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Inland Revenue

Tax Policy

Chapter 4 - Information-sharing and protection of private information

4.1 Key issues in balancing information-sharing with protection of private information are setting a threshold for the definition of serious offences and having robust processes around that threshold to respect privacy.

4.2 The proposal is to allow Inland Revenue to release information only:

  • in relation to serious offences, being those punishable by imprisonment of four years or more, or, if committed by a body corporate is punishable by a fine only, but that would be punishable by imprisonment for four years or more if committed by an individual;
  • when there are reasonable grounds for the agency identifying the possible offence to suspect that a serious offence has been committed, is being committed, or will be committed;
  • when Inland Revenue considers there are reasonable grounds for suspecting the information is relevant in the prevention, detection or investigation of, or be evidence of, a serious offence that has been committed, is being committed, or will be committed; and
  • when Inland Revenue is satisfied that:
    • the information is readily available within Inland Revenue;
    • it is reasonable and practicable to communicate the information; and
    • it is in the public interest to communicate it.

Information released for serious offences only

4.3 We propose that New Zealand take a similar approach to that taken in Australia,[8] namely that disclosures to defined law enforcement agencies are permitted but only in relation to serious offences.[9] The Government considered and rejected a list of specified offences in relation to which Inland Revenue could share information as being impractical and hard to maintain. Instead, we propose a simple threshold of a serious offence. This would be when the offence is committed by an individual and is punishable by imprisonment of four years or more; or if a similarly serious offence is committed by a body corporate which would be punishable by imprisonment of four years or more if it had been committed by an individual.

4.4 The threshold represents a judgement on what society views as a “serious offence”. A four-year threshold aligns with the threshold test for the offence of participation in an organised criminal group (set out in section 98A of the Crimes Act 1961). The four-year period is also consistent with the definition of a “serious crime” contained in the United Nations Convention against Transnational Organised Crime.

4.5 The threshold also includes offending carried out by bodies corporate. As a body corporate cannot be imprisoned, the threshold for “serious offending” by a body corporate is aligned to the penalty that would apply if the offending were carried out by an individual.[10] Therefore offences are treated equally, regardless of whether committed by an individual or a body corporate.

4.6 The test for releasing information should be as consistent as possible with the production order framework in the Search and Surveillance Act 2012. The agency requesting information (or Inland Revenue in the case of proactive disclosures) must therefore have reasonable grounds for suspecting that a specified person has committed, is committing, or will commit a serious offence, before a disclosure can be made.

4.7 Where the request is made by an agency to Inland Revenue, the burden for identifying reasonable grounds will fall on the agency making the information request. The requesting agency is best placed to make this assessment and will therefore be responsible for making the assessment. In then making a request, the agency is doing so on the undertaking that they are satisfied that reasonable grounds exist. Where Inland Revenue is making a proactive disclosure, Inland Revenue would be responsible for satisfying itself that there were reasonable grounds to suspect that a serious crime had been, was being, or would be committed.

4.8 Some cases will occur when a serious offence is suspected and information is shared by Inland Revenue but ultimately a person may not be charged with that serious offence but a lesser offence which may not have a maximum term of imprisonment of four or more years. Inland Revenue’s information would still be available for use by the enforcing agency in these cases. The alternative, that the information could not be used when a lesser charge is ultimately brought, is unattractive because the decision to share should be made on the information reasonably available at that time rather than after the event.

Agencies Inland Revenue proposes to share with

4.9 The Government proposes allowing Inland Revenue to share information with any government agency that prosecutes offences meeting the proposed serious offences standard. This could potentially include a range of agencies, in addition to the New Zealand Police (for example, the Ministry of Primary Industries, the Department of Internal Affairs, the New Zealand Defence Force and the Ministry of Business, Innovation and Employment). However, in practice, the majority of any sharing would be done with the New Zealand Police and those agencies prosecuting serious offences in the financial sector.

4.10 To give the public comfort that Inland Revenue will not conduct widespread taxpayer-specific information-sharing, a further filter is proposed, namely that information can be shared only when Inland Revenue and the other agency have a published memorandum of understanding.

