Given the inextricable drive towards more and more electronic communication between Government Departments and citizens it is timely to look at some of the legal difficulties that this form of business interaction throws up. Those issues are principally encountered with the provisions of the Tax Administration Act 1994 (TAA) and in particular Inland Revenue's secrecy obligations. A particular issue is how agents prove that they have authority to act and hence are permitted access to otherwise secret taxpayer information held by Inland Revenue.
The context in which this issue arises is important. Our tax system has always had as a central pillar of its administration the concept of taxpayer secrecy and secrecy provisions since 1859. That is so the tax affairs of citizens remain confidential as between the Inland Revenue Department and themselves. This principle and its attendant obligations were previously found in s 13 of the Inland Revenue Department ct 1954. They are now contained in s 81 of the TAA and in s 6 of that Act. Section 6 provides that a taxpayer has a right to have their tax affairs kept confidential.
The importance of the secrecy provisions was pithily summed up by Cooke P in Knight v CIR[1991] 2 NZLR 30 (CA) where he said:
"I accept that the public interest would debar him from disclosing confidential information about other taxpayers; as Lord Wilberforce said in R v Inland Revenue Commissioners, ex parte National Federation of Self-Employed and Small Businesses Ltd [1982] AC 617, 633 ‘The total confidentiality of assessments and of negotiations between individuals and the revenue is a vital element in the working of the system".
The central articulation of the Commissioner's obligations as to secrecy is found in s 81(1), which requires officers to maintain the secrecy of all matters relating to the Revenue Acts that come to the officers' knowledge in their official capacity and not to communicate any such information except for the purposes of carrying into effect the Revenue Acts.
The communication of information to others is of course necessary for the administration of the Revenue Acts. Because most taxpayers interact with Inland Revenue via tax agents it is the exception effectively permitting communication with tax agents that is the focus of this article. Section 81(4) contains a long list of exceptions or effective permissions allowing Inland Revenue to communicate otherwise secret information. The relevant provisions are ss 81(4)(l), (ib) and (lc). The most important of these is sub section (l). It permits the provision of details concerning the tax affairs of a taxpayer to be communicated to the taxpayer themselves, their lawyer, or to the agent of that person "authorised in writing or in such other manner as the Commissioner prescribes in that behalf."
The provision allows two ways for authorisation to be established. The second is by virtue of the use of a prescribed form. Inland Revenue has power to prescribe forms pursuant to s 35 of the TAA. The Commissioner is also empowered by that provision to prescribe electronic formats. If there is a dispute as to whether the Commissioner has prescribed a form, the production of a form or an extract from such a form shall be sufficient evidence in Court of the fact that a form or electronic format was prescribed: s 35(2) of the TAA.
Inland Revenue has specified in the client maintenance page on the IRD website how a registered tax agent can add to their list of clients on whose behalf they are tax agents. It says:
"Before you can link a client you must hold signed approval from your client authorising you or your agency to discuss specific tax matters with us. We cannot display details about tax types or activities for a client unless they have authorised you or your agency for that tax type or activity."
The starting point is that the agent is registered as a tax agent. Section 34B lists the prerequisites necessary for a person to become a tax agent. A person who complies with the requirements of s 34B of the TAA will be registered with Inland Revenue as a tax agent and to add clients to an agency list must comply with the IR 795 form. In this context Inland Revenue has stipulated that for phone based and paper based client linking the tax agent must hold a signed authorisation. The IR 795 form explicitly requires that the tax agent declare that he or she holds a signed approval, which is signed by the client.
In a paper based business environment this requirement was easily complied with. The agent would physically hold a signed piece of paper containing the taxpayer's signature authorising them to act as agent.
However, there has been a development recently of organisations acting as limited agents for taxpayers wanting to check whether they are entitled to a refund from Inland Revenue. This arises for three reasons:
- First the PAYE system is deducting money from a person's salary or wages on the assumption that they will remain in the position for a full tax year. If a person, say for example a parent ,leaves the work force part way through the year to care for children the PAYE system will in all likelihood have deducted too much tax from his or her income.
- Second, Inland Revenue does not have an automatic system for generating and paying out the refunds. It expects a person to check to see if there is one and then ask for it.
- Third, wage and salary earners no longer need to file Income Tax Returns. As such they do not have regular interactions with Inland Revenue and there are no annual triggers which will prompt them to check to whether they are owned a refund.
