INCOME TAX: 1297 law holds key to challenge INVESTIGATE: JUNE 00

New Zealand’s income tax laws could soon be set for a full-on challenge to their legality, on constitutional grounds, and the IRD is gearing up to fight back. IAN WISHART continues his investigations into whether individuals can be forced to pay income tax

A 700 year old law that’s never been repealed could hold the key to a major legal challenge
over New Zealand’s income tax legislation and driver licence laws.

The Statute Concerning Tallage 25 EDW I, passed into law by King Edward 1 in the year 1297, has been unearthed by tax lawyers in this country investigating the constitutional legality of income tax. Although some portions of the 1297 Act were repealed in 1986 by the last Labour Government, it appears some crucial elements of the old law still stand. The most significant clause of the Statute of Tallage is Chapter Four, where the Crown promises never to impose laws that infringe any common law rights or liberties.

"We will and grant for us and our heirs," states King Edward’s Act, "that all clerks and laymen of our land shall have all their laws, liberties and free customs as largely and wholly as they have used to have the same at any time when they had them best and most fully; and if any statutes have been made by us or our ancestors, or any customs brought in contrary to them, or any manner of article contained in this present charter, we will and grant that each manner of statutes and customs shall be void and frustrate for evermore."

Although this is the translation appearing in one English statute book, the same verse is translated in New Zealand statute books to read: "We will that if any judgment be given from henceforth contrary to the points of the charters aforesaid by the Justices, or by any other of our Ministers that hold plea before them against the points of the charters, it shall be undone and holden for nought."

Researcher John Mason, working with the New Zealand Rights Litigators group, re-discovered the ancient legislation with the aid of a North Island tax lawyer.

"My own gut feeling," says Mason, "is that it’s worth going all the way to the Privy Council with."

In plain English then, what’s so special about the old law? In short, it’s in the fine print. Coming less than a century after King John was forced to sign the Magna Carta, the 1297 law effectively ratifies the Magna Carta and sees King Edward assuring his citizens – the "laymen" – that all the "laws, liberties and free customs" they enjoyed "at any time when they had them best and most fully" shall continue to be superior to any laws passed by the Crown.

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Going even further, King Edward promises on behalf of the Crown and its "heirs" that any statutes brought in by the Crown that infringe on citizens’ common rights "shall be void and frustrate for evermore".

Lawyers consulted by Investigate say the Statute of Tallage may be sufficiently powerful to overturn income tax laws – which have only existed for the past 100 years – or the much more recent drivers’ licence legislation requiring motorists to obtain ID card licences.

The power of common-law over governments was revealed in National Government briefing papers over plans to privatise roads, which crown solicitors warned could remove the public’s common law rights to use the Queen’s highways. The Government planned to get around it by ensuring that horses and carts and pedestrains could still use privatised roads unhindered, so as to preserve the letter of the ancient law, if not the spirit. Although governments have long had the power to raise taxes, there have been constitutional limits to those powers, and historically they have not extended to the power to levy a tax on individual incomes. Instead, the common law right of individuals to sell their labour without interference from the government has been upheld in judicial circles reaching all the way to the US Supreme Court.

In the United States, income tax did not become part of everyday life until World War 2, while New Zealanders were charged income tax for the first time only 107 years ago. Up until then, governments around the world relied on their own traditional right to impose customs duties and tariffs to raise money.

"Customs were originally duties on goods exported, and the duties levied on foreign goods imported were called prisage," notes an 1856 report in London’s Weekly Dispatch newspaper.

"They were imposed at the pleasure of the King. At length, Customs duties were levied on imports as well as exports. Charles II granted a duty of one percent on the value of all goods exported, and this tax was made perpetual by an Act of George I."

Britain, in the 1850s, was just coming to grips with its first real taste of income tax.

"The income tax is not, as you suppose, a new impost," reported the Lady’s News magazine in 1852. "In 1512, Parliament granted a subsidy of two-fifteenths from the commons, and two-tenths from the clergy, to enable the King to carry on the war with France."

And that’s all income taxes were initially raised for: to pay for armies during times of war. When the wars were over, the people stopped paying income tax. The US Constitution explicitly states that the Federal Government has no power to impose income tax, except during wartime. Although the 16th Amendment to the US Constitution provides for Congress to tax people subject to its jurisdiction, the Supreme Court has ruled that citizens of the individual states are not necessarily subject to Federal jurisdiction.