4.11 It is expected that the number of cases of sharing will ramp up slowly to ensure that systems and processes can be established and tested for robustness. The actual number of cases when Inland Revenue will share information is hard to judge, but using information-sharing for criminal proceeds asset recovery purposes as a base case, the likely number is 400 to 600 cases per year from New Zealand Police. The Police are expected to be the most significant user of the proposed change in policy.

International sharing of information on serious offences

4.12 By virtue of New Zealand’s double tax agreements, Inland Revenue is currently able to share information with certain foreign tax authorities. Further, New Zealand may provide and seek from other countries formal mutual legal assistance for the investigation or prosecution of a criminal matter pursuant to the Mutual Assistance in Criminal Matters Act 1992 (MACMA), which allows requests to be made under that Act, or on the basis of any relevant Convention or treaty covering mutual assistance, or where a foreign country is simply prepared to provide assistance.

4.13 The MACMA allows New Zealand to receive requests from all countries. It also allows for a broad range of assistance to be provided, including the registration of foreign restraining or forfeiture orders against the proceeds of criminal activity perpetrated in another country.

4.14 It is proposed that Inland Revenue be able to provide to other countries information about serious offences in accordance with the MACMA and any relevant treaty. This would be pursuant to a request made from the “Central Authority” in the foreign country to our Attorney-General. This would be either on request under MACMA or another regime or, in appropriate cases, on Inland Revenue’s initiative under a non-MACMA regime. The best way this could be managed is through using Crown Law as the channel for this communication rather than setting up multiple channels which may have infrequent use.

Reasonable grounds

4.15 When the serious offence standard is met, it is proposed that Inland Revenue must also consider whether there are reasonable grounds for suspecting the information is relevant in the prevention, detection or investigation of, or there is evidence of, a serious offence that has been committed, is being committed, or will be committed.

4.16 This is broadly consistent with the production order regime in the Search and Surveillance Act 2012, which allows for the provision of evidence or any other item, tangible or intangible, of relevance to the investigation of the offence.[11] It is slightly broader in that it is clear that information can be provided in relation to the prevention and detection of offences reflecting that the nature of Inland Revenue’s information is more likely to indicate an offence or possibility of an offence, rather than be clear evidence of an offence.

4.17 In determining whether the information Inland Revenue holds is relevant, it may be necessary for Inland Revenue to seek further details from the requesting agency. In addition, sufficient information will need to have been provided to ensure that a match is made to the correct individual or entity regarding which information is sought. There is also a question about whether Inland Revenue can then retain this information and use it for more general tax purposes.

4.18 Examples of the information that Inland Revenue may share under requests include:

  • Information Inland Revenue holds on a specified person: This may include their IRD number, entity information, the taxes for which they are registered, income history, tax payment history (including any compliance issues), types of income, expenses, asset and liability information, and actions taken or planned to be taken in relation to the specified person. The information provided may relate to a victim of a serious offence rather than the perpetrator of the offence.
  • Information Inland Revenue holds on other persons or entities that are associated with, or related to, the specified person: This may include information necessary to understand beneficial ownerships or the nature of the structures the specified person is involved with.
  • Information Inland Revenue holds that is aggregated, derived or inferred that is relevant to the specified person (or associated or related persons): This may include judgements about compliance behaviour, and judgements on possible approaches by the specified person to compliance with tax and other legal obligations. Information shared would include documents Inland Revenue may have that would support another agency’s enforcement action.

4.19 As noted in Chapter 3, research has indicated that overall, the sharing of information by Inland Revenue was seen as acceptable by research participants, as long as the information shared is fit-for-purpose. A requirement that information must be suspected to be of value in relation to the serious offence in question helps to ensure any information provided is fit-for-purpose.

4.20 Information such as the post-analysis suspicious transaction reports received by the New Zealand Police from financial institutions is considered to meet the reasonable grounds threshold for Inland Revenue to release information to the New Zealand Police. In these cases the goal of the New Zealand Police will be to improve their intelligence around a possible serious offence.

