Accountants win High Court fight with IRD
Judge quashes tax department requests for documents on Korean client of firm
Afirm of Auckland accountants has won a High Court fight with Inland Revenue, which wanted it to hand over documents about a client being investigated by South Korean tax authorities.
Chatfield & Co is the tax agent for a group of companies linked to KNC Construction, which has built two high-rise apartment projects in New Zealand and once proposed to erect the country’s tallest tower.
KNC and its related companies are substantially owned by Jae Ho Huh, who has lived in New Zealand since 2004 but is being investigated by the Korean National Tax Service (NTS).
The NTS requested information about the companies from Inland Revenue, which in 2014 issued notices to Chatfield requiring the firm to produce documents it holds on their behalf.
These documents included financial statements, property sale and purchase agreements and bank remittance certificates.
Chatfield had concerns about the legality of the notices and when it couldn’t resolve the situation with the IRD, the accounting firm in 2015 went to the High Court for a judicial review.
Parts of the tussle have been to the Supreme Court and back and came before Justice Ed Wylie last year.
Chatfield argued IRD wrongly issued the notices, and had failed to fully evaluate the NTS’s request and had insufficient information to accurately assess its lawfulness.
The accounting firm also said the IRD did not consider the terms of the tax treaty New Zealand has with Korea and that some of the taxes over which information was sought may not be covered by that deal.
Inland Revenue denied that it had erred in law and argued that Chatfield had failed to establish the tax department had exercised its statutory powers and duties unlawfully.
Justice Wylie, in a decision released just before Christmas, said the difficulty when dealing with the case was relevant background documents — particularly the request from the NTS, file notes made by the Inland Revenue manager John Nash who dealt with it and any communication between him and the South Korean authorities — had not been disclosed to the court. While the IRD was willing to share the documents with the judge, it was not prepared for Chatfield’s lawyers to see them.
Justice Wylie was not comfortable with this arrangement and the IRD eventually advised the judge it was happy for the case to proceed without him seeing all the relevant material.
The judge said that the IRD’s Nash was required to satisfy himself that “all of the information requested by the NTS was needed or required in relation to an investigation into, or other action being taken by the NTS against a Korean taxpayer, and that the information was in regard to income tax, corporation tax, or inhabitant tax, or fiscal evasion”.
Nash also had to be satisfied that any information exchanged under the tax treaty would only be used in relation to those taxes and that the NTS had been unable to obtain the information in Korea.
I am not satisfied that the appropriate inquiries were undertaken. Justice Ed Wylie
Considering affidavits filed by Nash and others from IRD, Justice Wylie said they suggested “there has been no hard inquiry into the necessity for any exchange, and therefore the need to request the documents in the first place”.
Justice Wylie said that he was left with only Nash’s “say-so” that he satisfied himself that the NTS’ request was under the terms of the tax treaty and this country’s tax laws and that the information sought was consistent with the grounds of the request.
The judge said it should have been “relatively straightforward” for the IRD to produce the relevant documents.
“In my view, the Commissioner [of Inland Revenue] has not been as candid in her conduct of this case as might have been expected. On the very limited materials available to me, I am not satisfied that the appropriate inquiries were undertaken by Mr Nash,” Justice Wylie said.
He quashed the IRD’s notices requiring the documents to be produced, declared them to be invalid and awarded costs to Chatfield. One of New Zealand’s best-known auction houses is being urgently assessed by Australian administrators. They say they will be “exploring all options” for Mossgreen-Webb’s after its Australian owner was put into voluntary administration just before Christmas. Melbourne-headquartered Mossgreen, which bought Webb’s auction house in Parnell in 2015, owes A$12 million ($13.1m) to 400 creditors. Administrators James White, Andrew Sallway and Nicholas Martin of BDO in Australia, say that Mossgreen’s assets amount to about A$3m and they do not yet have details of any Kiwi creditors. They expect to have more information this week. Mossgreen chief executive Paul Sumner told the late last year that the voluntary administration would not affect the New Zealand business. The administrators have since said they “are undertaking an urgent assessment of Mossgreen NZ Limited and will be exploring all options”. Mossgreen NZ trades as Webb’s, the Companies Register shows. When purchasing Webb’s, Sumner described Mossgreen as “Australia’s largest and highest-grossing auction house and the most favoured avenue for collectors when they are selling complete collections”. “Since acquiring the former Webb’s auction house in New Zealand, the company is now run as a transtasman regional business,” Mossgreen-Webb’s website says. Mossgreen in Australia was put into voluntary administration on December 21, a public notice said. Voluntary administration, according to the Australian Securities and Investments Commission (ASIC), is a process “designed to resolve a company’s future direction quickly”. “An independent and suitably qualified person (the voluntary administrator) takes full control of the company to try to work out a way to save either the company or its business,” the ASIC website says. Sumner told clients and other stakeholders last year that “Mossgreen has chosen to take a path of voluntary administration during the month of January at a time that will least impact our clients and which will allow the company to restructure its business”. Set up in the 1970s, Webb’s has exhibited the work of some of New Zealand’s best-known artists, including Colin McCahon and Gottfried Lindauer.
— Hamish Fletcher