ArticlePDF Available

The Thickness of a Prison Wall - When Does Tax Avoidance Become a Criminal Offence?

Authors:

Abstract

Tax avoidance and tax evasion cause major problems to the assessment and collection of tax and invariably attack the integrity of any tax system. Denis Healey, former UK Chancellor of the Exchequer once said “The difference between tax avoidance and tax evasion is the thickness of a prison wall.” His quote graphically illustrates that tax avoiders, generally, remain on the outside of the prison wall, while some tax evaders are detained inside. This quote from Denis Healey implies that there is a significant difference between the technical legal positions of tax evasion and tax avoidance, in the sense that one is a criminal action and the other is not. But it also implies that tax avoidance is rather close, perhaps ten centimetres away, from tax evasion. The writer’s hypothesis is that while most taxation experts believe it is abundantly clear what constitutes tax evasion rather than tax avoidance, they are oversimplifying the position. The difference between the two legal concepts may be obvious in the vast majority of circumstances. But in fact, consistent with the implication from Healey's quote, on occasions tax avoidance and tax evasion may be so closely interrelated so as to have common features. If this fusion occurs a frightening outcome for taxpayers, and also potentially tax advisers, may ensue.The question this article seeks to answer is: when, if ever, does participation in a tax avoidance scheme become a criminal offence? When do tax avoidance schemes not only cross the line of acceptable tax planning and become void for tax purposes, but go further and cross the line of legality? When might the tax administrators, in battling an egregious tax avoidance dispute, send in the heavy artillery of criminal prosecution?The conclusion reached is that, rather surprisingly, there are many common features shared by tax avoidance schemes and behaviour that may offend against a criminal provision. Although any case would be highly fact specific, behaviour by a taxpayer involving deceit may have the requisite mental element to constitute a crime.Taxpayers and their advisers need to be aware of the rules and case law in this area in order to ensure their compliance. In contrast awareness of the possibility of criminal charges may be an important addition to the arsenal of the tax administrator.
Electronic copy available at: http://ssrn.com/abstract=1992652
The Thickness of a Prison Wall-When Does Tax Avoidance Become a
Criminal Offence?
Craig Elliffe*
1.0 Introduction
Tax avoidance is a problem which usually involves a lot of money
1
and invariably attacks the
integrity of the tax system.
2
In combination with tax evasion
3
it is major problem for
societies all over the world. When taxpayers become seriously non-compliant a tax
administration has two mechanisms to deal with this problematic behaviour. The first
mechanism is civil penalties, which traditionally involves confidential financial settlements
made behind closed doors. The second is public prosecution through the court system.
Reviewing evidence to ascertain the relative effectiveness of these two broad strategies,
Michael Levi concluded:
4
Unfortunately, hard evidence of the relative impact of civil and criminal sanctions on tax offenders
does not seem to exist, and even absolute impacts of either civil or criminal sanctions are absent.
Civil penalties might be cheaper to resource, might be faster, and might be more predictable than
criminal jury trials. That is the chief attraction to both enforcement body and "offender." The
disadvantage is a sense of unfairness and social privilege they create, although no one might know.
Stigma and the criminal process are more of a deterrent to those "respectables" who consider that
they have something to lose.
Levi’s point is that, although there is no evidence to suggest that criminal sanctions have a
greater impact on offenders than civil sanctions, increased prosecution may be justified for
the purposes of moral retribution as well as perceived social fairness.
*Professor of Taxation Law and Policy, University of Auckland; LLB (Hons), BCom Otago, LLM Cantab,
Consultant, Chapman Tripp, Barristers and Solicitors.
1
An example which illustrates the financial impact of tax avoidance transactions (involving structured finance
transactions) was the decision in BNZ Investments Limited & Ors v Commissioner of Inland Revenue (2009) 24
NZTC 23,582 (HC) at [524] where Wild J concluded:
The transactions enhanced the value of the BNZ by $238.6 million, but imposed an economic cost on
New Zealand society of $335.6 million, a significant part of that being the dead weight cost of the
monies transferred off shore and permanently lost to the New Zealand economy.
2
An example of an attack on the integrity of the tax acts (in this case the Goods and Services Tax Act 1985) was
the Supreme Court decision of Glenharrow Holdings Ltd v Commissioner of Inland Revenue (2009) 24 NZTC
23,236 (SC) where Blanchard J delivering the unanimous judgment said at [54]:
The end in view was a distortion which very plainly defeated the intent and application of the Act.
3
See later at 2.0 for the definitions of avoidance and evasion.
4
M Levi, "Serious Tax Fraud and Noncompliance, A review of evidence on the differential impact of criminal
and non-criminal proceedings" (2010) Criminology and Public Policy, Vol 9, 2, 449, at 463,464.
Electronic copy available at: http://ssrn.com/abstract=1992652
If increased criminal prosecution is the answer to the problem of serious non-compliance by
taxpayers, then we will see a developing focus on the technical aspects of the law, together
with more discussion and comment by practitioners and academics in the area of tax and
criminal offences.
The lack of literature on the subject is surprising because serious non-compliance with tax
obligations is a big problem for governments, and, consequentially, for their citizens and
taxpayers. A government’s measurement of this non-compliance is called the tax gap. The
tax gap is the difference between what taxpayers should pay (the theoretical liability) and
what they actually pay. The latest estimate from the United States (2001) is that this is a US
$350 billion sized problem.
5
Based upon the United Kingdom’s experience in 2009 (where the tax gap is £42 billion)
,
6
it is
likely that non-compliance with tax obligations in New Zealand will cost the Government in
2010/2011 around $5.4 billion per year.
7
To put our tax gap into perspective, this $5.4
billion is equivalent to losing more than 60 per cent of the total anticipated tax that will be
paid by companies in that year.
A tax gap has three components: first, non-filing (taxes not paid by those with a filing
requirement who fail to file), secondly, underreporting (taxes underpaid by those who file
but underreport what they owe), and lastly, underpayment (taxes not paid by those who fail
to remit reported amounts owed when due).
This article deals with a focused part of the tax gap problem. Drawn from the second
component of the tax gap explained above, this is where underreporting occurs because
taxpayers either understate their income, or overstate their expenses. In some cases
underreporting may arise when taxpayers are aware of their obligations and choose to
represent their income falsely. This constitutes evasion, which we discuss below. In other
cases the underreporting happens because the taxpayer has entered into a tax planning
transaction or scheme and, as a consequence of that scheme, has either deliberately
reduced their income or inflated their expenses.
8
Denis Healey, former UK Chancellor of the Exchequer once said “The difference between tax
avoidance and tax evasion is the thickness of a prison wall.
9
His quote graphically illustrates
that tax avoiders, generally, remain on the outside of the prison wall, while some tax
evaders are detained on the inside of that structure. This quote from Denis Healey may
5
This is from 2001. The Internal Revenue Service (IRS) expects to update these figures at the end of 2011: see
http://www.irs.gov/taxpros/article/0,,id=228971,00.html.
6
Her Majesty's Revenue and Customs (HMRC) "Measuring Tax Gaps 2010", 16 September 2010,
http://www.irs.gov/taxpros/article/0,,id=228971,00.html
7
See the discussion on the extent of the problem in M Levi, "Serious Tax Fraud and Noncompliance, A review
of evidence on the differential impact of criminal and non-criminal proceedings" (2010) Criminology and Public
Policy, Vol 9,2, 449 at 451. The information of Her Majesty’s Revenue and Customs (HMRC), is that the "tax
gap" in the United Kingdom is nine per cent of the total tax "take". The total anticipated New Zealand tax
revenues for 2010/11 amount to $60.3 billion, (see http://www.treasury.govt.nz/budget/2010/).
8
For simplicity the writer has focused on issues related to the avoidance of Income Tax under section BG 1 of
the Income Tax Act 2007, rather than Goods and Services Tax (GST) imposed under the Goods and Services Tax
Act 1985, but obviously similar issues will arise for GST.
9
The Economist, Volume 354, Issues 8152-8163 (2000), p. 186.
imply that there is a significant difference between the technical legal positions of tax
evasion and tax avoidance, in the sense that one is a criminal action and the other is not.
But it also implies that tax avoidance is rather close, perhaps ten centimetres away, from tax
evasion.
The author’s hypothesis is that, while many believe it is abundantly clear
10
what constitutes
tax evasion rather than tax avoidance, that belief is an oversimplification. The difference
between the two legal concepts may be obvious in some circumstances. But in fact,
consistent with the implication from Healey's quote, on occasions tax avoidance and tax
evasion may be so closely interrelated as to have common features. If this fusion occurs a
frightening outcome for taxpayers and tax advisers may ensue.
The question this article seeks to answer is: when, if ever, does participation in a tax
avoidance scheme become a criminal offence? When do tax avoidance schemes not only
cross the line of acceptable tax planning and become void for tax purposes, but go further
and cross the line of legality? When might the tax administrators, in battling an egregious
tax avoidance dispute, send in the heavy artillery of criminal prosecution?
The conclusion reached is that, rather surprisingly, there are many common features shared
by tax avoidance schemes and behaviour that may offend against a criminal provision.
Although any case would be highly fact specific, behaviour by a taxpayer involving deceit
may have the requisite mental element to constitute a crime.
Taxpayers and their advisers need to be aware of the rules and case law in this area in order
to ensure their compliance. In contrast awareness of the possibility of criminal charges may
be an important addition to the arsenal of the tax administrator.
2.0 Tax Evasion and Tax Avoidance
Evasion is a term used in the Tax Administration Act 1994
11
but it is not defined in any of the
New Zealand tax statutes. In its ordinary parlance it means "escape by contrivance from:
getaway, escape: contrived to avoid (especially a duty)".
12
Outside of legal concepts evasion
has a very similar meaning to avoidance. In tax law however, and particularly with respect to
the consequences that arise for a taxpayer, the difference between evasion and avoidance
is significant.