Example scenario: Investigation of missing person suspected to be a probable homicide victim

During a missing person investigation, enquiries indicate that it is unlikely the person has gone missing of their own volition but rather that it is likely the person has been the victim of foul play. A body has not been located.

Under the proposed rules, New Zealand Police could request that Inland Revenue check for any tax activity in relation to the missing person on the basis that there are reasonable grounds to believe a homicide has been committed. Any information provided on the individual’s tax activity (or lack of activity) would need to be relevant to the investigation.

Practicality of releasing the information

4.21 A final test is proposed to ensure the appropriate use of Inland Revenue’s resources. The test is essentially one of balancing the benefits of releasing information and the costs of preparing that information for release. Information would be provided only when:

  • the information is readily available within Inland Revenue;
  • it is reasonable and practicable to communicate the information;
  • it is in the public interest to communicate it; and
  • the resources are available to Inland Revenue.

Ensuring transparency of information-sharing and good process

4.22 Section 21 of the New Zealand Bill of Rights Act 1990 states:

Everyone has the right to be secure against unreasonable search or seizure, whether of the person, property, or correspondence or otherwise.

4.23 A primarily administrative decision-making approach for release of information is proposed. The decision about whether the serious offence requirement is met will lie with the agency identifying the serious offence. This could be Inland Revenue but the most common case will be another agency, such as the New Zealand Police. In relation to the information being of value and practical to disclose, it is proposed that Inland Revenue will make this decision. The administrative approach is consistent with the Australian model for this type of disclosure.

4.24 The key advantage of the proposed process is its efficiency, as decisions can be made quickly and at low cost. However, to ensure appropriate accountability it is proposed that if the information provided by Inland Revenue is used in a prosecution by another agency, at the time criminal disclosure obligations are triggered, the alleged offender must be informed that information was provided by Inland Revenue. This would enable the affected taxpayer (the alleged offender) to challenge the decision to release the information if they wish. At this point the Court may consider the evidence is inadmissible, either due to a problem with the release of the information or on other Evidence Act 2006 grounds (as is standard in the existing criminal disclosure and evidence admissibility processes).

4.25 This approach would have three benefits:

  • preserving the affected person’s privacy interests and rights under section 21 of the New Zealand Bill of Rights Act 1990;
  • ensuring that judicial scrutiny of the process is available when the information provided is used, but not burdening the judiciary with every information request or provision; and
  • providing a mechanism to ensure that decisions to release information are robust and appropriate by allowing for decisions to be reviewed.

4.26 In addition, should an individual have concerns about how their information has been treated they will be able to either use the internal complaint procedures of the agency concerned (Inland Revenue and/or the relevant enforcement agency) or seek assistance from the Office of the Privacy Commissioner.

Ensuring robust administrative processes

4.27 It is proposed that there be a legislative requirement on agencies that a memorandum of understanding be entered into before Inland Revenue is permitted to share information. This will ensure appropriate processes and protections are clearly agreed between the parties before any sharing takes place. Each memorandum will make clear that Inland Revenue will not approach information release in an ad-hoc manner but rather with reasonable and robust decision-making processes being in place in both agencies. There will be requirements around security and on-use of information.

4.28 Bulk transfer of information is not proposed. Information will instead be provided on a case-by-case basis by Inland Revenue. Inland Revenue takes very seriously its legal obligations to protect taxpayers’ secrecy and privacy rights. These rules are rigorously applied unless Parliament has sanctioned the release of certain tax information to other agencies for the greater public good of all New Zealanders.

4.29 Pursuant to international double taxation agreements, Inland Revenue has had many years of experience exchanging taxpayer and other sensitive information with New Zealand’s tax treaty partners. The team responsible for conducting such exchanges is very skilled in handling sensitive material and treating it accordingly.

4.30 New Zealand’s tax treaty exchange of information programme has recently been examined in detail by the OECD and the Global Forum and is highly regarded internationally. The process for dealing with exchanges of information internationally therefore offers a suitable model to follow when considering sharing Inland Revenue information domestically with relevant New Zealand enforcement agencies.