It is also hugely significant that, in London prior to 1852, the only reference to income tax dated back to a brief period nearly 350 years earlier. So novel was the concept that one weekly journal, the Family Tutor, had to explain to its readers what a tax was:

"The word Taxes is derived from the barbarous Latin word Tallia, or Tallium, which in the ancient signification meant a piece of wood, squared and cut into two parts, on each of which they used to mark what was due and owing between debtor and creditor.

"From thence it came to signify a tribute paid by the vassal to the lord."

The British income tax of the 1850s was 5%, and payable only on incomes of more than 100.

NZ Rights Litigators researcher John Mason believes the Statute Concerning Tallage will bring to a head major legal challenges to the Government under a common heading: that laws introduced over the past century may conflict with much more ancient public rights.

It’ll come as bad news for the Labour/Alliance coalition: unlike the debate over whether the New Zealand Government itself is unconstitutional, this challenge is using medieval legislation that appears to be still on New Zealand’s law books – making it much harder for the courts to ignore.

But it won’t be plain sailing. When the last Labour Government broke constitutional ties with Britain in 1986 and declared itself "Sovereign" above the New Zealand people in what was arguably an illegal act, it also severed New Zealanders’ rights under the Magna Carta. The original version from 1215 no longer forms part of New Zealand law at all, and only one clause from King Edward’s 1297 ratification has been retained - a further 36 clauses have been dumped so that New Zealanders can no longer use them to fight the Government in court.

So what is the one paragraph in the Western world’s main constitutional document that kiwis still have access to? It is clause 29 which relates to due process of law and unlawful imprisonment. It reads:

"No freeman shall be taken or imprisoned, or be disseised of his freehold or liberties or free customs, or be outlawed or exiled, or any otherwise destroyed; nor will we not pass upon him nor condemn him but by lawful judgment of his peers or by the law of the land. We will sell to no man, we will not deny or defer to any man, either justice or right."

But it appears New Zealand’s lawmakers may have bungled. Despite specifically repealing all the other clauses in the Magna Carta, they left in King Edward’s 1297 Confirmation of the Charters, of which the Statute Concerning Tallage formed part.

And what is significant is that the Confirmation of the Charters ratifies the Magna Carta in its entirety and two other major charters as well.

The New Zealand statute books expressly include the words:

"We will that the same charters shall be sent under our seal as well to our Justices...and to declare to the people that we have confirmed them in all points, and that our Justices, sheriffs, mayors and other ministers, which under us have the laws of our land to guide, shall allow the said charters pleaded before them in judgment in all their points [our emphasis], that is, to wit, the Great Charter [Magna Carta] as the common law...

"And we will that, if any judgment be given from henceforth contrary to the points of the charters aforesaid by the Justices, or by any other ministers that hold plea before them against the points of the charters, it shall be undone and holden for nought." So where does that leave the New Zealand Government? In a word: confused.

We asked IRD how it reconciled its own position, when in the Statute Concerning Tallage "the Crown states that any statute, either in existence or introduced subsequently by its ‘heirs’, which conflicts with common law rights of free individuals shall be held to "be void and frustrate for evermore" insofar as it infringes on those rights. At that time, or course, income tax did not exist," we pointed out.

"Inland Revenue does not accept that the Statute Concerning Tallage applies in New Zealand," wrote IRD spokeswoman Rae Mazengarb in the tax department’s first official comment to Investigate.

"Firstly, under the Imperial Laws Application Act 1988, only specified Imperial enactments are part of the laws of New Zealand. The Statute Concerning Tallage is a confirming charter of the Magna Carta. By virtue of the above Act only chapter 29 of the Magna Carta applies in New Zealand."

But the IRD’s legal advisors appear to have got it wrong. In a footnote to the Magna Carta legislation faxed through to Investigate by the Solicitor-General’s office in Wellington, the publishers of the New Zealand Statutes write:

"Editorial note: the context of c.29 of Magna Carta impliedly includes the Confirmation of the Charters...the Confirmation was not included in the First Schedule to the Imperial Laws Application Act 1988, but it has been included in this reprint to be compatible with the 1881 Revision, which included c.1. and c.2. but not c.3. to c.7. thereof."

In other words, although the Confirmation of the Charters which, as the IRD concedes, includes the Statute Concerning Tallage, didn’t appear in the original 1988 Act, it has since been re-included.

Clauses [chapters] one and two of the Confirmation, which appear on the previous page, still form part of New Zealand law.

Interestingly, clause 5 of King Edward’s Confirmation was repealed back in 1881, just before the permanent introduction of income tax. It is easy to see why the politicians had to remove clause 5:

"And for so much as diverse people of our realm are in

fear that [taxes] which they have given to us beforetime toward our wars and other businesses, of their own grant and good-will, howsoever they were made, might turn to a bondage to them and their heirs...we have granted for us and our heirs that we shall never draw such [taxes] into a custom."

