High Court success against IRD

The author replies       The IRD issued an attachment notice to the company’s bank under section 157 of the Tax Administration Act (TAA) which required the bank to deduct funds held in its account to pay the company’s outstanding tax liabilities. (Section 157 gives the IRD a statutory right to place an attachment over defaulting tax payers' bank accounts prior to liquidation).

At the time the notice was issued, the IRD was only aware that the company had outstanding GST liabilities and applied the deducted funds accordingly. After liquidation, the IRD realised that there was also outstanding PAYE. The IRD argued that under section 167 of the TAA, the funds held in the company’s bank account were monies held in trust for the payment of PAYE, therefore when the deductions were made, they were in payment of PAYE.

The High Court agreed that the payments were applied towards PAYE, but said this didn’t affect the outcome as any trust which arose in relation to PAYE was extinguished on liquidation. As all the deductions were received by the IRD after liquidation, they were considered uncompleted attachments pursuant to section 251 of the Companies Act (which the IRD was not entitled to retain the benefit of).