Inland Revenue – a duty to treat taxpayers consistently

​In a recent judgment the High Court has found it arguable that the Commissioner of Inland Revenue owes a duty to act consistently in her treatment of taxpayers who have entered into similar arrangements, and that this ground of challenge can be brought in tax challenge proceedings. 

We look at the decision and at the reasoning behind it.

In Michael Hill Finance (NZ) Limited v Commissioner of Inland Revenue [2015] NZHC 3144, the Court considered an application from the Commissioner to strike out part of Michael Hill’s challenge of a tax assessment under Part 8A of the Tax Administration Act. 

The assessment relates to a transaction entered into by the Michael Hill group in which it transferred intellectual property and franchising operations to an Australian limited partnership.  The Commissioner formed the view that the transaction constituted tax avoidance.  Michael Hill has challenged the assessment on the grounds that:

  • the Commissioner had taken an inconsistent approach in her treatment of Michael Hill as compared to other taxpayers who had used materially the same limited partnership structure as Michael Hill.  This was in breach of her duty to treat similarly placed taxpayers alike, and
  • the Commissioner was wrong in law in treating the transaction as a tax avoidance arrangement.

The Commissioner applied to strike-out the inconsistency challenge on the basis that it could not be a standalone ground for challenge, arguing that a decision in favour of the Commissioner on the correctness argument trumped any other challenge. 

It is understandable why the Commissioner applied to strike-out as the way Michael Hill’s case was pleaded would mean that she would need to provide discovery of material relating to her assessment and treatment of the affairs of other taxpayers, potentially raising real difficulties in terms of the IRD’s obligations of confidentiality. 

However, the strike-out threshold is deliberately high.  To succeed, the Commissioner needed to establish that there was no reasonably arguable case that she had breached her obligations of consistent treatment.

The decision

The High Court adopted the finding of the Supreme Court in Tannadyce, that administrative law arguments should generally be brought within Part 8A challenge proceedings rather than separately under the Judicature Amendment Act.  The Court considered that it was “at least arguable” that Tannadyce allows a challenge under Part 8A on inconsistency grounds.

The Court drew on the English Court of Appeal in HTV Limited v Price Commission to reject the Commissioner’s argument that the correctness or otherwise of her decision trumped any invalidity which might otherwise result from a breach of any duty of consistency.  And the Court also considered observations made by the High Court in Westpac Banking Corporation (relating to the “conduit” structured finance transactions), concluding that they did not support the proposition that the Commissioner can never be held to an obligation to act consistently. 


The High Court’s view that administrative law grounds should be subsumed within a Part 8A challenge is relatively orthodox.  What is less orthodox is the acceptance of a duty of consistency as a standalone ground of review. 

Generally, challenges based on inconsistency are treated as falling within established grounds such as the grounds of Wednesbury unreasonableness, relevant considerations, and legitimate expectation.  The outcome of the substantive hearing should be of real interest to taxpayers and others.

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Related topics: Public law; Tax; Litigation & dispute resolution

Tax; Litigation & dispute resolution

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