Law firms pitch to wealthy Kiwis over possible court challenge to Inland Revenue survey

A group of wealthy Kiwis targeted by Inland Revenue appears to be banding together to form a challenge to Inland Revenue’s demands that they hand over details of their wealth.

In late October IRD wrote to 405 individuals it had identified as having a net worth of at least $20 million, alerting them that it would require them to provide information about their wealth.

So far, IRD has only asked the individuals to provide the details of their nominated tax agent, however it has signalled that in January it will require them to provide details of the “various entities and business undertakings” they or their children are involved in.

Further information will be required later next year, although IRD has been vague about exactly what is being required.

The survey, designed to fill gaps in the Government’s knowledge about how the wealthy manage their tax affairs, will use new powers under the Tax Administration Act which were passed under urgency in December with no consultation.

While Labour campaigned on bringing in a new top tax threshold, of 39c in the dollar for income over $180,000 a year, even tax experts were caught off guard by the granting of new powers for IRD to demand information for reasons other than tax assessment.

Several sources have told the Herald at least some of the people targeted by IRD are mulling a legal challenge to use of the powers, with IRD admitting it is requesting information without having a specific policy purpose in mind.

Multiple law firms are said to be pitching for the work.

A document created by Chapman Tripp, one of New Zealand’s largest law firms, said the firm could start working on a challenge immediately.

“A group of targeted individuals are considering banding together to form a legal challenge to Inland Revenue’s ability to compel the provision of this information,” Chapman Tripp wrote.

“We can make that happen in the most effective way.”

Titled “Project 17GB” after the section of the Tax Administration Act which gives IRD powers to demand information for policy purposes, the firm gave a timeline which could see court papers filed in the second half of November, naming Chapman Tripp’s former chairman Jack Hodder QC as its preferred senior counsel.

Graeme Olding, a Chapman Tripp partner named as the lead for the project, declined to comment, describing the document as “a confidential response to a request for a proposal for legal services”.

Geof Nightingale, a partner at PwC specialising in tax, said some of the firm’s clients were among those considering a legal challenge.

“A number of my colleague’s clients are thinking about it and there are a few conversations going on with QCs [Queen’s Counsel] who would be interested in it,” Nightingale said.

“There are some people who are the recipients of this who are quite concerned and who find it very intrusive and are thinking about a challenge, but as yet I’ve not seen anybody fully commit to doing that.”

Nightingale said while some people targeted in the project were comfortable about complying, others were upset at the way IRD was requesting the information.

“They’re relying on a power that no one got consulted on and has never been tested.”

One person targeted by IRD but who was not part of the group planning a legal challenge said he believed in the order of 30 to 40 people may be part of the group planning a challenge.

The person, who spoke on the condition of anonymity, said he had spoken to other people targeted by IRD were considering leaving New Zealand for a lengthy period in order to become a non-resident for tax purposes.

Others were adopting what he called a “mushroom strategy” to make life difficult for IRD, which included plans to delay responses and provide as little information as possible. “Keep them in the dark and feed them s***”.

A number of people may be attempting to frustrate IRD. A spokeswoman confirmed that of the 405 individuals identified as part of the project, “around half” had provided authorisation for an agent to act on their behalf, missing IRD’s preferred timeline.

The spokeswoman confirmed that some people had already been removed from the project, but refused to say how many.

“Some people have provided evidence that they are not a high-wealth individual or that they were non-residents for tax purposes during the relevant period. On the basis of that information, we excluded them.”

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