In other words, voluntary donations to the Crown would never become compulsory.

Auckland tax barrister Bruce Grierson is one expert who agrees income tax is unconstitutional and therefore illegal, but adds the rider "not that I think any Judge (paid by the State) will give anybody any relief on the grounds of constitutional law arguments".

As if to emphasise the New Zealand Government’s total control over the judiciary, even the IRD makes the same point: regardless of individual rights under various charters, the New Zealand Government has absolute power.

"The Court of Appeal has held that the Parliament of New Zealand continues to have full power to make laws and ‘this power is not limited by the Magna Carta’," says the IRD.

"The Magna Carta, by its inclusion in the Imperial Laws Application Act, does not constitute supreme law and does not limit the New Zealand Parliament’s soveriegnty."

In a properly functioning democracy, there are three branches of the State - the Executive [the Government], the Legislature [Parliament] and the Judiciary. Each branch has a role to act as a check or balance on the excessive powers of the others.

But New Zealand does not fit that category. Traditionally the Executive dominates the Legislature, and both dominate the Judiciary.

Proof of the latter can be seen in numerous court cases. In 1991, for example, Justice Robertson ruled that "The constitutional position of New clear and unambiguous. Parliament is supreme and the function of the Courts is to interpret the law as laid down by Parliament. The Courts do not have a power to consider the validity of properly enacted laws."

Likewise, in a 1989 constitutional ruling, the High Court’s Justice Anderson wrote:

"This Court and the Court of Appeal is bound to uphold the general legislation of New Zealand," while in 1996 Justice Thomas ruled in the Court of Appeal that:

"The Courts are subservient to Parliament and must apply an Act of Parliament in the terms in which it has been enacted...the Courts cannot depart from the requirements of the statute as enacted by Parliament."

Justice Thomas went on to add, because the case involved a question of whether Maori common law had legal standing, that even if an argument could be successfully advanced that common law was superior to statute law, "the Courts do not have the jurisdiction to depart from the statute. Their jurisdiction itself is founded in statute."

Finally, in the High Court at Hamilton in February this year, Justice Penlington ruled:

n "The New Zealand Parliament is empowered to make legislation

n "The Acts of Parliament do not derive their author ity from the Treaty of Waitangi or the Declaration of Independence

n "The Acts of Parliament are binding on all persons within the territory of New Zealand, that is both pakeha and Maori

n "The Courts of New Zealand must uphold the leg islation enacted by the New Zealand Parliament

n "The Courts of New Zealand are subservient to the Parliament of New Zealand."

And the Courts have given a clear signal to all New Zealanders: don’t even bother trying to challenge the Government’s "absolute" power through us.

"Chapter 29 of the 1297 Magna Carta and other English statutes as identified in the Imperial Laws Application Act 1988, form part of the law of this country," the Court of Appeal held last year, before delivering a massive "but" in the next line.

"They do not, however, constitute supreme law in the sense of a limit on the New Zealand Parliament’s sovereignty. The fact that they appear in a list [in the Imperial Laws Act] headed ‘Constitutional Enactments’ does not alter this.

"In 1990 when Parliament enacted the New Zealand Bill of Rights Act 1990 ‘to affirm, protect, and promote human rights and fundamental freedoms in New Zealand, it decided against ‘constitutionalising’ these rights and freedoms and providing an avenue for judicial challenge to inconsistent legislation.

"It is inconceivable," continues the Court, "that Parliament intended two years earlier, by way of a heading, to provide for such a challenge based on English legislation incorporated into New Zealand law."

Although it was a three-judge bench of the Court of Appeal making the statement, it doesn’t necessarily mean their interpretation is correct.

As we’ve pointed out in this and previous issues of Investigate, there is growing evidence that New Zealand’s current government is constitutionally illegal, which remains firmly entrenched only because of a compliant Court system that is not prepared to examine its validity and a New Zealand public who are unaware of the constitutional crisis involved.

The Magna Carta, the Confirmation of the Charters and other key British constitutional law arose as a mechanism for keeping the absolute powers of British sovereigns in check. Now, despite those Charters being expressly included in New Zealand’s constitutional laws when they could easily have been dropped altogether, the Court of Appeal wants the New Zealand public to believe that those Charters cannot rein in the "supreme law" imposed by the New Zealand Parliament.

