Tax info sharing agreements could extend to spies

New Zealand's intelligence agencies will be able to access individuals' tax information if parliament backs the recent review carried out by Michael Cullen and Patsy Reddy.

Among the recommendations in the review of the country's laws governing its intelligence agencies - the New Zealand Security Intelligence Service and Government Communications Security Bureau - is to give them access to tax information held by the Inland Revenue Department.

As it stands, the IRD can only share information with law enforcement agencies such as police or the Serious Fraud Office to combat serious crime, something that doesn't extend to the SIS or GCSB.

Paul Buchanan, a former intelligence and defence analyst and principal of the geopolitical consultancy 36th Parallel Assessments, says there could be a couple of motivations behind the recommendation in that New Zealand's ease of setting up companies and unusual degree of privacy in the tax system could be seen as too much of a soft touch, or that the lack of an existing legal framework governing what intelligence agencies can and can't lawfully access might be the reason.

"It could be there is a suspicion that because we're viewed as a soft target with regards to the regulations covering data-sharing and financial transactions and the like, that people with untoward ends have started to show up here increasingly to do any number of things," Mr Buchanan says.

"It could well be there is no legal framework governing the intelligence agencies' access of tax information and they feel that for whatever reason, as part of this tightening and extension of legal cover for operations that may or may not be on the margins of legality, they need to put something in that would allow the IRD to share information with them on a regular basis," he says.

Mr Buchanan says existing law governing the agencies has been a "dog's breakfast" lacking long-term planning and foresight, and while the recommendations still need ratification by parliament, they should provide legal cover to operatives who are currently working without any legislative protection.

The report, written by former Finance Minister Michael Cullen and incoming Governor-General Patsy Reddy, recommended the legislation should allow for case-by-case access to tax information, subject to the appropriate authorisation if the person is a citizen or foreigner.

New Zealand's provisions around tax secrecy are under scrutiny in a separate review of tax legislation, with the government looking to scale back the country's privacy protections to allow broader and wider sharing of taxpayers' information.

The government wants to let IRD share more information on an anonymised format to provide better services, and also improve how law enforcement can use its information more effectively. That also extends to cross-border sharing as US legislation aimed at preventing tax evasion imposes stricter standards on other jurisdictions.

Tax secrecy has traditionally been considered necessary to encourage compliance by taxpayers and it has been said it was the quid pro quo for Inland Revenue's broad powers to collect information by balancing privacy interests on one hand with assessing tax liability on the other.

Geoff Blaikie, who leads the New Zealand tax practice at EY, says his firm is comfortable about the sharing of personal details to avoid people having to notify multiple agencies, but isn't enthusiastic about the swapping of income information, especially where the taxpayer isn't told that information is being shared.

"Clearly the government can see that in addition to the efficiency gains, the sharing of information amongst agencies (and using the different technologies and analysis tools each has) may assist in combatting serious fraud, money laundering, etc," Mr Blaikie says.

"The question on the suggestion there be sharing with intelligence agencies and how that might differ from the police one will depend on whether there is just wholesale information sharing with the intelligence agencies."

(BusinessDesk)