13
Evasion is traditionally seen by the courts as a failure by a taxpayer to discharge a known tax
obligation, whereas avoidance is a course of action taken by a taxpayer that means the tax
10
Peterson v Commissioner of Inland Revenue (2005) 22 NZTC 19,098 at [60]: per Lord Bingham of Cornhill and
Lord Scott of Foscote; “The line to be drawn between “tax evasion” and “tax avoidance” is clear enough. The
former is criminal. The latter is not. It may be socially undesirable but is within the letter of the law.”
11
Section 143B of the Tax Administration Act 1994.
12
The New Shorter Oxford Dictionary, Oxford, 1993.
13
Lord Templeman in the Privy Council decision C of IR v Challenge Corporation Ltd [1986] 2 NZLR 513 at 561
highlighted the consequences that arise from the different types of evasion: Innocent evasion may lead to re-
assessment. Fraudulent evasion may lead to a criminal prosecution as well as re-assessment.
obligation does not arise in the first place: that is, the tax obligation only arises when the
avoidance tax rules reconstruct the transaction. Evasion falls into two categories described
by Lord Templeman in the Privy Council decision of Challenge
14
: "innocent evasion" and
"fraudulent evasion".
This distinction illustrates a key requirement of evasion, which is the necessary mental
element or mens rea. A taxpayer must intend to avoid the payment of tax. If a taxpayer does
not correctly meet their tax obligations because they have genuinely relied on information
that has been provided which was incorrect, or in some other way they make an innocent
mistake, then they are a party to innocent evasion.
15
Fraudulent evasion involves the intentional dodging of tax "payments in circumstances
indicating to the party that he is or may be under some obligation to pay duty".
16
Examples
of fraudulent evasion arise in times of financial stress (and otherwise), when a taxpayer
simply misappropriates tax deducted from other payments made to a creditor, such as non-
resident withholding tax or PAYE.
17
Another common situation is where a person knowingly
provides false or incomplete returns intending to evade both the assessment and payment
of tax.
18
The mens rea element in evasion may consist of actual knowledge that the omission
to pay is in contravention of the law but it also can include a "neglect of available means of
knowledge".
19
In contrast avoidance involves a taxpayer entering into an arrangement that alters the
incidence of tax. The transaction actually entered into by them generates the income or
expenditure that is returned in the tax return. When the taxpayer reports the legal
transaction, they have relied on specific provisions in the Income Tax Act in order to
ascertain their tax liability. This reliance on the specific provisions can be overturned.
The New Zealand legislature has, however, since 1891
20
had a general anti-avoidance rule
(GAAR) that applies to income tax.
21
As a consequence a New Zealand court will look, if the
Commissioner of Inland Revenue (Commissioner) asks it to do so, at the taxpayer's reliance
on those specific provisions viewed in the light of the arrangement as a whole. If the
taxpayer has used the specific provision, "and thereby altered the incidence of income tax,
14
C of IR v Challenge Corporation Ltd [1986] 2 NZLR 513 at 561
15
For some examples on what constitutes innocent evasion see Prebble J "Criminal Law, Tax Evasion, Shams,
and Tax Avoidance: Part 1-Tax Evasion and General Doctrines of Criminal Law" (1996) NZJTL&P Vol 2, No 1, 3.
16
Taylor v Attorney-General [1963] NZLR 261, at 262. (Per McGregor J)
17
Examples include James v R [2010] NZCA 206 (CA), R v Smith [2010] DCR 440.
18
Examples include R v Fepuleai [2008] NZCA 329, (2008) 23 NZTC 22,083, Tahaafe v Commissioner of Inland
Revenue [2009] BCL 637, 32 TCL 33/7.
19
Taylor v Attorney-General [1963] NZLR 261, at 262. (Per McGregor J)
20
Section 40 of the Land and Income Tax Assessment Act 1891.
21
See Income Tax Act 2007, s BG 1, which empowers the Commissioner to treat a tax avoidance arrangement
as void and to reconstruct the tax advantage obtained by the taxpayer so as to counteract it. Under the Tax
Administration Act 1994,s141D, those taxpayers who have taken an unacceptable tax position with a dominant
purpose of reducing or removing tax liabilities or giving tax benefits can be subject to a civil penalty which
represents 100 per cent of the resulting tax shortfall.
in a way which cannot have been within the contemplation and purpose of Parliament when
it enacted the provision,
22
then the arrangement will be a tax avoidance arrangement.
3.0 Convergence?
At the extreme ends of the evasion/avoidance dichotomy the concepts of evasion and
avoidance will not be easily confused: at the one end, there is fraudulent evasion, and at the
other end tax planning that has marginally been categorised as tax avoidance. A taxpayer
who honestly believed their position was correct at the time of filing their return and who
was subsequently reassessed because of the existence of tax avoidance ought not to be
concerned about an allegation of fraudulent evasion arising.
The question that this article poses is whether particular avoidance transactions can have
the features of fraudulent evasion and hence cross the line of criminality. In other words can
a tax avoidance scheme be so reckless or aggressive that a taxpayer is put on enquiry that
they have a tax obligation? Because of the potential operation of the GAAR it will be a tax
obligation they either suspect or should know. This is the question the article seeks to
answer in the light of each of the particular criminal provisions.
An initial observation is that criminal cases have often been brought against the promoters
of a tax avoidance scheme for losses arising from the failed investment. There is little
litigation instigated by the Crown protecting the revenue base against promoters of tax
avoidance schemes or tax avoidance. In this examination it is therefore unnecessary to
consider situations where claims are made against the promoters of a scheme because of
the loss suffered by investors, rather the fisc.
23
Often these losses are borne by investors
due to flaws in the underlying investment which gave rise to the unsuccessful tax claim.
Sometimes the underlying investment in such schemes is fundamentally unsound, with the
documentation patently poor and hastily prepared. This may be due to the pursuit of tax
benefits as a primary concern of the promoters. An example of this is described in the
judgment of Ronald Young J in Erris Promotions:
24
These factors illustrate that this was a plan to avoid tax by claiming millions of dollars of depreciation
losses through inflated purchase prices.
The disinterest by Mr. Anderson/ Actonz in what was actually being purchased in the software
packages underlines this conclusion. In some cases there was no or limited source code written. In all
software packages except Autowriter and to some degree BACCIS, Mr. Anderson had little idea of
functionality and in all software packages, no idea of price. It was clear from the so-called
negotiations between the vendors and the purchasers, the higher the price better. The higher the
price the greater the depreciation losses and thus the greater attraction for investors.
22
Ben Nevis Forestry Ventures Ltd & Ors v Commissioner of Inland Revenue; Accent Management Ltd & Ors v
Commissioner of Inland Revenue (2009) 24 NZTC 23,188 (SC) at [107].
23
The public treasury or Crown coffers.
24
Erris Promotions Ltd & Ors v Commissioner of Inland Revenue (2003) 21 NZTC 18,338 at [337] and [338].
Unsuccessful prosecutions have been bought on the basis that it is a conspiracy to defraud
the investors themselves, rather than the Inland Revenue, with the focus being on
remuneration and fees derived by the promoters of the investment.
25
4.0 Relevant criminal provisions and an explanation of the tests
4.1 The selection of the provisions
The entry into a tax avoidance arrangement can potentially expose the taxpayer, and
consequentially the adviser, to a criminal offence under section 143B of the Taxation
Administration Act 1994 and criminal prosecution under section 228 of the Crimes Act
1961.
26
Apart from the technical requirements of each provision, and the consequences
which flow from a successful prosecution,
27
are there any reasons why prosecution under
one, other, or both would not occur?
In an article on the criminal aspects of tax evasion,
28
Philip Ascroft concluded that it was
difficult to see a consistent pattern of practice by the Serious Fraud Office and the
Commissioner in preferring charges under either Act. He concluded
29
that the following
direction of the Supreme Court, despite being obiter, should encourage the Inland Revenue
to focus on the tax evasion offence contained in the Tax Administration Act:
30
Prosecutorial provisions in the case of evasion or similar offences, previously requiring recourse to the
Crimes Act, were now brought under a Tax Act which identified tax-specific ingredients of criminal
dishonesty. In relation to criminal behaviour the Part 9 purposes are exemplified in ss 143, 143A, and
143B, which group offences generically as absolute liability, knowing or evasion offences, and thereby
provide a more apt vehicle for prosecuting tax evasion than the Crimes Act. (emphasis added)
There must be a case for routine tax offences to be prosecuted under Part IX of the Tax
Administration Act. These provisions are aimed directly at the failure to account for taxes
deducted and withheld, and for behaviour involving evasion of a more straightforward
nature than that potentially involving a tax avoidance transaction. The specificity of the
offences under the Tax Administration Act reflects particular illegal tax acts that the
legislators had in mind.
More complicated criminal acts involving tax avoidance and large sums of money may
equally be sensibly prosecuted under the Crimes Act 1961 rather than the Tax
Administration Act 1994. There are three reasons for doing so.
25
R v Connelly & Ors (2004) 21 NZTC 18,844. In this case the Crown presented its case on the grounds that
proof of conspiracy to defraud against the Commissioner of Inland Revenue was consequential upon first
proving a conspiracy to defraud against the investors, under the now repealed section 257 of the Crimes Act
1961. In the end as the first case against the investors was not established the pleadings were ineffective in
respect of the second conspiracy to defraud against the Commissioner.
26
This is not intended to be an exclusive list but simply notes the most appropriate provisions in the writer's
view.
27
The Crimes Act 1961 provides for a maximum term of seven years in section 228, whilst section 143B (4) of
the Tax Administration Act 1994 provides for a maximum of five years, or a fine of up to $50,000, or both.
28
P Ascroft "The Criminal Aspects of Tax Evasion in New Zealand" (2010) New Zealand Journal of Taxation Law
and Policy, Vol 16, no 1, 21.
29
Ibid at 45.
30
Brent John Gilchrist v R [2006] NZSC 19, (SC) at [16]-[17].
First, as will soon be discussed, the test is very similar under both Acts (particularly after the
Supreme Court decision on section 228 of the Crimes Act in Hayes
31
), namely that a tax
return is used (knowingly in the case of the Tax Administration Act), to obtain valuable
consideration (a tax refund) when the taxpayer knew that it was dishonest to make the
claim and they were not legally entitled to it.
