Inland Revenue's mission is to find out if you owe the Government tax. NAOMI LARKIN surveys its extensive powers.
So you think you are safe in cyberspace. Think again. The taxman is on your trail.
The Herald has just revealed that the Inland Revenue Department has obtained the personal details of who owns the 80,000 websites registered in New Zealand so it can tax trade over the internet.
The department ordered the Internet Registry of New Zealand (Domainz) to hand over a CD-Rom disk containing the names, addresses, phone and fax numbers and e-mail addresses of the owners of all sites ending in .nz.
Domainz said the information was provided only after the department made it plain that it was a requirement - not a request.
The attempt to tax e-commerce raised privacy fears among some web businesses.
But the Privacy Commissioner, Bruce Slane, said yesterday that the department's actions did not appear to raise a privacy issue, because it was simply using its powers.
"If you have statutory powers to do something, then it overrides the Privacy Act. If a person is authorised by law, the Privacy Act does not say that can be unlawful. The Privacy Act says if it's in another law, then it's obviously lawful,"he said.
"I have difficulty in understanding why people would think this was particularly privacy invasive compared with anything else the department does."
IRD spokesman David Balham said the department's action was a case of business as usual.
"The idea behind it was to ascertain who is using the web for business purposes and use that information to figure out whether there was any tax due. But it's really the same as going through a printed business directory for, say, plumbers or anyone else who is in business."
The information did not give the department an edge over anyone else wanting to monitor a business's electronic transactions via a website, he said.
"It's not a massive, sinister snooping operation."
The department was unaware of the level of tax compliance by internet traders and this was one of the reasons for gathering the information.
"This is new all over the world. Most tax administrations are going through similar exercises."
National boundaries tended to disappear with e-commerce, setting up a whole set of different circumstances and recording the constants - GST, income tax - became more difficult, he said.
"It's just one of the ways that IRD is trying to keep abreast of the times. It's the way of the future and we're just trying to stay on top of it."
Under the law it is the IRD's job to collect your taxes irrespective of what your job may be.
To that end, a special audit unit deals with the proceeds of crime. It also checks on taxpayers such as sex workers and drug dealers.
"If somebody is paying tax on the proceeds of cannabis sales that information goes no further," said Mr Balham. "Our interest as a department is to collect the tax on it. It's not a discretionary thing - that's what we're obliged to do."
Although the unit might be tipped off from the police, it did not exchange information with the police, he said.
The IRD has some of the widest "Big Brother" powers in New Zealand law. Although it has fewer powers of detention and arrest than the police, it has greater powers of information gathering.
The department's officers are granted full, free access to all land, buildings and places and to all books and documents, where it is necessary to search or examine such property for the purpose of collecting tax.
The term "documents" includes information stored on computers.
The IRD is not required to give a taxpayer notice of its intention to investigate his or her affairs. It can request information in writing, and if this is not provided can require a person to give evidence on oath before the commissioner or to seek an inquiry before a district court judge.
Margaret Cotton, IRD national manager (technical standards), said cold-calling was one technique used to obtain information. But a search warrant was needed to enter a residential property.
Generally when officers turned up on a person's doorstep, requesting to see documents, they entered only by mutual agreement. But if they feared a person might destroy the documents, they could invoke their powers of immediate entry but this was very rare, she said.
A person did not have the right to refuse to provide information to the department on the grounds that it might incriminate him or her. "If the police ask you a question and you choose not to answer it, they cannot force you. You have a right to silence.
"In terms of physically forcing you, we can't, but in terms of taking further court action we can require you to attend our premises or a district court and answer questions under oath."
A taxpayer who refuses to provide information or refuses to allow access faces maximum fines of $25,000 and $50,000 respectively.
Refusal to appear before a district court or the commissioner carries a $2000 maximum fine for the first default and up to $50 a day for each day of the first default. The fine moves up to $6000 and $150 a day for every third and subsequent default.
Under the Tax Administration Act the IRD has access to the same intelligence databases - such as the Wanganui computer - as the police.
Sharing information with the police was not a two-way street, said Margaret Cotton. But the department did "match information to a very limited degree" with Work and Income New Zealand.
Some information was matched with ACC, and addresses with the Department for Courts, she said.
"People wouldn't give us the information on which to base their tax affairs if they thought we were going to be disclosing it willy-nilly."
But leaks have occurred.
In June, former South Auckland IRD clerk Sopo Matagi was jailed for nine months after admitting she sold the private details of up to 850 taxpayers to debt collectors.
"Employees of Inland Revenue take secrecy very seriously," said Margaret Cotton. "Where there are breaches - and those breaches are few and far between - employees feel personally affronted by it because it reflects badly on everybody."
Craig Elliffe, a tax partner with accounting firm KPMG Auckland, agreed that the IRD's websites action was effectively business as usual.
"Their powers are extensive and they are bound to fulfil and enforce those powers to ensure compliance with the Tax Act. It's really not unknown for them to make reasonably broad requests for information."
During the sharemarket's 1980s halcyon days, he said, the IRD went to brokers and obtained lists of all the transactions that had been undertaken and by whom.
The overseas trip listed as a business expense was another example.
"It's quite common to find that they have gone to the travel agent and exercised their powers and obtained the itinerary and all the details.
"So there really is no true concept of privacy. If they have a legitimate concern they will make that demand and the person faced with it, broadly speaking, has an obligation to comply," Mr Elliffe said.
Many business people were unaware of the IRD's powers and assumed that they had time to deal with a request for information. This procrastination sometimes led to surprises for business people when tax staff arrived at the door, he said.
"With payroll inspections it's reasonably commonplace for the department to just appear on your doorstep and say they would like to inspect the records."
The requirement for search warrants for residential visits guarded against the state imposing too heavy a hand, said Mr Elliffe.
He believed that the commissioner wanted the website owners' information simply to ensure that all the normal business records, particularly for GST, were being kept correctly.
"If you're accepting orders through an internet site, you need to closely examine who is actually giving you the orders to determine whether to charge them GST ... If it's a New Zealand resident on the other end of your modem, then you have to charge."
Mark Battles, chief executive of FlyingPig.co.nz, one of the country's high-profile online retailers, said his organisation had no problem with the information being given to the IRD.
FlyingPig complied with tax laws and the information sent to Domainz was limited. No information a consumer had given to the retailer, such as credit card details, was part of the exchange.
"The consumer should not be concerned. Obviously the IRD is just targeting all corporates with websites and they probably have that information already through other means."
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Flying Pig
Web snooping 'business as usual'
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