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Inland Revenue

Tax Policy

Chapter 1 - Introduction

1.1 Like all laws, the interpretation and application of tax laws invariably end up in dispute in some cases. Tax systems must allow these disputes to be efficiently resolved and a regular review of the resolution mechanism is therefore necessary.

1.2 The way Inland Revenue conducts its disputes process results from the Organisational Review of the Inland Revenue Department (the Richardson Committee) [1]. The recommendations of the Richardson Committee were subject to a post-implementation review, the key aspects of which were included in the 2003 Government discussion document, Resolving tax disputes: a legislative review [2]. This issues paper follows these previous reviews to focus on some remaining areas of concern for both taxpayers and Inland Revenue.

1.3 This document does not propose major changes to the existing disputes process. Instead, it:

  • outlines administrative changes currently being implemented by Inland Revenue that are designed to help the process work more efficiently for all concerned; and
  • suggests a limited number of legislative changes to remedy areas that are not working in a way that reflects the policy objectives of the process, or to complement and give effect to the revised administrative practices.

1.4 Unless otherwise stated, all legislative references in this document are to the Tax Administration Act 1994 (the TAA).

Policy objectives of the disputes process

1.5 The policy objectives of the disputes process remain the same as those set out in the 2003 discussion document (p1), which stated that:

The objective of the legislative disputes process is to ensure that an assessment is as correct as is practicable and to deal with any disputes over tax liability fairly, efficiently and quickly. The disputes process is designed to achieve these objectives by ensuring a high level of disclosure of relevant information and discussion between the parties, which encourages them to place “all cards on the table”. The procedures require time and effort to be put into all cases early in the process before an assessment which would alter a position in a taxpayer’s return is issued.

The overall objectives of the process have, therefore, been to improve the quality and timeliness of assessments and reduce the likelihood and grounds for litigation.

Context of this review

1.6 In August 2008 the New Zealand Institute of Chartered Accountants (NZICA) and the New Zealand Law Society sent a joint submission to the Minister of Revenue and the Commissioner of Inland Revenue summarising their members’ concerns about the disputes process. While the submission acknowledged that the underlying principles set out by the Richardson Committee were sound, they highlighted the following matters as causing some remaining concern:

  • The quality of Inland Revenue disputes documentation is variable, especially notices of proposed adjustment (NOPAs) issued by the Commissioner.
  • The conference phase in particular does not encourage full and open communication.
  • There is no unilateral right for taxpayers to opt out of the disputes process.
  • The evidence exclusion rule, which is designed to prevent “trial by ambush”, can result in high compliance and administration costs in an effort to include every conceivable argument and piece of evidence in the statement of position (SOP).
  • There is no timeframe within which the Commissioner must issue a SOP, other than within the general time-bar for amending assessments.
  • What constitutes an “exceptional circumstance” is too narrowly defined.
  • The current mechanisms for dealing with small claims are inadequate, resulting in taxpayers abandoning legitimate disputes.
  • The procedure for test cases is inadequate.

1.7 This issues paper examines these concerns and discusses some possible options for resolving them. It also discusses a number of remedial matters that logically fall within the ambit of this review.

Approach to this review

1.8 The disputes process is, and should continue to be, about how the process operates in practice. While some legislative provisions are required for any disputes process, these should simply provide a framework for the administrative process, rather than rules that the administrative process has to shape itself around.

1.9 As noted by the NZICA-NZ Law Society submission, the legislation surrounding the disputes process appears to be broadly adequate. Substantial changes to the legislation have the potential to result in numerous disputes to test the boundaries of the changes, rather than focussing the parties on the substantial issues at hand. We note the current rules have themselves been heavily litigated since their introduction.

1.10 While there may be a small number of inconsistencies between practice and policy, these matters should continue to be tackled through administrative change and guidelines wherever possible, rather than through legislation. The majority of the issues in question can be adequately dealt with through published standard practice statements and internal procedures that will ensure greater clarity and consistency for taxpayers and still meet the over-riding policy objectives of the disputes process.

Summary of suggested options

The main options covered in this paper are:

  • Whether taxpayers should have a unilateral right to opt out of the disputes process (Chapter 3).
  • Whether the current evidence exclusion rule is working as intended (Chapter 4).
  • Whether the Commissioner should be subject to more prescribed timeframes in the disputes process (Chapter 5).
  • What the scope of the “disputable decision” definition in relation to certain specific decisions of the Commissioner should be (Chapter 6).
  • Whether the “exceptional circumstances” definition is too narrow (Chapter 7).
  • Whether the disputes system deals adequately with smaller tax disputes (Chapter 8).
  • Whether there should be changes to the way test cases are designated (Chapter 9).

1.11 Simultaneously with the release of this issues paper, Inland Revenue has released revised standard practice statements (SPSs) related to the disputes process for public consultation. The revised SPSs document changes to the current standard practice in the following key areas (which are also discussed in more detail in Chapter 2):

  • preparation of the Commissioner’s NOPA;
  • conduct of a conference;
  • conference facilitation; and
  • opting out of the disputes resolution process.

1.12 We believe that these revised SPSs will greatly facilitate a swifter and more accessible dispute resolution process and will address many of the concerns raised by NZICA and the NZ Law Society. This paper is prepared on the understanding that the revised SPSs will take effect broadly in the manner set out in Chapter 2.

1.13 The legislative changes suggested in this paper include:

  • A limitation of the evidence exclusion rule to the “issues” and “propositions of law” raised by the parties in their SOPs.
  • Amendments to the definition of “exceptional circumstances” to include a separate test based on a taxpayer’s “intention to dispute”, and for the Commissioner’s decision on such matters to be “disputable”.
  • The removal of certain matters from being “disputable decisions”.
  • The repeal of the small claims jurisdiction of the Taxation Review Authority.
  • Amending the test case procedure either to allow for the designation of test cases to be decided by the High Court or for existing court rules to perform a similar function.
  • Other remedial matters.

How to make a submission

1.14 Submissions on either or both this paper and the revised SPSs should be made by 20 August 2010 and can be addressed to:

Disputes Project
C/- Deputy Commissioner
Policy Advice Division
Inland Revenue Department
P O Box 2198
Wellington 6140

1.15 Or email: [email protected] with “Disputes Project” in the subject line.

1.16 Submissions should include a brief summary of major points and recommendations. They should also indicate whether it would be acceptable for officials from Inland Revenue to contact those making submissions and to discuss their submission, if required.

1.17 Submissions may be the subject of a request under the Official Information Act 1982, which may result in their publication. The withholding of particular submissions on the grounds of privacy, or for any other reason, will be determined in accordance with that Act. Accordingly, those making a submission who feel there is any part of it that should be properly withheld under the Act should indicate this clearly.


1 Organisational Review of the Inland Revenue Department, Report to the Minister of Revenue (and on tax policy, also to the Minister of Finance) from the Organisational Review Committee, April 1994, Chapter 10.

2 Resolving tax disputes: a legislative review, a government discussion document first published in July 2003.