Money: Taxman's fairness slogan haunts him

By Denham Martin

Taxwise


Remember when the IRD's slogan was "it's our job to be fair"? The law reports are littered with examples of taxpayers who attempted to invoke this slogan to assist their cause.

In some cases taxpayers argued that the IRD had acted unfairly because the IRD had given them incorrect advice.

In other cases taxpayers argued that the tax law itself (at least, when applied to them) was unfair.

In each case the taxpayer was unsuccessful. The courts held that the IRD's job was to collect the correct amount of tax, whether or not the taxpayer thought it fair.

In one case, Judge Willy explained the position as follows: "There is nothing fair or unfair about the imposition and collection of tax. It is merely that sum which the Parliament considers it should exact from the income-earning members of the public in order to pay for the cost of providing the goods and services which it thinks appropriate. The commissioner's role in that process is not to act fairly, it is to act lawfully by taking from each taxpayer no more and no less than is that person's lawful obligation to pay.

"If by his slogan 'it's our job to be fair', the commissioner means no more than that he will carry out his lawful duties fairly and impartially between taxpayers, then it goes without saying. If, however, it is intended to suggest that in those cases where the application of the law can, by an appeal to abstract concepts of fair play, be seen to bear unfairly on a taxpayer and the commissioner will somehow relieve that unfairness, then the slogan is misleading."

Although the IRD cannot choose "in the interests of fairness" when to apply the tax law, it does have a duty to act fairly and impartially. The law states that IRD officers must use their best endeavours to protect the integrity of the tax system, which includes administering the law fairly, impartially, and according to law.

In a recent case, a taxpayer successfully challenged a tax assessment on the basis that the IRD had not treated him fairly or impartially. The taxpayer alleged that the IRD had been obstructive, in order to carry out a vendetta against his tax agent. In particular, it was alleged that the IRD had withheld information that was necessary to the conduct of his case and had impeded his right to test the IRD's evidence by calling as a witness an IRD officer who had limited personal knowledge of the matter. The presiding judge noted that the law requires the IRD to treat each taxpayer equally and quoted the following passage from a 1960s Court of Appeal judgment: "It is of the highest public importance that in the administration of such statutes every taxpayer shall be treated exactly alike, no concession being made to one to which another is not equally entitled ... [the commissioner] must, with Olympian impartiality, hold the scales between taxpayer and Crown, giving to no one any latitude not given to others."

After finding that the IRD had unnecessarily obstructed the taxpayer, the judge commented on the IRD's conduct as follows: "The feuding must stop. The department must treat [this tax agent's] clients as impartially as they treat those of any other tax practitioner. There can be no suggestion that personal likes and dislikes should be allowed to obscure the commissioner's statutory obligations to collect the precise amount of tax ordained by Parliament, overlaid as these obligations are by well established common law duties affecting the way in which he carries out his duties. Anything less is distributive justice and unacceptable."

The judge concluded that, because the IRD had not acted impartially and had unnecessarily obstructed the taxpayer, the tax assessments were not enforceable.

The IRD is appealing this decision, but whatever the result, taxpayers should remember the slogan "it's our job to be fair". Even though the IRD no longer uses the slogan, it is the IRD's job to treat all taxpayers fairly, impartially and according to law.

* Denham Martin is the principal of Denham Martin & Associates, lawyers specialising in advice on taxation and related matters.