4.31 Inland Revenue and the relevant partner enforcement agencies will be required to follow the rules for sharing serious offence information (including using it only for the nominated specific purposes). Any breaches of those agreed rules would be treated as serious, and appropriate sanctions would be applied accordingly, as is currently the case for other privacy or secrecy breaches.

4.32 It is proposed that dedicated liaison points be established in each relevant agency with suitable oversight by appropriately qualified senior officer(s) that would conduct the actual exchanges of information. Only a few key personnel in each agency would have the power to engage in sharing information with a partner agency’s liaison team. In this way, consistency of approach and management can be assured and a good working relationship built up between relevant partner agencies to quickly address any operational issues that might arise.

4.33 Appropriate IT encryption solutions can be used to ensure that the physical transmission and sharing of protected data is done in a lawful way and that any loss of data in transit is avoided.

4.34 To support a transparent process, it is also proposed that Inland Revenue’s Annual Report outlines the sharing of information that has taken place. Inland Revenue would work with the Ministry of Justice to establish the details of such reporting.

Legislative framework

4.35 Two possible alternatives have been considered for the legislative framework to govern the proposed sharing:

  • an information-sharing agreement authorised by Order in Council under part 9A of the Privacy Act 1993; or
  • enacting a new stand-alone framework in the Tax Administration Act (a new specific exception to section 81).

4.36 The Privacy Amendment Act 2013 amended the Privacy Act 1993 and the Tax Administration Act to improve public service delivery by facilitating information-sharing between government agencies when there is a public service benefit. It allows information-sharing agreements to be authorised by Order in Council following a mandated process of consideration and consultation, including with the Privacy Commissioner.

4.37 The Tax Administration Amendment Act 2013, allows personal information about an identifiable individual to be supplied by Inland Revenue, when an information-sharing agreement authorised by an Order in Council in accordance with the Privacy Act 2013 is in force. This acts as an exception to section 81 of the Tax Administration Act in respect of information about individual taxpayers, but not information about taxpayers that are non-individuals, such as companies. While it is expected that the majority of information-sharing under this proposal will relate to individuals, more generally consideration is being given to a further amendment to the Tax Administration Act to apply the Privacy Act framework (or something similar) to information-sharing about non-individuals.

4.38 The Government’s preference is to use part 9A of the Privacy Act, recognising that an additional amendment to the Tax Administration Act may be necessary to enable the sharing of non-individual taxpayers’ information in the same manner.

4.39 This information-sharing proposal falls within the framework contained in the Privacy Act. That framework offers appropriate consultation, oversight and protections. The Government prefers not to see further proliferation of individual rules for information-sharing between government agencies, preferring a consistent approach. A consistent approach also ensures that citizens can more easily access and understand the rules under which their information is able to be shared.

Sharing in practice

4.40 As Inland Revenue does not often come across serious crimes in the course of its day-to-day business, the most common example of information-sharing would be as a result of a request from the New Zealand Police or other enforcement agency when they suspect a serious offence has been committed, is being committed or will be committed.

4.41 Inland Revenue’s financial focus means that, on the rare occasions serious offences are seen in the course of the department’s activities, these offences tend to be financial in nature. However, sometimes Inland Revenue also becomes aware of non-financial crimes such as smuggling or drug offences.

4.42 This financial focus will also drive the type of information that is sought from Inland Revenue and, to an extent, the types of serious offences in relation to which information is sought. For example, it is more likely that Inland Revenue would have information that would assist the investigation of financial crime such as serious fraud or money laundering, rather than information that would assist in cases of serious physical offences.

4.43 An example of the type of offence Inland Revenue does occasionally discover is a recent investigation into PAYE offending. This investigation, carried out in relation to suspected tax offending, provided evidence suggesting that a businessman had set up complex business and tax structures, with appropriate cut-offs through a professional trustee company, to orchestrate tax evasion. This tax evasion was addressed as part of Inland Revenue’s enforcement activities. However, the investigation also disclosed probable and significant fraud against another major government department and, incidentally, also a trustee. (The trustee was potentially liable to Inland Revenue for the PAYE on the basis of knowledge attributable to the trustee but actually committed by a dishonest accomplice of the businessman.) Inland Revenue was unable to advise the other department and the trustee which meant the businessman could not be stopped and the transactions could not be raised with other government enforcement agencies.

