of Health [2020] NZCA 156, (2020) 25 PRNZ 184.
Court) rather than three (High Court, Court of Appeal and perhaps Supreme Court). And behind that lies another question, which is whether we should thereby deny parties’ ordinary constitutional entitlement to a first appeal as of right (any appeal to the Supreme Court being by leave only). While leave might be anticipated, that is still a step this Court should be reluctant to take, especially where the issues are ones of such fundamental importance as these.
[24] Mr Beck argued that s 26A of the TRAA recognises the desirability of oversight of TRA decisions by the High Court and that the general application of that appeal right should apply, unless it was explicitly excluded. Implicitly, this argument was that the convoluted means of including such TRA decisions within the s 26A(2) exclusion was not made out.
[25] Mr Beck submitted that the Commissioner’s reliance on s 138S of the TAA was misconceived because that section was not among the provisions cited in s 89K(6) of the TAA as one of the purposes for which that deeming provision treated challenges to refusal notices as comprising challenges under Pt 8A. Rather, a decision of the TRA on a Commissioner’s refusal notice is only to be treated as notice of a disputable decision for the purposes of the TRAA and the regulations under that Act, and for the purposes of s 89K(6). Without resort to s 138S of the TAA, the limit on the status of a challenge under Pt 8A could not apply.
The legislative context
[26] Inland Revenue and the Treasury undertook a review of disputes procedures leading to an issues paper in July 2010. That acknowledged submissions from the New Zealand Institute of Chartered Accountants and the New Zealand Law Society on the then preferential treatment for the Commissioner, who could apply to the Court if he or she had missed a relevant deadline and contended that exceptional circumstances existed. In contrast, the taxpayer’s claim to exceptional circumstances when late in filing a NOPA was only a matter for the Commissioner’s decision. The officials did not believe that the tests applying to the Commissioner or the taxpayer should be in perfect symmetry, but did recognise:6
Judicial review was too cumbersome a tool to deal with what should be a fairly simple administrative matter that would normally be made by the Commissioner in the first instance. The preferable approach is to allow
6 Disputes: a Review (Inland Revenue and the Treasury, Officials’ issues paper, July 2010) at [7.33].
instead for the consideration of exceptional circumstances to be a disputable decision.
[27] Instead of characterising a refusal notice by the Commissioner as a disputable decision, s 89K was drafted to enable a prompt challenge to such a refusal to be pursued in the TRA. The commentary by the Finance and Expenditure Committee on the Taxation (Tax Administration and Remedial Matters) Bill, on what became s 89K, included the following comment:7
We recommend a further amendment to clause 64 to make it clear that the Commissioner’s decision whether to accept documents in exceptional circumstances could be challenged before the Taxation Review Authority. This is to avoid the delay to the whole dispute that would be incurred in taking this discretionary decision through the disputes procedure or judicial review proceedings.
[28] The Court has recognised the need for the defined procedures and limits on rights to be enforced in tax litigation. Ms Deligiannis relied on observations of Wylie J in Arai Korp Ltd v Commissioner of Inland Revenue.8 In that litigation, the taxpayer had conducted business as a property development company completing a subdivision over a number of years without filing any tax returns. After ignoring default assessments and demands, the taxpayer very belatedly attempted to challenge the Commissioner’s refusal to allow it to engage in the dispute procedure. In dismissing the application for judicial review from the Commissioner’s refusal, Wylie J observed:9
[64] Parliament has put in place detailed provisions detailing how tax disputes are to be resolved. Those provisions ensure effective tax administration, and provide certainty to both the Commissioner and taxpayers. Tax for each income year must be determined. There are strict timelines and there must be finality. The provisions are designed to prevent “administrative chaos”.