32
Secondly, the Crimes Act provides for a higher sentence of seven years versus the maximum
of five years under the Taxation Administration Act.
33
Numerous offences can, of course,
impact on this conclusion, with multiple charges brought against the same defendant.
Lastly, although this is impossible to prove, the gravitas associated with a charge under the
Crimes Act may be greater from a public perception perspective and so from a policy
objective more desirable.
34
One preliminary point is whether the imposition of a shortfall penalty for taking an incorrect
tax position prevents the Commissioner or the Crown from subsequently prosecuting the
taxpayer for taking that incorrect tax position. The Tax Administration Act provides:
35
If a shortfall penalty, other than under section 141 ED, has been imposed on a taxpayer for taking an
incorrect tax position, the Commissioner may not subsequently prosecute the taxpayer for taking the
incorrect tax position.
When this provision is read in conjunction with section 149 (4), the scheme of the Tax
Administration Act becomes clear. The Commissioner should first prosecute a taxpayer for
taking an incorrect tax position, prior to imposing civil penalties. While subsequent
imposition of penalties can occur, irrespective of the success of the criminal prosecution,
the converse cannot occur. A taxpayer cannot be charged with a criminal prosecution after
the imposition of shortfall penalties in respect of the same incorrect tax position.
The reference in section 149 (5) prohibits the Commissioner from subsequently prosecuting
a taxpayer under the Tax Administration Act. This leaves open the question of whether the
Crown itself can do so, presumably under the Crimes Act.
Ascroft
36
suggests that the better view is that the Crown would also be barred from
prosecution under the Crimes Act. He relies on the reasoning in the High Court decision of
Chief Executive of the Ministry of Social Development v Batt
37
which concluded that the
Crown Solicitor and the Chief Executive of the Ministry of Social Development were both
agents of the Crown. His argument is that the Crimes Act should not be used to circumvent
the proscription against prosecution under the Tax Administration Act when penalties have
been imposed.
31
Hayes v R [2008] 2 NZLR 321
32
Some subtleties to this test will emerge from the subsequent discussion in this article.
33
Section 228 of the Crimes Act 1961, section 143B(4) of the Tax Administration Act 1994.
34
See the discussion by Levi, note 2 at 462, whilst Ascroft is uncertain also on this point, see n25 at 41.
35
Section 149 (5) of the Tax Administration Act 1994.
36
See note 28.
37
Chief Executive of the Ministry of Social Development v Batt [2004] NZAR 180 (HC).
With this prelude we now analyse the position under each of the relevant New Zealand
statutes.
5.0 The Crimes Act 1961
The Crimes Act 1961 provides:
38
Dishonestly taking or using document
Every one is liable to imprisonment for a term not exceeding 7 years who, with intent to
obtain any property, service, pecuniary advantage, or valuable consideration,-
(a) ...; or
(b) dishonestly and without claim of right, uses or attempts to use any document.
Section 228 was introduced in 2003
39
replacing the now repealed section 229A of the
Crimes Act 1961. Section 229A featured in the 2007 decision of R v D
40
where proceedings
had been bought by the Crown, unsuccessfully, in relation to a tax avoidance scheme
devised by the accused and promoted by the company Salisbury Securities Ltd. Both the
then section 229A and the present provision section 228 of the Crimes Act 1961 were
considered by the Supreme Court in Hayes v R
41
in 2008.
The current focus is on section 228, but obviously offences committed prior to 2003 would
be dealt with under the former section.
42
In the Hayes decision, Ms Hayes had been found
guilty of 24 counts of fraudulently using a document contrary to section 229A, and five
counts of dishonestly using a document contrary to the present section 228. Her dishonest
use of the document arose from claims made from the Accident Compensation Corporation.
She sought and received weekly compensation from the Corporation for seven years. From
time to time she was required to submit a "payment declaration" which she signed.
Occasionally she was required to declare that the medical certificate accurately reflected
her activity restrictions. From October 1997 she was employed successively in running two
companies which were in the business of emptying effluent ponds on dairy farms. During
this period she continued to provide declarations to the Corporation to the effect that she
was unfit for work and was not in any form of employment.
The offence created by s 228 required proof that:
43
38
Crimes Act 1961, s 228.
39
Crimes Amendment Act 2003 (2003 no 39).
40
R v D (2007) 23 NZTC 21,284
41
Hayes v R [2008] 2 NZLR 321 per Elias CJ, Blanchard, Tipping, McGrath and Anderson JJ.
42
Section 229A Taking or dealing with certain documents with intent to defraud
Every one is liable to imprisonment for a term not exceeding 7 years who, with intent to defraud,
(a) ...
(b) Uses or attempts to use any such document for the purpose of obtaining, for himself or for any
other person, any privilege, benefit, pecuniary advantage, or valuable consideration.
43
Hayes v R [2008] 2 NZLR 321, at [23].
1. Ms Hayes used a document;
2. dishonestly and without claim of right; and
3. with intent to obtain a pecuniary advantage.
The Supreme Court held that the objective element of the crime (actus reus) was the use of
the relevant document (the medical certificate) for the purpose of obtaining a pecuniary
advantage (the matters required in 1 and 3 above).
It neither mattered whether she actually obtained the pecuniary advantage nor whether she
was in fact entitled to the weekly compensation money.
44
The Crown simply had to prove
that the use of the relevant document had that requisite purpose (namely the purpose of
obtaining a pecuniary advantage).
45
The composite phrase "pecuniary advantage or valuable consideration" should be read so as
to mean pecuniary advantage or other valuable consideration. Accordingly the meaning of
valuable consideration in the judgement of Tipping J is:
46
Leaving aside the other concepts addressed in the sections, the statutory purpose must have
been to encompass anything capable of being valuable consideration, whether of the
monetary kind or of any other kind; in short, money or money's worth.
The phrase "pecuniary advantage" has a similar broad meaning being "simply anything that
enhances the accused's financial position".
47
Adams on Criminal Law explains that there are three components to the mental element of
the crime (mens rea) required to be established:
48
First, the accused must have intended to obtain the property, service, pecuniary
advantage or valuable consideration;
Secondly the accused is dishonest in their use of the document; and
Thirdly that the accused has no defence of a claim of right.
The Supreme Court in Hayes identified changes in the statutory definition of both
"dishonestly" and "claim of right". "Dishonestly" is defined by s 217 in these terms:
49
dishonestly, in relation to an act or omission, means done or admitted without a belief that
there was an express or implied consent to, or authority for, the act or omission from a
person entitled to get such consent authority.
In looking at the legislative history the Supreme Court decided that the Crimes Consultative
Committee (which had responsibility for the revision of the law) had deliberately removed
44
Ibid, at [16], overturning the Court of Appeal decisions in R v Firth [1998] 1 NZLR 513; and Ruka v DSW [1997]
1 NZLR 154, where it had been held that the section did not apply where the benefit received was one to
which the defendant was legally entitled.
45
Hayes v R , [2008] 2 NZLR 321 at [25].
46
Ibid, at [14].
47
Ibid, at [16].
48
Adams on Criminal Law at CA 228.05.
49
Crimes Act 1961, s 217.
the reference to the accused having "no reasonable grounds for believing".
50
The
consequence of this is that under section 228 there is no requirement that the belief must
be either honest
51
or reasonable.
52
Likewise the defence of "claim of right" was introduced in the new section to distinguish
more from the earlier legislative term "colour of right".
53
It is now clear from the decision in Hayes that the “belief” required in the definitions of
“dishonestly" and “claim of right" is not subject to any reasonableness test.
Reasonableness will only factor in on an evidential basis with relevance to the question of
whether the beliefs are actually held.
3.1 Summary of the elements of Section 228
In summary, to establish a count of dishonestly using a document contrary to section 228,
the Crown will need to prove:
1. the use of a document;
2. for the purpose of obtaining a pecuniary advantage, or valuable
consideration;
3. with the intention to obtain property;
4. by the dishonest use of the document; and
5. that the accused had no claim of right.
With respect to points 4 and 5 above, these matters are not to be assessed on the basis of
reasonableness, which eliminates the possibility of the accused framing their own moral
code (abolishing the so-called "Robin Hood" defence
54
).
3.2 Prior New Zealand Cases on the Crimes Act Provisions
Section 228 of the Crimes Act 1961 has not yet featured in prosecutions by the Crown of
taxpayers involved in tax avoidance schemes. As indicated above the predecessor provision
s 229A (b) featured in the High Court decision R v D.
55
The promoters of the scheme were
prosecuted, rather than the taxpayers. In a sense the case proceeded on the basis that the
tax avoidance aspect of the transaction simply provided an opportunity for the promoters to
scam the investors out of their money.
50
Hayes v R [2008] 2 NZLR 321, at [56]
51
Ibid, at [34] where Tipping J stated:
It is preferable, however, to follow the drafting of the definitions of dishonestly and claim of right by
not qualifying the word belief at all. The potential difficulty with the word “honest" in the phrase
“honest belief" is its capacity to be understood as signifying an ability for the accused person to frame
their own moral code (the so-called "Robin Hood" defence).
52
Ibid, at [36, 37], Reasonableness may have an influence on whether from an evidentiary perspective belief
was held but it does not form part of the test.
53
Ibid, at [57].
54
If you apply the standard of the accused and ignore all other standards then Robin Hood would be no
robber.
55
R v D (2007) 23 NZTC 21,284.
The scheme operated as follows: the investor was given an opportunity to invest in a timber
future investment. The investment was described as "Underwritten Timber Futures; an
Opportunity for NZ Corporates".
56
If in 10 years time timber prices rose then investors
would secure a gain. If timber prices dropped then the losses were insured. Investors were
entitled to a significant tax deduction in respect of an insurance premium which was
incurred in the first financial year of the scheme's life. The investments were structured in
units of $1 million, of which only nine per cent or $90,000 was paid in cash. The balance of
the investment $910,000 was linked to each investor under a loan agreement from Salisbury
Securities Finance (NZ) Ltd. The $1 million so funded was to be used to purchase the
insurance premium. The insurance premium in turn purportedly purchased a loss of profits
insurance policy which effectively insured the risk that the timber right acquired would
reach a minimum value of $2.24 million in 10 years time.
