The availability and usability of large datasets, aided by technology, has greatly improved and is likely to continue.¬† The Courts have made it clear that Inland Revenue‚Äôs existing information collection powers do enable the collection of such datasets, and such collection does occur.¬† However, the powers were designed in a world when collecting and analysing these datasets was not fully envisaged.
The Government proposes clarifying the existing rules to ensure Inland Revenue has appropriate powers to collect one-off taxpayer-specific data and bulk data, and has access to third-party information to enable it to administer the tax system efficiently.¬† This clarification is focused on repeating collection of datasets primarily for compliance, analytical or customer education purposes, rather than to support pre-populating tax returns.¬† Clarifying these powers will also provide greater comfort to the dataset holder of the circumstances when they will be required to comply with an information request.
Existing collection powers
The collection of datasets covering multiple taxpayers, or potential taxpayers, is not new.¬† Inland Revenue has the power to require a person to provide any information considered necessary or relevant by the Commissioner.¬† The courts have recognised that the power to require information to be provided is an important power, and that it allows Inland Revenue to collect large datasets.¬† Inland Revenue needs to be able to obtain information about people engaging in taxable or potentially taxable activities.
Clarifying the collection power
The Government proposes building on Inland Revenue‚Äôs ability to collect external datasets, to better enable regular, repeat collection of such information.¬† This would mean new additional powers, rather than a replacement of any part of the current rules.¬† The primary focus of the proposed powers is on ensuring Inland Revenue has the ability to regularly collect external datasets, when the Commissioner considers collection is necessary or relevant, for compliance, analytical or customer education purposes, rather than for use in pre-populating returns.¬† However where a dataset collected for compliance or analytical reasons is also of use in pre-populating returns, this use would not be restricted.
When it is considered that information should be collected regularly to support pre-populating returns the Government considers a formal third-party reporting regime would be an appropriate option.¬† This is because the provision of this information regularly can impose compliance costs.¬† These costs must be balanced against the wider benefit to society resulting from greater detection of under-reported or non-reported income, and the efficiency of collecting the information in a large dataset rather than needing to seek information from many taxpayers, including perhaps those that are not operating within the tax system.