Publications > Tax Law
GST and services connected with land
Under the spot light by the IRD?
GST – Provision of Online Goods and Services
IRD’s Position on Tax Control Frameworks (OECD)
The Unitary Plan and Taxation of Re-Zoned Land
Associated Party Loans – IRD Documentation Requirements
We often get asked how the IRD selects a taxpayer for investigation and there is no clear cut answer. We know the IRD now employs analytical software in order to enhance the probability of tax recovery through complex analysis.
The software is able to compare your information with others in your industry and to identify anomalies and possible issues. An audit may also be the result of anonymous tipsters that have passed on certain information onto the IRD regarding your affairs.
The IRD lists the following possible reasons to initiate an investigation on a taxpayer:
- The Commissioner’s analysts have identified information in the tax return(s) that show an unusual pattern, or one that’s inconsistent with industry norms;
- The Commissioner has received information (which could be from a number of sources, including anonymous information) that suggests the returns are not correct;
- There’s a history of non-compliance with tax obligations;
- The Commissioner has received local knowledge, perhaps arising from media reports or unexplained wealth;
- and The Commissioner’s current compliance focus includes the industry or activity the taxpayer is involved in.
The Investigation Process and IRD Powers
The investigation process normally starts with a risk review. Initially the IRD will inform you of the review and request information. This stage of the process is an initial information gathering stage of the process used to identify possible issues. Be warned, as soft as this initial process may seem, you have been flagged and are under the spot light. Routine verification of GST, PAYE and the like is best dealt with by your accountant but as the matter escalates you are likely to need legal assistance.
If there are issues which are uncovered during the risk review process the IRD will initiate phase 2 which is a full audit which can extend back up to seven years. The risks associate with an audit should not be underestimated and can range in payment of the tax due plus penalties ranging from 20 to 150 percent on top of tax payable.
An audit may also be commenced without a risk review and without prior notice or contact, for example, where the IRD has identified an area of clear non-compliance. On occasion the IRD may also make an unannounced visit to your place of business. Their exercise of power to make unannounced visits to your premises is the most invasive of the IRD’s dealings with the taxpayer.
It may be surprising to note that the IRD’s powers of investigation are wider than that of the police. They are entitled to full access of your business premises without warrant and, with an access warrant, to private homes.
If the IRD seeks access to premises without notice they routinely gain access to computer records and often clone computer hard drives. It is important that procedures for this are agreed with the IRD and that information which is protected from disclosure is not disclosed inadvertently.
What to do
Problems with the IRD will not simply go away and it is important that you are prepared to dedicate resources, time and energy to the process. It is critical that you seek competent council versed in the investigation process and particularly well verses in tax law to assist you during what can be a very disruptive and stressful time.
We advise on all aspects of the law, including all tax disputes with the IRD. If you would like to find out more about the issues discussed above, or any other legal issue, give the team at Fortune Manning a call on 0800 4FM LAW (0800 436 529). We offer a free initial consultations so call us, we can help.