Priestley J summarised the transaction in the following terms: "the attraction of the scheme
was quite simply that no party to it would be out of pocket".
57
The investors, borrowed from
Salisbury Securities Finance (NZ) Ltd under limited recourse loans which they did not need
to repay, even if the Timber futures and the insurance proceeds did not generate sufficient
funds to repay these obligations. Priestley J said:
58
The only "loser" from the scheme, not being a party, would have been Inland Revenue
Department which would have had to absorb reduced tax payments from taxpayers
otherwise liable for the maximum 33% of the dollar rate. By deducting the insurance
premium, they would successfully reduce their taxable incomes.
The Crown's case focused on the fact that the accused had dishonestly taken the $90,000
per unit from investors without intending to implement the scheme as represented. The
real plan was therefore to misappropriate $5,198,610 from the pool of investors, none of
which was ever used to pay the insurance premium. The scheme was always intended to be
circular and non-commercial but this fact was hidden deliberately from both investors and
the Commissioner.
59
Priestley J declined to draw the inferences and conclusions which the Crown's case invited
him to do:
60
Haste, shoddy documents, change of implementing details, and the arguable effect certain
representations may have had on individual investors, are all in combination matters of
concern. They may constitute the basis of civil claims against various parties involved in the
scheme. But in combination they fall well short of satisfying me of criminality.
In Priestley J’s view the accused's "real plan" was not to obtain the investors' cash
contributions dishonestly. Other people had been involved in the scheme, numerous
accountants and lawyers had scrutinised it, leading to the conclusion that it could not have
been a simple scam.
56
Ibid, at [22].
57
R v D (2007) 23 NZTC 21,284, at [43].
58
Ibid, at [44].
59
Ibid, at [96].
60
Ibid, at [109].
This leaves open the question of whether the accused’s "real plan" was to seek the
deductions which would give rise to a reduction in tax liability for the investors. This plan
was thwarted by the Inland Revenue Department's disallowance of the taxation advantages
using the general anti-avoidance provision. The controversial point is whether the Crown
had focused on the appropriate victim (or attempted victim) of the crime: which in this case
should have been the Treasury rather than the investors.
Another similar outcome occurred in the case R v Connolly & Ors,
61
where the Crown
brought a charge of conspiracy to defraud investors under the now repealed section 257 of
the Crimes Act. The way in which the Crown argued this case was that a second and
subsequent charge of conspiracy against the Commissioner was consequential upon first
proving a conspiracy against the investors. The case was therefore not an independent
pursuit of the deceit of the investors against the Commissioner. Fogarty J raised the issue
with the Crown counsel:
62
About the same time as Mr. Ruffin and I explored whether a distinction could be drawn
between Counts 1 and 2, I threw out what I thought might be a lifeline to Mr. Ruffin, having
previously mentioned it once before, that there might be a conspiracy to deceive the
Commissioner of Inland Revenue though not to deceive the investors. Mr. Ruffin did not
pursue that comment.
Counsel for the accused, Mr. Gilbert, when also questioned on this point contended that the
offence against the Commissioner of Inland Revenue had only been pleaded on a
consequential basis after establishing a fraud against the investors.
Having lost this conspiracy case the Crown faced litigation in respect of costs claimed by the
accused parties. These proceedings progressed to the Supreme Court with the defendants in
the Connelly case pursuing these costs. In Reid and Ors v The Queen an unreported
transcript records the following exchange:
63
Walker ... how Gosling Chapman ever thought that this was going to withstand
scrutiny and survive as a successful...
Blanchard J Well there's been a spirit of optimism in the New Zealand tax avoidance
industry for some years
Tipping J But that is what it was all about, it was tax avoidance, it wasn't deceiving
the investors
And subsequently in the transcript:
64
Walker In fact during the trial the Judge twice suggested to Crown counsel the
possibility of exploring an alternative of attempt to defraud the
Commissioner, and that would have included the investors in the fraud. It
would have been a different case altogether and as the Judge says counsel
for the Crown did not pursue that comment, ...
61
R v Connelly & Ors (2004) 21 NZTC 18,844.
62
R v Connelly & Ors (2004) 21 NZTC 18,844, at [200).
63
Reid and Ors v The Queen [2007] NZSC, at 9.
64
Ibid at 13.
Elias CJ You mean investors would have been co-conspirators on that theory
This discussion in the Supreme Court highlights the incongruity of the choice by the Crown
to prosecute the organisers and arrangers of the tax avoidance schemes on behalf of
disgruntled investors, rather than prosecuting the accused in respect of an attempt to
defraud the Commissioner. Had the case been run on this basis, the investors themselves
would have become co-conspirators.
3.3 Possible application of section 228 to taxpayers in tax avoidance schemes
It would seem fairly obvious, without labouring the point, that a tax return is a document.
65
The medical certificate which Ms Hayes used to obtain weekly compensation payments
from the ACC was a document. Additionally, a tax return could be used for the purpose of
obtaining a pecuniary advantage, in that sense referred to by the Supreme Court in Hayes,
as being "anything that enhances the accused its financial position",
66
with the intention of
obtaining property. The key issues confronting the Crown is whether the taxpayer has been
dishonest in their use of the tax return and also whether they have any defence of a claim of
right.
As we have seen "dishonestly" is defined to mean an act done without a belief that there
was an express or implied consent to, or authority for, the act from a person entitled to give
such consent or authority.
67
The Supreme Court's decision in Hayes clarifies that this is not a
test of "honest belief" in the sense of a "Robin Hood" defence nor does it have to be
reasonable.
68
"Claim of right" is defined in s 2 of the Crimes Act 1961 as follows:
claim of right, in relation to any act, means a belief that the act is lawful, although that belief
may be based on ignorance or mistake of fact or any matter of law other than the
enactment against which the offences are alleged to have been committed
The Supreme Court analysis focused in particular on the word "belief" in the definition,
establishing that a qualifying belief does not have to be reasonable or based on reasonable
grounds, otherwise those responsible for the drafting would have "thought it necessary to
qualify the word "belief" by reference to honesty".
69
If the accused genuinely believes in the lawfulness of their tax position, even if that belief is
unreasonable, then section 228 will have no application because their tax return was not
used dishonestly, and they may have a claim of right. That said, reasonableness is clearly a
factor in determining whether the accused actually held the asserted belief. "From the
65
Alexander v Inland Revenue Department (2010) 24 NZTC 24,377, and R v Cann [1989] 1 NZLR 210 (CA) both
involving a GST return being used to obtain a pecuniary advantage under section 229A of the Crimes Act 1961
(now repealed).
66
Hayes v R [2008] 2 NZLR 321, at [16].
67
Crimes Act 1961, s 217.
68
Hayes v R [2008] 2 NZLR 321, at [34].
69
Ibid, at [35].
evidentiary point of view, the more reasonable belief, the more likely it was held, and vice
versa; but it is not necessary that the belief itself be reasonable".
70
A better way to express this might be to say that a judge or jury will assess the objective
facts of the particular case in order to infer that the accused had a dishonest mind. It is open
to the accused to raise a reasonable doubt that they had a dishonest mind on the basis of
the relevant but mistaken belief.
If a transaction is based upon an artificial facade which the taxpayer knows is not a truthful
representation of what has really occurred then it may be that the taxpayer’s belief in the
lawfulness of their tax position is unreasonable.
71
Tax avoidance transactions sometimes
have an element of pretence, being designed to deceive the Commissioner with respect to
commerciality and business purpose.
In the absence of a genuine belief in the legality of the tax position taken by the taxpayer, it
could be argued that the tax return was being used to obtain a pecuniary advantage. It
might be established that the attempts to deceive the Commissioner was evidence of
dishonest behaviour: effectively evidence of a taxpayer without a claim of right.
6.0 The Tax Administration Act 1994
As indicated earlier, Part IX of the Tax Administration Act contains the coordinated civil and
criminal penalties relating to taxation matters. Section 143B provides for the criminal
offence of evasion and other similar and related offences. The more generic offence of
“evading or attempting to evade the assessment or payment of tax”, which you would
expect to be the first provision, is contained in subsection (2).
72
In practice, the offence of
evading under subsection (2) is a residual provision in the event that the particular actions
of the offender do not come within the specific acts contemplated in subsection (1).
73
6.1 Evasion or attempting to evade the assessment or payment of tax (section 143B (2))
Even though subsection (2) is a catchall provision it should not be overlooked when
considering tax avoidance schemes. As previously discussed in distinguishing evasion from
avoidance, evasion occurs when a taxpayer breaches a known obligation. When examining
the mental element of evasion (mens rea) the courts have gone beyond just requiring actual
knowledge that the omission to pay is a clear breach of a known tax obligation. They have
70
Ibid, at [52].
71
A taxpayer should proceed on the basis that the Commissioner is omnipresent and able to see into every
element of the transaction, not just the facade presented to the Commissioner.
72
Section 143B (2) of the Tax Administration Act 1994 reads as follows:
A person who evades or attempts to evade the assessment or payment of tax by the person or
another person under a tax law commits an offence against this Act.
73
Inland Revenue, "Criminal offence-evasion or similar offences: Standard Practice Statement INV 225", (1998)
Tax Information Bulletin 22, Vol 10:3, 23.
also held that "neglect of available means of knowledge"
74
or recklessly knowing the facts
and choosing to ignore them can constitute sufficient mens rea:
75
The respondent accepts that it must prove an intent on behalf of the objector to evade
payment of tax in that evade is more than failing or omitting to pay and is more than mere
negligence. However, recklessness can amount to evasion. A deliberate disregard of one's
obligations may amount to recklessness as may an appreciation of a positive risk and
proceeding regardless.
Recklessness must not be confused with negligence. Negligence does not require knowledge
but recklessness does. To be reckless a person must “have ignored a risk they knew to be
present so as to avoid the unpleasantness of having their suspicions confirmed.”
