4.21 Taxpayer Records and Information

Primary Reference to Article 13 – Taxpayer Records

It is well accepted that taxpayers should maintain appropriate records to enable their tax liabilities to be determined and verified.  The failure to keep and provide such records is unacceptable. It leaves the tax authorities unable to discharge their duty of determining, upon audit, the accuracy of the taxpayer's tax calculations, and should lead to a reverse onus.  This reverse onus then most typically results in a taxpayer having to disprove an assessment which may be made quite properly on the basis of the information which exists however incomplete this may be. The taxpayer is normally the loser in this process.

There is an increasing trend around the world to request more and more information of taxpayers, and in many cases this information may not be relevant to the matters under review. However, since the information is free for the taking, why not simply request everything, and later determine what is relevant and what is not?  The problem with this approach is the burden it places on taxpayers and tax advisors in providing this information, and it produces a strong resentment for the process as a by-product. The cost in time, effort and professional fees can be unreasonable especially for small businesses. Materiality must be a relevant consideration. Accordingly, a better view is that tax authorities should only request information which might reasonably be relevant, and that a taxpayer should have a right to assert that information which is not relevant be withheld absent valid reasons to the contrary. That said, the onus on a taxpayer to provide relevant taxpayer records and information should be far reaching and comprehensive.

Information available to a taxpayer domestically can be subject to seizure in extreme cases (i.e. suspected fraud), and information which is located in a foreign jurisdiction should be subject to a reverse onus of some nature if the information is not provided and could have been.  In this regard, the question becomes whether the taxpayer has access to this information in some way, or influence over it, so that it could reasonably be provided if the taxpayer wished to do so.

A balance is necessary on this matter, with reasonableness being the governing criterion for both taxpayers and the tax authority. The Model Taxpayer Charter addresses this issue by providing that a taxpayer must keep adequate records and provide same, but may contest the provision of information to a tax authority if it can be clearly demonstrated that the information is not reasonably relevant to matters under review.

The period for which records must be maintained should be clearly stated. If outside this period, the taxpayer should not be required to provide records and no reverse onus should apply.