[29] Similar sentiments about the statutory framework reflecting a need for finality were made by Heath J in Jacobs-Maxwell v Commissioner of Inland Revenue.10 That was an appeal from a decision of the TRA in circumstances where the taxpayer had
7 Taxation (Tax Administration and Remedial Matters) Bill 2010 (257-2) (Select Committee Report) at 6.
8 Arai Korp Ltd v Commissioner of Inland Revenue [2013] NZHC 958, (2013) 26 NZTC 21-014.
9 Footnote omitted.
10 Jacobs-Maxwell v Commissioner of Inland Revenue HC Hamilton CIV-2011-419-559, 25 October 2011, (2011) 25 NZTC 20-094.
thought that a meeting with IRD officers ended with their agreeing to accept a late NOPA. IRD disputed that any such agreement had been reached and rejected the belated NOPA on the basis that exceptional circumstances were not made out. Heath J treated s 89K (prior to the amendment introducing subs (6)) as reflecting a need for finality in the dispute procedure under Pt 4A.11 Mr Beck disputes that decision can avail the Commissioner because it pre-dates the statutory recognition of a right to challenge the issue of a refusal notice by the Commissioner.
Analysis of the statutory scheme
[30] Tax lawyers and judges determining tax litigation are routinely required to embark on convoluted applications of a range of provisions in different places to determine substantive tax liabilities. However, that is no justification for procedures governing dispute and challenge procedures to be similarly convoluted by requiring cross-referencing of provisions enacted in different statutes at different times. Accordingly, there is a superficial attraction in Mr Beck’s plea for simplicity, so that the exclusions from the right of appeal from decisions of the TRA to the High Court as provided for in s 26A of the TRAA might reasonably be expected to be an exhaustive list or reference to an appropriately maintained schedule that identified the categories of TRA decision to which an appeal right did not apply.
[31] However, the reality of the existing statutory framework makes such an expectation somewhat unrealistic and an inadequate answer to the Commissioner’s analysis that Parliament did indeed intend that the exclusions in s 26A(2) of the TRAA do include TRA decisions on challenges from the Commissioner’s issue of a refusal notice.
[32] Parliament is to be taken as having deliberately confined the prospects of a challenge to a Commissioner’s refusal notice to proceedings in the TRA. The absence of the conventional election for the commencement of challenge proceedings in either the TRA or the High Court has consequences for the prospect of any appeal from the TRA decision.
11 At [47].
[33] The structure of appeal rights does recognise a range of disputable decisions that can go no further than the TRA. The first limitation is in s 26A(1), which introduces a minimum amount of tax or tax losses involved, and the range of exclusions includes all challenges coming within s 138S(1) of the TAA. To the extent Mr Beck’s submissions depended on the presumption that there is a general right of appeal from TRA decisions to the High Court, that cannot be sustained. Parliament’s intention in stipulating that any challenge to a Commissioner’s refusal notice must only start in the TRA is that it becomes a disputable decision to which s 138S(1)(c) applies. To interpret it otherwise would fail to have regard to the latter provision.
[34] I do not accept Mr Beck’s analysis that s 138S does not apply because it is not explicitly cross-referred in the terms of s 89K(6). Given the terms of s 138S(1)(c), an explicit inclusion of it as applying under s 89K(6) is unnecessary because the TRA’s decision on any challenge to the issue of a Commissioner’s refusal notice is one that must only be determined by a TRA. Without cross-reference, s 89K(6) is an “other tax law” which specifies such disputable decisions are to be determined by a TRA.
[35] That Parliament so intended is reinforced by the scope of decisions in respect of which disputants can elect to commence in the High Court as provided for in ss 138B and 138C of the TAA where that list explicitly excludes challenges brought under s 89K. Although not a model of clarity, the complementarity between these provisions supports the proposition that Parliament did indeed turn its mind to limiting a disputant’s entitlement to challenge the issue of a Commissioner’s refusal notice to a reconsideration by the TRA of the grounds for filing a NOPA late.
[36] I am not persuaded that the proper interpretation can be influenced by the terms of s 27 of NZBORA. As an aspect of rights to justice, s 27(1) confirms the entitlement of all persons to the observance of principles of natural justice. The more relevant subs (2) confirms the right of those affected by decisions of tribunals or other public authorities to apply, in accordance with the law, for judicial review. It is accordingly not, as Mr Beck submitted, a “constitutional” right of appeal. The Commissioner readily acknowledges that the appellants in the present circumstances do have a right to seek judicial review of the TRA decision against them and no more can be made of it than that.