76
The taxpayer needs to be on notice or on enquiry that the transaction they are entering into
is strongly likely to be regarded as a tax avoidance arrangements. Then they need to act
recklessly with respect to their income tax return, by not adequately examining the tax
position. As Heath J described in Mortimer,
77
"in most circumstances, the concept of
recklessness will involve the conscious and deliberate taking of an unjustified risk."
In a decision involving the imposition of penal tax
78
under the Income Tax Act 1976, Willy DJ
stated:
79
Where recklessness is alleged the Commissioner must prove beyond reasonable doubt that
the facts which were actually known to the taxpayer were such that they must have put him
on enquiry that the income returned for tax purpose was understated. Faced with those
facts the Commissioner must then show that the taxpayer made the conscious decision to
ignore them and to return the understated income without making any further enquiry.
Given the above, the Crown should be able to argue that a taxpayer who is put on notice
that they are entering into an artificial transaction without genuine commercial motivation
is potentially taking a reckless position, particularly if they have either not required or not
received adequate advice on the question of the potential application of the GAAR. The
onus is on the Commissioner to prove beyond reasonable doubt that entry into the tax
avoidance arrangement breached an obligation to pay tax which the taxpayer knew, or
suspected existed (because the GAAR would be effective), and still recklessly disregarded.
74
Taylor v Attorney-General [1963] NZLR 261, at 262 per McGregor J.
75
Case S100 (1996) 17 NZTC 7,626, at 7627 per Barber DJ.
76
France S,“A reckless approach to liability” (1988) 18 VUWLR 144, at p 146.
77
Mortimer v Commissioner of Inland Revenue (2002) 20 NZTC 17,797 at [37].
78
Prior to the 1997–98 income year, where a taxpayer evades, attempts to evade, does any act with the intent
to evade, or makes default in the performance of any duty imposed upon them by the Act or regulations, with
the intent to evade the assessment or payment of any sum which is or may become chargeable, the taxpayer
became potentially liable for a penal tax of up to three times the amount of tax evaded.
79
Case P29 (1992) 14 NZTC 4,213.
A taxpayer who sought advice and was told that the GAAR would apply and who chose to
still enter into the transaction may be one that may have some risk of exposure to this
charge.
6.2 The Specific Offences in Section 143B
Subsection (1) details five specific acts of offence (actus reus) which can be coupled with any
one of the three states of mind (mens rea) necessary to satisfy the provision.
Of particular relevance to this article, and problems associated with tax avoidance schemes
is the offence of:
80
...
(c) Knowingly provides altered, false, incomplete, or misleading information
(including tax returns in tax forms) to the Commissioner or any other person in
respect of tax law or a matter or thing relating to a tax law;
......
and does so-
(f) Intending to evade the payment or assessment of tax by the person or any other
person under a tax law; or
(g) To obtain a refund or payment of tax in the knowledge that the person is not
lawfully entitled to the refund or payment under a tax law; or
(h) To enable another person to obtain a refund or payment of tax in the knowledge
that the other person is not lawfully entitled to the refund or payment under a tax
law.
In summary, if a taxpayer knowingly provides false, incomplete or misleading information in
their tax return, intending to evade the assessment or payment of tax, or to obtain a refund
knowing that they are not lawfully entitled to the refund, then they will commit an offence
under section 143B.
6.2 Knowingly providing false, incomplete or misleading information in a tax return
If a taxpayer enters into a tax avoidance arrangement then they will file, presumably, a tax
return in which they will claim a deduction or a reduction of gross income.
81
Most of the tax
80
Section 143B of the Tax Administration Act 1994 is broad and encompasses situations involving failure to
knowingly keep books and documents required, failing to provide information, failing to make a deduction or
withholding of tax and pretending to be another person for any purpose or reason relating to a tax law.
81
See the discussion in Erris Promotions Ltd & Ors v Commissioner of Inland Revenue (2003) 21 NZTC 18,338 at
[358] where Ronald Young J considered the position of those taxpayers who had not claimed the depreciation
loss, but instead had used the dispute resolution procedures and performed a notice of proposed adjustment
against their return. Because no actual loss was claimed as part of their tax return none of those who had filed
a notice of proposed adjustment had taken the tax position necessary for the imposition of penalties. Clearly
avoidance arrangements and schemes dealt with by the courts in recent years relating to
income tax involve the claiming of deductions in order to facilitate the reduction of net
income.
82
In order to establish the first component of the offence, this deduction must be
claimed with the taxpayer knowing that the return is false, incomplete or misleading.
The meaning of the word "knowingly" has been considered in numerous cases with the
following outcomes;
subjective knowledge of the act that amounts to the breach is sufficient
83
“the test is whether the failure ... was something known to the defendant to have
occurred. Recklessness as to whether the ... has been paid is sufficient to amount to
a known failure to pay.”
84
"the word ‘knowingly’, as used in the section, imports only a knowledge of the
existence of the facts in question, when those facts are such as bringing the act with
the provision of the law. The word does not require in its meaning any knowledge of
the unlawfulness of such acts."
85
Although “knowingly” will require knowledge of the doing of the act (or the omission) and
will not require any specific (such as evasive) intent, it is important to note that the action
that the taxpayer must knowingly perform under paragraph (c) is the provision of a false,
incomplete or misleading tax return. In a sense, although the requirement is part of the
actus reus of the offence, there is a limited element of mens rea.
86
The extent of this knowledge seems to be greater than the requirement under paragraph
(d). Paragraph (d) applies to circumstances where the offender knowingly applies or permits
the application of the amount of withholding of tax for any purpose other than payment to
the Commissioner.
The Court of Appeal looked at the requirements of “knowingly” in the context of the
payment of PAYE obligations. The Court supported the approach of the trial judge that the
test was whether the defendant had performed conscious or knowing conduct which had
"to go beyond simply overlooking making payments and so inadvertently failing to make
PAYE payments."
87
the notice of proposed adjustment is a document. The question is then: would the other components of the
offence apply?
82
Ben Nevis Forestry Ventures Ltd & Ors v Commissioner of Inland Revenue; Accent Management Ltd & Ors v
Commissioner of Inland Revenue (2009) 24 NZTC 23,188 (SC), BNZ Investments Limited & Ors v
Commissioner of Inland Revenue (2009) 24 NZTC 23,582 (HC), Westpac Banking Corporation v
Commissioner of Inland Revenue (2009) 24 NZTC 23,834, Peterson v Commissioner of Inland Revenue [2006]
3 NZLR 433 (PC).
83
See the discussion of the meaning of the word in section 141E dealing with shortfall penalties imposed for
evasion Inland Revenue "Shortfall Penalty-Evasion", Interpretation Statement, IS0062 (2006), Tax Information
Bulletin 18, Vol 11:7.
84
Case W3 (2003) 21 NZTC 11,014 per Barber J.
85
Commissioner of Inland Revenue v Gordon (1989) 11 NZTC 6,082 (HC).
86
P Ascroft "The Criminal Aspects of Tax Evasion in New Zealand" (2010) New Zealand Journal of Taxation Law
and Policy, Vol 16, no 1, 21 at 34.
87
R v Fepuleai [2008] NZCA 339, (2008) 23 NZTC 22,083 at [18].
If a taxpayer actually knows that a deduction, for example, claimed in their tax return arises
from a tax avoidance arrangement, or they are reckless (but neither negligent nor careless)
as to whether it is a valid claim, then arguably they would knowingly have made a return
which is false, incomplete, or misleading.
88
The mens rea test for knowingly in paragraph (c),
while more onerous than paragraph (d), is less onerous than the state of mind requirements
in section 143B (f)-(h). It would appear to be by chance that an accused satisfying the mens
rea requirement in say paragraph (f) would not also satisfy the lesser knowledge
requirements in paragraph (c).
Turning to the mens rea requirements of the offence in paragraphs (f)-(h), the prosecution
would need to establish (the onus of proof being on the Commissioner)
89
that the return
was filed intending to evade the assessment or payment of tax, or to obtain a refund, either
for the taxpayer or another person, when there is no lawful entitlement to that refund.
We now analyse these requirements in the light of the New Zealand case law.
Section 143B of the Tax Administration Act (mens rea requirements in paragraphs (f)-(h))
6.2.1 Intending to evade the assessment or payment of tax (paragraph (f))
The Gilchrist case
90
concerned a different factual situation from the one which is the
primary premise of this article. This is because the case concerned the provision of false
information in circumstances where a tax debt was clearly owed. There are important
relevant principles of law which arose in the decision which reflect on the mens rea
component in section 143B.
Brent Gilchrist was convicted under section 143B in the District Court for intending to evade
the payment of tax owed by an entity (E-Tax Trust). The background to his conviction was
that Inland Revenue had been attempting recovery of outstanding GST arrears owed by the
trust.
After the trust failed to honour an arrangement for the repayment of GST arrears, the
Commissioner issued third-party deduction notices to the debtors of the trust. The debtors
paid the Commissioner in response to these notices. On 24 July 2003, a senior IRD
investigator issued a section 17 notice to furnish information. The next day, the taxpayer
executed a deed of assignment of the trust debtors to a company (E-Tax Trust Ltd) for no
consideration, signing for both the assignor and the assignee. On the same day, Gilchrist
wrote to the trust's debtors, advising them of the assignment, and requesting that any
existing automatic payment facilities be cancelled and instead established for the new
company.
88
It is noted that a technical argument exists at the time of filing the return and consequential self-assessment
the taxpayer would not know that the Commissioner would exercise his power under section GA 1 (2) to adjust
the taxable income to counteract the tax advantage obtained by the tax avoidance arrangement. The contrary
argument is that section BG 1 (1) voids the arrangement as against the Commissioner for income tax purposes
and that a deduction which is part of a tax avoidance arrangement is no different to the claim for "expenses
for return preparation" paid to the taxpayer’s five-year-old son (see R v Gill (1999) 19 NZTC 15,526).
89
Section 149A of the Tax Administration Act 1994.
90
R v Gilchrist (2006) 22 NZTC 20,043 (CA).
