What happens when the IRD questions my offshore profits claim?

Assessors have a statutory duty to raise assessments and to make enquiries. Under section 51(4) they can require information on any matter that may affect liability. The Inland Revenue Department's (IRD's) own practice note says a request for details of the operations of a transaction is a reasonable demand.

Typical questions

• Who negotiated and signed the contracts, and where were they when they did so?
• Where were goods sourced, shipped and sold?
• Who are the staff and directors, where do they work, and what do they do?
• Where is the money received and which bank accounts are used?
• For interest and service fees: where was the lender or service provider acting?

How to prepare

• Keep a contemporaneous record of operations; reconstructing it later is harder.
• Answer by the deadline in the IRD's letter and send copies of the documents.
• Ask your tax representative to handle correspondence.

If the claim fails

The IRD will raise an assessment that includes those profits. It may also consider additional tax under section 82A if the return was incorrect without reasonable excuse. You have one month from the date of the notice of assessment to lodge a written objection stating your grounds. Where an objection is made, the IRD may agree to hold over some of the disputed tax, sometimes on condition that you buy Tax Reserve Certificates.