Example scenario: Income suppression resulting in identification of suspected wildlife smuggling

During a tax audit investigation it becomes obvious that significant funds flowing through a taxpayer’s bank account are not related to the core business. Further investigation reveals the potential for this taxpayer to be involved in smuggling wildlife out of New Zealand. This is potentially an offence under section 44 of the Trade in Endangered Species Act 1989.

Under the proposed rules, Inland Revenue could inform the Department of Conservation of a suspected offence. Inland Revenue could then provide bank account information and records of statements made by the taxpayer in interviews to the Department of Conservation to assist with the investigation into the suspected offence.

Protections for citizens

4.44 The Government takes very seriously the need for agencies to protect citizens’ privacy and to manage their information securely. Equally, government agencies need to be able to use and share information when appropriate, to deliver services and meet the needs of citizens, both individually and collectively as a society.

4.45 The controls and processes set out in this document have been designed to minimise any risk of a privacy breach occurring as a result of the proposed information-sharing. Sharing can only occur in a narrowly defined set of circumstances, requires a memorandum of understanding to be in place between Inland Revenue and the recipient agency, and will be carried out by a single small experienced team within Inland Revenue. Responsibility for sharing will sit with designated senior personnel in each involved agency.

4.46 Citizens have a number of rights and options available to them in terms of ensuring their information is treated appropriately, which will apply in relation to information shared under the proposed new rules:

  • Individuals have the right under the Privacy Act 1993 to seek access to information held about them by an agency, and to seek to have that information corrected if it is not accurate.
  • If an individual has concerns about how their information has been treated they are able to either use the internal complaint procedures of the agency concerned (Inland Revenue and/or the relevant enforcement agency) or seek assistance from the Office of the Privacy Commissioner.
  • When information is provided under the proposed rules to an enforcement agency, and that agency proposes to use the information in a resulting prosecution, that information must be disclosed under the usual Criminal Disclosure Act 2008 obligations, and any dispute about the provision of the information will then be handled by the courts under the provisions of that legislation.
  • Inland Revenue officers who knowingly disclose information other than in accordance with the legally permitted exceptions to the secrecy rule face potential criminal liability under section 143C of the Tax Administration Act.

4.47 In the event that, despite the protections in place, a privacy breach does occur, designated senior personnel in the relevant agencies will meet immediately to assess the issue and manage the response. This is chiefly to ensure that any affected individuals are identified as quickly as possible and all necessary steps are taken to minimise and/or mitigate any risk to those individuals. If there is considered to be a risk of on-going breaches, information-sharing will be immediately suspended. The Office of the Privacy Commissioner will be notified and involved where this is appropriate.

Questions for submitters

4.48 Submissions on any of the matters outlined in this chapter are welcomed, including:

  • whether it is reasonable to define a “serious offence” as one being punishable by imprisonment of four years or more;
  • the approach of making information available to all enforcement agencies rather than simply the New Zealand Police;
  • how information Inland Revenue receives from enforcement agencies to support their requests for information should be treated;
  • whether it is acceptable to share tax information with international agencies;
  • whether the proposed Privacy (Information-sharing) Bill framework is an acceptable mechanism for the proposed information-sharing, alongside a possible further amendment to the Tax Administration Act to extend its coverage to non-individuals; and
  • whether it is reasonable to take a primarily administrative decision-making approach for release of information (compared with using court orders or requiring Ministerial approval) with alleged offenders being informed of the information being released if it is used in a prosecution (allowing any challenge to be undertaken to the admissibility of the material as evidence at this point).

8 As set out in chapter 2.

9 In Australia a serious offence is defined as one which carries a penalty of 12 months imprisonment or greater. We consider this threshold is somewhat low.

10 This approach is consistent with that taken to categorise offences for procedural purposes in the Criminal Procedure Act 2011 – see the section 6 definition of a category 3 offence.

11 This test is also consistent with that used in the UK when considering whether a production order should be issued for HMRC information.