In a lengthy e-mail sent to the IRD officer, the taxpayer failed to disclose any of the debtors
and amounts owing to the trust or refer to the assignment of the trust debtors to E-Tax
Trust Ltd. Only when the Commissioner was contacted by one of these debtors did he
become aware of the assignment arrangements. The charge was brought on the basis that
he had knowingly not provided information
91
(in respect of the debtors) and intended to
evade payment of tax owing by the trust
Gilchrist appealed to the Court of Appeal.
92
One of the points of appeal was that it was
necessary to establish proof of a dishonest or fraudulent intent as that had been defined in
an earlier Court of Appeal decision R v Firth.
93
Goddard J delivered the unanimous decision
rejecting this requirement.
94
In the view of the Court of Appeal:
95
The threshold of "underhand dealing" adopted by Judge Mackintosh in reaching her conclusion was
an appropriately high threshold. It is impossible to take issue with the view that the appellants had
acted in an underhand manner, and indeed there is no other inference that could be drawn from the
history of the correspondence between him and the Department and from his actions following
receipt of Mr. Hutchins' letter of 24 July 2003.
On a subsequent appeal to the Supreme Court
96
Anderson J made it clear that the words of
the section, "ascertained from the text and in the light of their statutory purpose"
97
, would
encompass the simple situation of evading payment by behaving in an underhand manner
and not supplying the requisite information.
In an earlier decision McGregor J in Taylor v Attorney General
98
had held:
In my view the word "evade" is associated with the expressions "attempts to evade" or "does any act
with intent to evade" includes an element of intent, an intention to endeavour to avoid payment of
tax known to be chargeable. (emphasis added)
6.2.2 Obtaining a refund in the knowledge that there is no lawful entitlement to it
(paragraphs (g) and (h))
In the High Court decision Tahaafe v Commissioner of Inland Revenue,
99
there was an appeal
against a District Court conviction under section 143B (1) (h).
100
The defendant was an active
member of the Tongan Anglican Mission Church in Auckland and had been involved in
assisting other parishioners in claiming rebates for donations to the church. The Inland
Revenue had contacted him after ascertaining that the churches referred to in the claims
were not on the IRD list of donee organisations. Tahaafe acknowledged that he had signed
rebate claim forms for people who came to him, stamped with the stamp he had made up
and acknowledged that he did this despite knowing it was wrong and despite being advised
91
Section 143B (1)(b) and (f) of the Tax Administration Act 1994.
92
R v Gilchrist (2006) 22 NZTC 20,043 (CA).
93
R v Firth [1998] 1 NZLR 513 (CA).
94
O' Regan, Goddard, and Gendall JJ.
95
R v Gilchrist, n79, at [31].
96
Gilchrist v R [2006] NZSC 109, at [15].
97
Ibid.
98
Taylor v Attorney General [1963] NZLR 261 at 262.
99
Tahaafe v Commissioner of Inland Revenue [2009] BCL 637, 32 TC 33/7.
100
The appeal was both against the conviction and was unsuccessful, and against the sentence of three years
imprisonment which was successfully reduced with two years imprisonment.
by the IRD to stop. The Commissioner alleged that he had provided false and misleading
information to support each tax rebate application and rebates amounting to $255,482 had
been claimed of which $23,768 had passed through his personal bank account.
Chisholm J recorded the factors considered as essential ingredients by the District Court
Judge in the offence under section 143B(c) and (h). Of course, these ingredients need to be
proved by the Commissioner beyond reasonable doubt:
101
information being provided to the Commissioner in respect of the tax law
such information being false or misleading
the supply of such information was done knowingly
it was done to enable a refund or payment of tax
it was done with the knowledge that the applicant was not lawfully entitled
to such refund or payment
The appeal was dismissed and Chisholm J refused to allow the submission that the Inland
Revenue Department was to blame for the offence, the defendant must accept culpability
for what was “obvious dishonesty”.
102
6.3 Possible application of the criminal provisions of s 143B (1) of the Tax Administration
Act to taxpayers in tax avoidance schemes
The key issue in analysing the requirements of both paragraphs (f) and (g) is the mens rea
requirement that a person intends to evade the payment of tax, or obtain a refund in
circumstances where they know that they are honestly not entitled to the outcome
represented by the position taken in the tax return. Evidence of this dishonesty may include
underhand behaviour, concealment and artificiality.
In the writer's view and in the light of the above cases, the Commissioner would need to
establish the following in order to meet the requirements of section 143B (c) and (f) in the
case of criminal tax avoidance. First, that the tax return had been used knowingly in a
manner that meets the requirements of paragraph (c) as discussed above. Secondly, that
use of the return was with the intention to evade the assessment. Thirdly, this intention to
evade involved acts or conduct performed in an underhand or dishonest way.
The requirements of section 143B (c) and (g) in circumstances of criminal tax avoidance are
as first, the (mis) use of the tax return as discussed above. Secondly, that the use of the tax
return was for the purpose of obtaining a refund of tax. Lastly, the person knew that they
were not lawfully entitled to the refund of tax under a tax law.
7.0 The Australian decision of R v Pearce & Ors.
In July 2004, three accountants were successfully prosecuted and imprisoned for terms of
five years after their conviction in a conspiracy to fraud the Commonwealth of Australia. The
101
Tahaafe v Commissioner of Inland Revenue [2009] BCL 637, 32 TC 33/7 at [23].
102
Ibid at [58].
decision was described as one that "sent ripples through the tax community".
103
There does
not seem to be other reported decisions involving this particular offence following Pearce.
The accountants were involved in a mass marketed tax avoidance scheme. The way the
scheme operated was as follows: each franchisee paid $39,500 to a franchise or for a
franchise relating to the supply of Internet advertising services. This amount included an
establishment fee of $1500, and initial franchise fee of $34,700 training fees and an
indemnity fee of $675. The franchisees paid $10,000 and borrowed the balance from a
company associated with one of the accused under a non-recourse loan. Provided the
indemnity fee was paid, the loan was fully indemnified by a related company of the lender
so that the lender could not sue the borrower. Franchisees claimed income tax deductions
of up to $38,000 for the cost of the franchises.
The Crown contended that taxpayers were given false and misleading information by the
accused that caused them to deceive the Australian tax office into accepting the deductions
which were claimed. It was contended that the accused knew that it was false to represent
to the franchisees that $29,500 of the cost of each franchise would be available to the
franchisor to discharge its purported obligations under the franchise agreement. This was
because this borrowed amount was circular (the funding was a fiction of accounting
documentation) and there was no further real money to assist the business. This was at the
heart of the scheme as the taxpayer franchisees really believed that $38,000 was available
to the business to enable the provision of franchisor services.
The Crown asserted that the accused knew that if the Australian Tax Office (ATO) had been
aware of all the information relating to the claim, it would have been disallowed.
Charges were laid under the Crimes Act
104
as a conspiracy to defraud the Commonwealth.
The key element required was proof of dishonesty; first an agreement to use dishonest
means, and secondly evidence that the action was dishonest by ordinary standards. In
building its case the Crown asserted that the defendants had (inter alia):
105
prepared a brief for senior counsel which included a number of false
assertions
sent a fax to the ATO which included a number of inaccurate and false
statements
not disclosed to the taxpayers sufficient information to enable them to
provide full details to the ATO.
The Court of Criminal Appeal in the Supreme Court of Western Australia dismissed the
appeal holding that the untrue or misleading statements made to taxpayers by the
defendants with the intention of causing them to purchase a franchise and enabling the
relevant tax deduction was sufficient to meet the test of dishonest means.
103
Helen Hodgson "Walking the line: when is tax advice a conspiracy to fraud the Commonwealth? An analysis
of Pearce v The Queen" [ 2006] JATax 1, 9(1), 1.
104
Crimes Act 1914 (Cth), Australia.
105
Pearce & Ors v R [2005] WASCA 74, (2005) 216 ALR 690, at [55]-[57].
As each of the appellants knew there would be limited amount of money available, it must
have been obvious that the very viability and, hence, genuineness of the scheme was at risk.
This was particularly so as costs such as agents' commission and fees and commissions
payable to the appellants were deductible from the limited funds available.
The view of the Chief Justice, Malcolm CJ, was that the Crown case was not actually
dependent upon proof that the ATO would necessarily have disallowed the claims under
Part IVA.
106
Instead he said:
107
What was required was proof that the conspirators agreed to present the public face of the scheme
while concealing the private face of the scheme so that neither the franchisees, nor the ATO, would
have knowledge of the facts which the appellants knew would be relevant to a proper and fully
informed consideration of s 8-1 and/or Part IVA ...
The evidence had shown that the advisers were concerned that, if the private face of the
scheme became known to the ATO, then there was a realistic prospect of challenge to the
claimed deductions. In this case not only was this private face of the scheme hidden from
the ATO, it was also hidden from the franchisee investors.
Commenting on the Australian position in respect of the role of advisors Hodgson stated:
108
Given the role that tax professionals play in the preparation of documentation surrounding tax
effective structures, there seems to be a fine line between advising on the arrangement, and
deceptively constructing a facade. It appears that the core issue is the extent to which tax advisers
also become entrepreneurs, with a vested interest in the outcome of the arrangements. If the
advisers play an active role in constructing arrangements to meet a client’s stated goal of tax
minimisation, as opposed to advising on options that the client brings to the advisers, then the
advisers will clearly be at risk.
The author suggests that the position for tax professionals is similar in New Zealand.
8.0 Observations and Conclusions
One of the tensions existing in tax avoidance arrangements is that they often have the very
same presence of non-commerciality, concealment, and artificiality which have featured in
some of the criminal prosecutions involving deceit and evasion. The features of tax
avoidance identified by the Supreme Court in Ben Nevis
109
involve an examination of the
manner in which the arrangement is carried out, the role of all the relevant parties (and
their relationship with the taxpayer), the economic and commercial effects of documents
and transactions, the duration and the nature and extent of financial consequences.
Supreme Court noted that:
110
106
Containing the general anti-avoidance rules equating to section BG 1 of the Income Tax Act 2007 (NZ).
107
Pearce & Ors v R [2005] WASCA 74, (2005) 216 ALR 690, at [179].
108
Helen Hodgson "Walking the line: when is tax advice a conspiracy to fraud the Commonwealth? An analysis
of Pearce v The Queen" [ 2006] Journal of Australian Taxation 1,9(1) ,1 at paragraph 3.5.