Thus despite the fact that all taxpayers can contact Inland Revenue themselves and have their account checked to see if they are entitled to a refund and have the refund paid to them, most wage and salary earners do not do that. Large sums of unclaimed refunds have built up with Inland Revenue. A business opportunity has sprung up whereby third parties will check for the taxpayer whether they have a refund entitlement. Surprisingly despite the fact that these organisations are charging for doing something that taxpayers could do for themselves, large numbers of people appear to be getting these limited agents to check for them.
These limited agents are not acting as agents for the taxpayer in any respect except insofar as is necessary to check to see if the taxpayer is owed a refund and if so to direct payment of that refund to the taxpayer less their fee, which is a percentage of the refund.
These limited agents normally operate electronically over the internet. They do not therefore hold a physical signed authorisation from the taxpayer. Typically, what happens is that the taxpayer on visiting the website and deciding that they would like the intermediately to check if there is a refund owning will electronically tick a box providing authority. This form of authority is not good enough as far as Inland Revenue's prescribed forms are concerned.
Section 81(4)(l), however, says that the agent can be authorised in writing or in the manner prescribed by the Commissioner. It is the phrase "in writing" in s 81(4)(l) that engages the Electronic Transactions Act (ETA). The word "writing" is not defined in the TAA but is defined in s 29 of the Interpretation Act 1999. It is defined as:
"Writing means representing or reproducing words, figures or symbols in a visible and tangible form and medium (for example, in print)."
The Act's purpose is set out in s 3 of the ETA. It is firstly to provide for the legal effect of information provided electronically and secondly, to provide that certain paper-based legal requirements may be met by using electronic technology that is functionally equivalent to those legal requirements.
Part 3 of the ETA deals with the how legal requirements should be met and the relevant provisions within Part 3 are ss 15 to 19. A legal requirement that information be in writing is met by information that is in electronic form if the information is readily accessible so as to be usable for subsequent reference: s 18. The consequence of the ETA applying, as it does here, is that the web based intermediary will be able to satisfy the requirement that they hold authorisation in writing by having the box providing authorisation ticked electronically.
It is noteworthy that the common law has never required a signed piece of paper to establish authority to act as an agent. This is because a principal may authorise an agent orally, in writing or by conduct. There is no need for a signature to be on a piece of paper for the authority to be effective in law: see by implication Black's Law Dictionary 8th edition, and paragraph 28 Agency Laws of New Zealand.
Because the "authorised in writing" is one of two ???was provided for demonstrating agency in s 81(4)(l) it is irrelevant that the electronic tick the box approach may not meet the requirements under the alternative prescribed form approach. What is however relevant is any specific stipulations that Inland Revenue may put on its acceptance of electronic information.
In this regard s 16 of the ETA provides that there is no compulsion on a person to accept electronic information if they do not wish to. Section 16 also allows a person to accept electronic information subject to conditions. The conditions may be as to the form of the information or the means by which it is produced. However, it is unlikely that Inland Revenue could use s 16 so as to limit the method of authorisation of the tax agent. This is because authorisation is a substantive legal matter, not a matter concerning the form or manner of electronic communication. Secondly, the actual authorisation under s 81(4)(l) is between principal and agent and they have by necessary implication consented to electronic communication. Inland Revenue is not a legal party to that authorisation so cannot withhold its consent to it.
Different considerations arise where a tax agent is wanting to file returns, not just check as to refund entitlements. Section 81(4)(l) of the TAA deals only with the provision of information held by IRD to the tax intermediary. It does not deal with the provision of information by the intermediary to Inland Revenue. In this regard the general rule is set out in s 34 of the TAA. A return purporting to be made by or on behalf of a person is deemed to be made with that person's authority unless the country is proved. There is no requirement for such authority to be in writing or be accompanied by a signature. Thus the electronic tick the box authorisation will remain entirely lawful but by virtue of a different set of provisions.
Section 36 of the TAA contains the general permission to file returns electronically and s 36(3)(b) requires that when a return is filed electronically a hard copy shall be held and shall be signed by the taxpayer. Relatedly s 23(1) of the TAA requires that where information contained in a return has been transmitted electronically in the prescribed electronic format the taxpayer shall retain or cause to be retained a signed hard copy transcript of information so transmitted.
Thus a person (or their agent) filing electronically will need to firstly print out the electronic return and physically sign it: s 36(3)(b) and, secondly, retain a copy: s23(1). This requirement for retention can be met in the following ways:
- Retaining the hard copy.
- The signed hard copy can be scanned and then retained electronically: s 25 of the ETA and clause 4(1) of the ET Regs.
Inland Revenue has made significant strides towards accommodating e-commerce. But a practitioner still needs to keep their wits about them as to the source of legal authority for various electronic actions and also as to the record keeping requirements associated with electronic return filing.