[37] Equally, when the Court of Appeal in Borrowdale was considering whether that high profile judicial review should commence directly in the Court of Appeal, it was assessing the merits of parties to a judicial review that must conventionally begin in the High Court potentially being deprived of one of the rights of appeal that otherwise would or could exist. It cannot avail taxpayers in the position of the present appellants in influencing the limits on the rights of appeal from TRA decisions, as specified in s 138S.
[38] In her oral submissions, Ms Deligiannis acknowledged discovering a further statutory provision that was potentially inconsistent with the analysis she had advanced in her written submissions.
[39] Section 89AC of the TAA was introduced in 2016 to clarify how time would run for the Commissioner’s response in cases where a NOPA had been filed late, and the TRA had then reversed a Commissioner’s refusal notice so that the late filed NOPA was deemed to be filed within time. Arguably, if time ran against the Commissioner from the date of late filing of the NOPA, then the Commissioner would always be out of time in filing the response. Ms Deligiannis indicated that the provision was included in the TAA as a result of the arguments signalled, and later resolved, in Mawhinney v Commissioner of Inland Revenue.12 The relevant part of s 89AC provides that the response period in such cases is a two month period beginning on the earlier of:13
(a)the day on which the Commissioner issues a notice in favour of the disputant in accordance with section 89K(1):
(b)the day on which a challenge to the Commissioner’s refusal under section 89K(4) is finally judged successful by the Taxation Review Authority or by a court, or the day on which the Commissioner concedes.
[40] Ms Deligiannis acknowledged that the inclusion of the words “or by a court” in s 89AC(b) suggests that appeals may be permitted from decisions of the TRA brought under s 89K. However, her submission was that this inclusion is an
12 Mawhinney v Commissioner of Inland Revenue [2019] NZHC 553, (2019) 29 NZTC 24-006;
Mawhinney v Commissioner of Inland Revenue [2020] NZCA 112.
13 Emphasis added.
unintended slip and that it should not change the limited scope of the rights as defined elsewhere in the structure of provisions she relied upon.
[41] A relatively high threshold is required before an apparent inconsistency in statutory provisions can be rationalised on the basis that a later provision is to be treated as a slip relative to the terms of the existing statutory scheme. However, the perceived need for refinement of procedural provisions in relation to disputes and challenges between the Commissioner and taxpayers certainly renders it an area in which draftspersons’ slips are potentially more understandable than the legislative provisions dealing with more straightforward matters.
[42] Having been persuaded of the rationale for the limit on taxpayers’ rights to challenge a Commissioner’s refusal notice, I am not dissuaded from that view by the subsequent introduction of the reference to a court in s 89AC(b). That reference does not create a right of appeal where Parliament previously had not intended it. It does provide for the contingency that a TRA decision is the subject of a successful judicial review.
Future of the proceedings
[43] In the event he was unsuccessful in making out jurisdiction for the present appeals, Mr Beck’s alternative submission was that if there is no right of appeal, then the Court should order that the current appeals be treated as applications for judicial review. I accept that the Court ought to encourage flexibility of procedure to enable the substantive issues to be determined as efficiently as possible. However, in reflecting on the notices of appeal in these cases, I am not persuaded that they adequately plead the grounds on which a judicial review of the TRA decisions might be advanced. I am accordingly not prepared to have the existing proceedings deemed as if commenced by way of judicial review.
Outcome and costs
[44] Having upheld the Commissioner’s challenge that the Court does not have jurisdiction, the inevitable outcome is that the appeals must be struck out. I so order.
[45] The Commissioner has sought costs on a 2B basis. I certify for costs and disbursements on that basis, without certifying for second counsel, and limiting those costs to the entitlement on one proceeding.
Dobson J
Solicitors:
Douglas Burgess, Auckland for appellants Crown Law, Wellington for respondent
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