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Te wiki o te tāke; Connecting with the Chinese tax authorities to enforce New Zealand tax laws – Interest.co.nz

Summary

The Week In Tax · Chinese tax authority assists tax evasion case, OECD tax revenue in 2020 & more

The Taxation Review Authority last week upheld the Commissioner of Inland Revenue’s assessments on unreported income from property transactions. There’s nothing particularly unusual about the facts of this case at first sight. The taxpayer was involved with the purchases and sales of five properties. He arranged the purchase of bare land, the construction of a house on the land and th…….

The Week In Tax · Chinese tax authority assists tax evasion case, OECD tax revenue in 2020 & more


The Taxation Review Authority last week upheld the Commissioner of Inland Revenue’s assessments on unreported income from property transactions. There’s nothing particularly unusual about the facts of this case at first sight. The taxpayer was involved with the purchases and sales of five properties. He arranged the purchase of bare land, the construction of a house on the land and then sold the house.

He maintained he was only a manager and was actually acting under a power of attorney for Chinese nationals and merely managing the properties and receiving payments for services such as arranging the land development and transactions.

But the Commissioner decided to take a look at his affairs for the three tax years ending 31 March 2014, 2015, and 2016, and it transpired that in fact, he wasn’t acting as a manager, but he personally controlled the transactions, and he made the profit from proceeds of each property over and above the management fees he had returned in his tax returns. These transactions all pre-date the introduction of the bright-line test, so the Commissioner assessed him on the basis that the properties were acquired with a purpose or intent of sale.

Ultimately, the amount that was assessed after deductions over the three years turned out to be over $1.6 million. In addition, because he had only been returning the management fees, he had actually also claimed working for families tax credits of just under $9,000 to which he wasn’t entitled. The commissioner took the view all this represented tax evasion and imposed shortfall penalties of initially 150% of the tax evaded but reduced by 50% for a first offence. Even so these penalties amounted to $407,000.

So far this is relatively routine. Inland Revenue are tracking property transactions and if something gets suspicious, they’ll look to see if a pattern emerging.

What caught my eye about this one is the Commissioner’s investigations included obtaining information from the People’s Republic of China under the double tax agreement we have with the PRC. As a result of that enquiry the registered proprietors of the land said, “Hey, we’ve got no knowledge of our involvement in these property sales, and we have not received any benefit from these sales”.

Now, one of the great unknowns that I think people aren’t aware of is how much information sharing goes on between tax authorities. But this is the first one I’ve seen where it’s been clearly acknowledged that the Chinese tax authorities in the People’s Republic of China have been involved.

So, there’s a warning for people to be very aware that Inland Revenue information gathering powers are enormous and they have discretion to ask overseas tax authorities for information in relation to any enquiry. Undoubtedly, the Chinese tax authorities would have been very interested in this as well …….

Source: https://www.interest.co.nz/business/113721/te-wiki-o-te-t%C4%81ke-inland-revenue-enlists-help-chinese-tax-authorities-tax-evasion