If the Court of Appeal is correct, then the New Zealand Parliament now has more absolute power over New Zealand citizens than British monarchs and governments have had since the year 1215 through to the present day.

An example of this little legal joke can be found in section 12 of the 1688 Bill of Rights, which also forms part of New Zealand’s current constitutional law. (This, by the way, is the same Bill of Rights that protects MPs from being sued for defamation when they speak under parliamentary privilege)

Despite the Bill of Rights stating that it is illegal for the Government to impose any fines or seize any property from a citizen before they have been found guilty before a Court, the New Zealand Government is seizing vehicles from so-called ‘unlicensed’ drivers without giving them the benefit of a court hearing.

It is clearly an illegal act by the Government as defined by current NZ constitutional law, but it will not be upheld by the Courts for the reasons just outlined.

So if the real legal position is that New Zealand’s Government is illegal, how can New Zealand citizens challenge its powers if the government-paid judges refuse to hear the arguments?

One of the only avenues left is a complaint to the United Nations Human Rights Committee. Although the UNHRC investigation would not be binding on the New Zealand Government, a finding against the Government could have severe diplomatic ramifications and impact on the credibility of our Government internationally.

Meanwhile the evidence continues to grow
that paying income tax may be voluntary in
New Zealand, but structured so as to ap-
pear compulsory. In a series of letters released under the Official Information Act, the IRD has confirmed some important points.

Senior IRD official David Belchamber, writing on behalf of the Commissioner for Inland Revenue, says "There is no law that states you must have an IRD number to trade your labour."In plainer language, that means that as a worker for hire you are not required by law to have an IRD number. So why do people apply for them? Because the alternative is a lot worse. Although governments have no constitutional power to force natural persons to register with the IRD, they do have powers to penalise companies paying wages.

If a worker refuses to supply an employer with his or her IRD number, the Government orders the employer to deduct resident withholding tax at the rate of 45%. It’s a carrot and stick approach: the real income tax rate in New Zealand is 45 cents in the dollar, and it is a tax that companies, not individuals, are liable to pay. However, to soften the blow, natural persons are offered a carrot – by obtaining an IRD number and using it, they can reduce their tax liability considerably, or so they believe, down to 24 cents in the dollar or even lower in some cases.

Legal researchers believe this is the essence of "the contract" that ordinary people find themselves sucked into by the IRD.

Remembering that income tax is not compulsory, that "there is no law that states you must have an IRD number to trade your labour", why then are people being prosecuted for tax evasion or failing to file tax returns?

According to the IRD documents released under the Official Information Act, it comes down to the voluntary act of applying to the IRD for a tax number – you are voluntarily entering a contract with the IRD, a contract where from then on you promise to pay tax and abide by the penalties if you fail to meet your end of the bargain.

In one letter, IRD Technical & Legal Advisor Peter Bailey writes: "The Department holds no specific records as to how a person becomes a taxpayer. There are no specific documents or forms, as such, held by the Department that states that any person is a taxpayer.

"Accordingly there are no specific records, held by the Department, that states when a person becomes a taxpayer."

But Bailey then offers a clue. In one of the documents, the IRD advises a "customer" that "you’ll need an IRD number to enable you to complete an income tax return." The significance of that, in relation to Bailey’s letter, is that he then writes:

"The definition of ‘taxpayer’ under the Income Tax Act 1994 means a person chargeable with income tax. A person becomes chargeable with income tax when they file their annual return of income." [our italics]

In other words, you are not required by law to have an IRD number, but your employer encourages you to get one otherwise they’ll deduct tax at 45%. If you refuse to get one, you may never have to deal with the IRD – ever. You could go through your entire career with the IRD never really knowing you existed. At that point, the hassle of paying tax is entirely the company’s legal responsibility, not yours.

But most people don’t do that. Faced with pressure from the boss and the lure of a lower tax rate as a reward for voluntarily agreeing to it, they apply for and obtain a unique IRD number. But once they use that IRD number in an employment situation, they then become liable to file a tax return. You can’t file a tax return without having an IRD number, and the moment you file a tax return you become "chargeable with income tax".

Sound like a vicious Catch-22 situation? NZ Rights Litigators thinks so.

Under option one, the IRD could never prosecute you for failing to file a tax return, never investigate you for tax avoidance or even evasion, and never issue default assessments allowing the IRD to bankrupt you for non-payment of tax. As the IRD is now admitting to workers, there is no law requiring New Zealanders to obtain an IRD number in order to work.