109
Ben Nevis Forestry Ventures Ltd & Ors v Commissioner of Inland Revenue; Accent Management Ltd & Ors v
Commissioner of Inland Revenue (2009) 24 NZTC 23,188 (SC) at [108].
110
Ibid.
A classic indicator of a use that is outside Parliamentary contemplation is the structuring of an
arrangement so that the taxpayer gains the benefit of the specific provision in an artificial or
contrived way.
8.1 Application to Advisors
Given that the criminal provisions discussed above can apply not only to the taxpayers, but
also to their advisers: what are the key principles highlighted by the above cases that tax
advisers should be aware of when dealing with clients who are involved in schemes that
might be tax avoidance?
The reason the provisions can apply are as follows; first, in the case of the Crimes Act, even
if the ordinary words of section 228 are not sufficiently broad to include the advisor
obtaining “valuable consideration” through the arrangement by virtue of their fees or profit
share,
111
the offence of conspiring under section 310 of the Crimes Act is.
112
Assisting in
arranging or defending a dishonest transaction where an adviser knows the information is
misleading or incorrect could be an offence under section 66 of the Crimes Act where
advisors are aiding or abetting the person in the commission of the offence.
Secondly, in the case of the offences under the Tax Administration Act it is made clear from
the statute that the benefit of evasion or refund can be for another party other than the
defendant. In addition, section 148(1) of the Tax Administration Act 1994 provides that:
113
A person who aids, abets, incites, or conspires with another person to commit an offence (the
"principal offence") against this Act also commits an offence against this Act.
In the Court of Appeal decision in Gill’s
114
case Richardson P applied the dicta from Lord
Goddard CJ in Johnson v Youden
115
in holding that before a person can be convicted of
aiding and abetting the commission of an offence, he must at least know the essential
matters which constitute that offence. It is not necessary to know that an offence has been
committed, and he may not know that the facts constitute an offence because ignorance of
the law is not a defence. In the Gill decision, the accused knew the taxpayer was making the
return negligently and aided and abetted her to do so. In encouraging her to be careless, he
deliberately gave assistance.
116
This was sufficient to dismiss the taxpayer's application to
have the conviction set aside.
111
Which based upon Hayes, above n63, at [16] seems strongly arguable because it is “anything that enhances
the accused’s financial position”.
112
The elements of this crime are outside the scope of this article, but the prosecution must show that in
relation to the tax advisor they entered into sufficient agreement with a taxpayer to commit the offence, see
Adams on Criminal Law at CA310.05.
113
Section 148(1) of the Tax Administration Act 1994.
114
R v Gill (1999) 19 NZTC 15,526 (CA) at [22].
115
Johnson v Youden [1950] 1 KB 544, [1950] 1 All ER, 300 at 546, 302.
116
Note that in Evans v Commissioner of Inland Revenue (2009) 24 NZTC 23,545 (CA) the Court held that the
omission to do an act, falls within the ordinary meaning of the term “aids”. Here a sole shareholder/ director
provided active assistance to a company in the commission of the offence by paying other creditors ahead of
the Commissioner. This was sufficient to establish accessory liability under section 148 of Tax Administration
Act 1994.
An adviser involved in the preparation of a tax return would be well advised, either to be
fully informed of the nature of investments/arrangements and prepared to have some
pretty frank discussions with their clients, or, to know insufficient details.
8.2 Key Elements of Criminality in Tax Avoidance
Taxpayers and their advisers need to be clear that at the time of taking the deduction, they
believe that the deduction is available to them.
The test for criminal intent is quite similar under either the provision in the Crimes Act or
the provision in the Tax Administration Act. A dishonest belief without claim of right under
section 228 of the Crimes Act is articulated by case law as taking a deduction when there is
no belief of an express or implied consent by Inland Revenue (being a belief that is not
required to be either honest or reasonable) and without a claim of right. This is not
materially different from knowingly filing a misleading or false return when the taxpayer is
either evading the assessment of tax (with underhand dealing) or is otherwise not entitled
lawfully to a refund.
It is important to note, however, that a taxpayer does not have to enter into an
arrangement which is held to be tax avoidance to be successfully prosecuted under the
criminal provisions. The Supreme Court in Hayes have made it clear that an unsuccessful use
of a document could also be an offence.
117
In every potential criminal case the key issue of intent is a factual one. The Supreme Court
has recognised that it is the “user’s state of mind which will determine whether his use was
dishonest”.
118
From an evidentiary viewpoint the Supreme Court says that “the more
reasonable the belief, the more likely it was held, and vice versa;”
119
If it could be established that the taxpayer, promoter, or advisor did not believe in the
genuineness of their tax position then perhaps some or all of the following features would
be present:
120
Artifice
The arrangement would purport, to the outside world, to be something different to
what it privately is. It would be a facade where the legal form did not match the
economic substance. It may be necessary, such as it was in Pearce’s case, for the
accountants to misrepresent the position to the counsel when they obtained the
legal advice for the scheme and to the ATO in answering their questions.
121
The
misrepresentations made by the defendants were evidence of their criminal
intentions.
117
Hayes v R [2008] 2 NZLR 321, at [13].
118
Hayes v R [2008] 2 NZLR 321, at [51].
119
Ibid at [52].
120
Noting that these same features may be present in tax avoidance schemes themselves without criminal
intent.
121
Pearce & Ors v R [2005] WASCA 74, (2005) 216 ALR 690, at [31]-[34] per Malcolm CJ.
In Accent Management Ltd & Ors v Commissioner of Inland Revenue in the High
Court, Venning J expressed concern about Dr Muir’s evidence, describing as “evasive
and unhelpful” his approach to the evidence.
122
The draft business plan for CSI (the
captive insurer) disclosed at paragraph 1.3, “The real benefits of the deal are tax
concessions that can be obtained now by the investors and the foundation.... The
actual outcome of the deal in 50 years time is not considered material.”
123
There was
some evidence that Dr Muir was aware that the “real” transaction involved the
pursuit of tax benefits, rather than an investment in forestry, but it was not clear
whether this meant that he did not believe that he was entitled to deductions under
the Trinity scheme.
Over-inflated Values
A specific example of artificiality could be whether the funding for the “cost” of an
investment come from circular funds advanced by parties associated to the
promoters. This was a feature of the Pearce case but it also has been a feature of
other schemes. One such example was the decision in Peterson v Commissioner of
Inland Revenue,
124
which the majority of the Privy Council viewed as a payment
discharging a genuine liability. They described the total payment as $X+Y where the
actual cost of the film was $X and the circular funding was $Y. In finding that no tax
avoidance had occurred the Privy Council make it clear that had the Commissioner
conducted his case in a different way they would have come to the opposite
conclusion.
125
Lack of Commercial Rationale
Does the underlying transaction or investment really have commercial rationale or
are the tax benefits the sole benefit pursued? If it does not have a commercial
rationale, is the transaction “dressed up” to deceive the Inland Revenue? In Pearce
the fact that only $10,393 of the $39,500 was available to Servcom, meant that it
was intended that investors were going to be provided with false and misleading
information designed to deceive the ATO into accepting false claims.
126
The
franchisor could not carry on the business that was represented to the franchisee
investors.
Fees and Remuneration
Do the parties stand to gain from the transaction, and in examining this question, do
they derive substantial fees and remuneration from the transaction? The presence of
substantial fees for promoters or advisors seems to be a feature of significant
concern to the court. Wharton, one of the accused in Pearce, was expecting to earn
$15m to $20.55m on paper income generated nominally by the scheme of between
$38m to $54.14m. The remuneration arrangements allowed a finding to be made
122
Accent Management ltd & Ors v Commissioner of Inland Revenue (2005) 22 NZTC 19,027 at [231] (HC).
123
Ibid at [251].
124
Peterson v Commissioner of Inland Revenue (2005) 22 NZTC 19,098 (PC).
125
Ibid at [51]-[52].
126
Pearce & Ors v R [2005] WASCA 74, (2005) 216 ALR 690, at [159]-[160] per Malcolm CJ.
that the tax advisors were doing more than providing professional advice and were
“entrepreneurs or parties to the arrangements”.
127
Obviously advisors must comply with their relevant professional bodiesethical
obligations.
128
Role of the Adviser
In the case of advisers, the role of the parties will be examined. Did the client
approach the adviser with a problem that required advice, or did the adviser come to
the taxpayer with a clever scheme?
129
The remuneration may well be linked to the
success of the scheme in this latter situation. The observations made by Hodgson
130
on the Australian position that a vested interest may remove the objectivity of
advisers will also be relevant to New Zealand. The fine line between advice and
deceptively helping to construct the facade is just that, a fine line.
9.0 Implications
Tax avoidance cases are complex and there has been a great deal of uncertainty about
where the line on tax avoidance versus legitimate tax planning is to be drawn. Recent
Supreme Court and Court of Appeal decisions
131
have given their exposition of the test to be
applied but there is general acknowledgement that there is uncertainty and an inherent lack
of clarity
132
in some situations. The New Zealand courts have taken the view that taxpayers
with arrangements close to the line of tax avoidance will have to live with uncertainty.
Furthermore, it appears as though the line between legitimate tax planning and tax
avoidance may have been redrawn. The Supreme Court's test of "Parliamentary
contemplation" marks, in the author’s view, a judicial sea-change from the previous test.
133
The uncertainty that relates to the test of what tax avoidance is does not dramatically
impact on the major point of the analysis in this article. The issue here is that an aggressive
tax avoidance transaction may converge into criminal tax evasion with significant impact on
taxpayers, their advisers, and tax administrators.
127
Helen Hodgson "Walking the line: when is tax advice a conspiracy to fraud the Commonwealth? An analysis
of Pearce v The Queen" [ 2006] JATax 1, 1.
128
For example the if the adviser is a member of the New Zealand Institute of Chartered Accountants they
must comply with the Code of Ethics at [75]-[77] and [152]-[156].
129
The adviser should also consider the possibility of promoter penalties imposed under sections 141EB and
141EC of the Tax Administration Act 1994.
130
See n127.
131
Ben Nevis Forestry Ventures Ltd & Ors v Commissioner of Inland Revenue; Accent Management Ltd & Ors v
Commissioner of Inland Revenue (2009) 24 NZTC 23,188 (SC), Glenharrow Holdings Ltd v Commissioner of
Inland Revenue (2009) 24 NZTC 23,236 (SC), Commissioner of Inland Revenue v Penny and Hooper [2010] NZCA
231.
132
Ben Nevis Forestry Ventures Ltd & Ors v Commissioner of Inland Revenue; Accent Management Ltd & Ors v
Commissioner of Inland Revenue (2009) 24 NZTC 23,188 (SC) at [112]
... Parliament has left the general anti-avoidance provision deliberately general.... The courts should
not strive to create greater certainty than Parliament has chosen to provide.
133
See the discussion in Elliffe CM and Cameron J, “The Test for Tax Avoidance in New Zealand: A Judicial
Sea-Change (2010 ) New Zealand Business Law Quarterly, Vol. 16, pp. 440-460.
10.0 Conclusion
Taxpayers and their advisers need to be vigilant in respect of the development of law in the
area of tax avoidance and tax evasion in order to be able to assess the risks associated with
aggressive transactions. Part of this risk evaluation must include an assessment of the client
and their own behaviour and their state of mind at the time of entering into arrangements
and the consequential filing of their tax returns.
Tax administrators already encouraged by recent tax avoidance jurisprudence to examine
evidence as to the real commercial purpose and substance of transactions may find the
prospect of potential criminal charges a significant factor in their attempts to attack tax
avoidance transactions.
A judge (and jury) could be persuaded that a taxpayer did not believe they were entitled to
claim deductions, if they seek to cloak their real purpose to the transaction with artifice. The
response to requests for information and the extent to which they hide the real
commerciality of the transaction may be evidence of their lack of belief in the legality of the
transaction and consequentially of an absence of a claim of right.
A defence to an assertion of a criminal tax act will be dramatically weakened if it is
discovered in the documentation that there is a clear statement that the primary interest in
the transaction was the sole pursuit of tax benefits? If taxpayers sign a tax return with such
a state of mind would they really expect to be legitimately allowed the deduction? In the
absence of that honestly held belief, they run a real risk of finding themselves on the wrong
side of the prison wall.
... From legal and penal perspectives, clear differences exist between tax avoidance and tax evasion. Elliffe (2011) graphically explains that while a significant difference exists between the technical legal positions of tax evasion and tax avoidance, tax avoidance is rather similar; tax avoiders generally remain outside of prison walls, while some tax evaders are detained within that structure. Tax avoidance is a course of action taken by a taxpayer so that the tax obligation does not arise in the first place; that is, the tax obligation arises only when the avoidance of tax rules reconstructs the transaction. ...
... occasions, tax avoidance and tax evasion may be so closely interrelated that they are difficult to differentiate due to their common features. Elliffe (2011) suggests that to identify the difference between the two, corporations must ask themselves whether particular avoidance transactions may involve fraudulent evasion and thus cross the line to criminality. ...
Purpose The purpose of this paper is to explore the emerging discourse on corporate taxation from a corporate social responsibility perspective to develop a consensual definition of corporate tax responsibility (CTR) and to identify a set of indicators that firms should publicly communicate to their stakeholders as an accountability mechanism. Design/methodology/approach Data were obtained from semi-structured interviews with representatives of stakeholders closely related to taxation: tax authorities, companies, NGOs, tax advisors and academics. Based on a discourse analysis approach, data were coded and analyzed using computer-assisted qualitative data analysis software. Findings CTR is defined as the set of tax-related practices and policies that allow companies to pay a fair share of taxes as a function of the generated value in each jurisdiction in which they operate and to then publicly disclose them. Disclosure should cover disaggregated quantitative data and information on practices and policies. Originality/value Despite the wealth of research on sustainability reporting and increasing public awareness of tax aggressiveness and disclosure, academic research has not explored tax-responsible reporting. Moreover, no consensual definition of CTR has been formulated, and no indicators to properly account for responsible taxation have been identified. This paper contributes to filling these gaps by providing rich interview evidence regarding the nature of the emerging discourse on CTR reporting and a set of material indicators for CTR disclosure. This paper encourages researchers to foster the development of social accountability by engaging in future empirical studies of CTR.
... Many at times the concepts of tax evasion and tax avoidance are erroneously used interchangeably. According to Elliffe (2011), the former UK Chancellor of the Exchequer Denis Healey once described the difference between these two concepts to be like the thickness of a prison wall. Such a quote explicitly illustrates that whereas tax avoiders are found on the outside of the prison wall, some tax evaders are incarcerated inside. ...
Article
Full-text available
The Cameroon government imposes charges on citizens and corporate bodies called taxes in a bid to raise funds to pay for public services or facilities. It also uses taxation in the redistribution of wealth, and in encouraging or discouraging the consumption of some goods and services. In a circular No. 001/C/MINFI of 2nd January 2018 by the Ministry of Finance of Cameroon, stringent measures were undertaken regarding the detection of “concealed” income or tax evasion, a phenomenon that stifles government efforts in realising its tax objectives. As a consequence, this study sought to investigate the causes of tax evasion in Cameroon and propose remedies. Data was collected through a survey carried out in the cities of Douala, Bafoussam and Bamenda, and analysed using the Ordinary Least Square (OLS) estimation technique. The empirical results were of positive and statistical significance and revealed that tax evasion in Cameroon is caused by high tax rates, complex and opaque tax laws, inefficient and corrupt tax inspectors, low income of taxpayers, evasion benefits outweighing detection penalties, poor perception of the judicial system and dissatisfaction with the quality and magnitude of public services and goods. Remedies proposed were that there should be a reduction and clear justification of tax rates, simplification of tax laws and effective education of taxpayers, creation of a more conducive business environment to boost business income, raise tax penalties, identify and deal with inefficient and corrupt tax authorities, liberate the judiciary to be truly independent to show proof of fairness and transparency in the treatment of tax matters and politicians being transparent and accountable for their decisions and use of public money. Tax ethics should be introduced and enforced in schools in order to build a culture of tax compliance in citizens, assiduity and honesty in tax authorities, and transparency and accountability in politicians and everyone in public offices. Keywords: Tax compliance, tax evasion, tax ethics, Cameroon.
Article
Full-text available
Purpose – The article aims to rely on the global wealth chains theory to study the effect of tax amnesty on anti-money laundering (AML) in Bangladesh. This theory is an analytical framework intended to identify how wealth is repackaged and disguised to move it out of spheres of state oversight, regulation and taxation. It introduces the law on AML in Bangladesh, pointing out the revised Financial Action Task Force (FATF) recommendation that has expanded the scope of money laundering predicate offences to cover both indirect and direct tax crimes and smuggling in relation to customs and excise duties and taxes. Design/methodology/approach – Interviews in Bangladesh and desk research. Findings – There are some gaps in the scope of the offence, the coverage of predicate offences and the types of property covered by the money laundering offence. There is also an absence of financial penalties available to effectively sanction legal persons. The current money laundering offences are derived from the ordinance issued in 2008 by the caretaker government (2006-2008). The current act contains detailed definitions of money laundering and property and a list of predicate offences and sanctions for the offence. However, there are some gaps in the physical elements of the offence, and the range of its predicate offences remains too narrow. Adding tax evasion to its list of predicate offences will, given the history of money laundering in Bangladesh, aid in combating illegal transfer of assets abroad and recovery of the same and abolish tax amnesty. Originality/value – There is no paper that has analysed the linkages between money laundering and taxation in developing countries, especially Bangladesh.
The Test for Tax Avoidance in New Zealand: A Judicial Sea
  • Cm See The Discussion In Elliffe
133 See the discussion in Elliffe CM and Cameron J, " The Test for Tax Avoidance in New Zealand: A Judicial Sea-Change " (2010 ) New Zealand Business Law Quarterly, Vol. 16, pp. 440-460.
83 See the discussion of the meaning of the word in section 141E dealing with shortfall penalties imposed for evasion Inland Revenue "Shortfall Penalty-Evasion
83 See the discussion of the meaning of the word in section 141E dealing with shortfall penalties imposed for evasion Inland Revenue "Shortfall Penalty-Evasion", Interpretation Statement, IS0062 (2006), Tax Information Bulletin 18, Vol 11:7. 84 Case W3 (2003) 21 NZTC 11,014 per Barber J. 85 Commissioner of Inland Revenue v Gordon (1989) 11 NZTC 6,082 (HC).
The Criminal Aspects of Tax Evasion in New Zealand New Zealand Journal of Taxation Law and Policy
  • Ascroft
Ascroft "The Criminal Aspects of Tax Evasion in New Zealand" (2010) New Zealand Journal of Taxation Law and Policy, Vol 16, no 1, 21 at 34. 87 R v Fepuleai [2008] NZCA 339, (2008) 23 NZTC 22,083 at [18].
Article
Full-text available
This article, by analysing Ben Nevis, Glenharrow and the Court's subsequent application of these cases in the above judgements, seeks to determine whether these cases add anything “rich and strange” to our understanding of the way the income tax GAAP should be applied. Or do they simply represent the latest iteration of the various judicial glosses that have sprung up over the last fifty years as a result of the inherent difficulty in applying this enigmatic provision and countering inappropriate tax avoidance. What emerges is that there appears to be a sea change. Although the “scheme and purpose” approach remains, it is modified by two factors. First, an explicit acknowledgment that in a tandem approach to interpretation of the black letter law and the GAAR, the GAAR is to be given equal weight and purposively interpreted. Secondly, the test is modified by that the addition, or some might say a substitution, of a Parliamentary contemplation test. The result of both of these significant changes is an empowering of the judiciary to pursue a form of interpretation which is much less formalistic and necessarily involves even more of an enquiry into the commercial and business motivations of the taxpayer. A natural consequence may be a greater reliance on the attitude of the judges applying the test and definitely a significant loss of certainty for the taxpayers. The result is that the pendulum has swung in favour of the Revenue