Where does that leave self-employed people? On the basis of the latest IRD admissions, a 19 year old entering the workforce for the first time is not required by law to obtain an IRD number. The law does require employers to pay a 45% tax on his wages if he refuses to register with the IRD, but what happens if he decides to work for himself, trading his labour on his own?

It is another potential legal loophole, because clearly no "employer" exists in the legal sense who can be forced to deduct 45% of his profits and send them to Wellington to the Crown’s coffers. The 19 year old could conceivably work tax free for the rest of his life, as long as he never applies for an IRD number, thereby entering into a taxpaying contract with the state.

In another letter, the IRD’s Belchamber does say that "I must reiterate, any New Zealand tax resident who earns taxable income is required under the laws of New Zealand to pay income tax on that income."

It may sound simple, but what is a "tax resident" as opposed to a New Zealand resident, and what is "taxable income" as opposed to income?

Belchamber continues with "If you earn income that is taxable, you’ll need an IRD number", which again begs the question, why didn’t the IRD simply say "if you earn income, you’ll need an IRD number".

As David Richwhite once told the Winebox Inquiry, in tax matters, "the devil is in the detail". NZ Rights Litigators complain they’re still having trouble getting the "detail".

Needless to say, the Official Information Act requests are continuing.

As for those IRD numbers, the news gets more
interesting by the day. Not only is there no law
requiring you to have one in the first place,
you are allowed by law to send your existing IRD number back to them.

"The number can be closed off it is no longer required," wrote Belchamber. "You have asked how you go about closing off your IRD number if you are still living in New Zealand. If this situation ever arises, you should advise Inland Revenue in writing."

So it’s as simple as that: a written request and a 40 cent postage stamp. Or that’s how it seems in responses gained under the Official Information Act, which requires government agencies to provide factual answers to questions.

But in a series of answers to Investigate, not covered by the OIA, the IRD takes a more aggressive stand.

"We are aware that over the past year or so a number of novel theories have been expounded as justification for taxpayers not being subject to the laws which require them to pay tax. None of these theories have been established as having any credibility at law," says the IRD, noting the constitutional cases mentioned earlier.

"It is noted that it is not entirely rare for the Courts to encounter individuals who will argue that they are not subject to the enacted laws of New Zealand. The singular theme of these cases is the ease with which the Courts are able to reject them.

"It is of concern that some parties seem to be charging fees, seeking sponsorship, or are otherwise trying to financially exploit third parties, in relation to the pursuance of such unproven theories. Individuals who do not pay the tax which is due from them or otherwise who do not meet their obligations under the tax acts in reliance on such theories will find themselves in breach of the law and subject to the penalties imposed by the law."

Nonetheless, the IRD did confirm that no one is required to have an IRD number to trade their labour, and that it is possible to close your account with the IRD.

Given that the tax department’s ability to enforce the tax laws relies entirely on being able to track down and audit taxpayers using their IRD numbers, this ability of New Zealanders to hand back their IRD numbers raises fascinating questions such as: if it no longer knows who these people are, how on earth will the IRD be able to force them to pay tax?

When we put the question to the IRD, the tax department expressed confusion.

"This question is not clear. If a person is a contractor they are subject to the provisional tax rules."

Meanwhile, a planned international crackdown on tax havens has hit the rocks temporarily after stiff opposition from the havens concerned. The OECD had been planning to name a list of countries deemed to be involved in "harmful tax practices", as a precursor to taking offensive measures against those tax havens that failed to co-operate with tax investigators in OECD member countries.

Such retaliation may include preventing any financial dealings with the tax haven concerned, effectively isolating it from the world. Already the tax havens of Switzerland and Luxembourg have succumbed to the OECD pressure, signing an agreement to provide hitherto secret banking information to international tax investigators and promising to end banking secrecy.

But the OECD has agreed to delay further move against tax havens for a year, following an outcry from British territories providing tax haven services, including the Bahamas and Jersey.

New Zealanders with offshore bank accounts should not be breathing a sigh of relief, however: analysts believe the world’s tax havens will eventually be forced to open their books to the world, because the OECD may arrange for annual aid budgets to the small island havens to be slashed if they fail to cooperate.

In the 1980s, Treasury estimated New Zealand was losing a billion dollars a year in tax avoidance/evasion through the Cook Islands tax haven. More than a decade later, despite three major court rulings and a formal complaint to the police, no action has yet been taken over the Winebox tax schemes.

The problem for the IRD and ultimately the New Zealand Government is that by failing to prosecute major corporates for massive tax dodging, they’ve sent a message to ordinary New Zealanders that what’s sauce for the goose tastes equally good with gander as well.

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