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Audits (#2 Standard of Proof and Onus)

Once we get into the topic of tax audit, it is necessary to start considering the manner of a formal court dispute. Then, it is important to have a clear understanding of essential court rules observed in the courts. In this edition, I will discuss about the standard of proof and its onus.

The courts adopt two essential rules, depending upon the nature of the dispute, and they include a civil standard and a criminal standard. All the civil disputes are governed by civil standard of proof of evidence. In taxation too, if the nature of the dispute is one of those civil, then the civil standard is to apply. The civil standard is, so called, “on the balance of probability.”

A literal meaning of this terminology, balance of probabilities, is that which evidence is more probable than others between the evidence from the plaintiff and the evidence from the defendant. Alternatively, it may mean whether the evidence you are advancing is more probable to be accepted than otherwise.

I have to accept that I experienced difficulties to understand the meaning behind the word and present to clients when the clients’ have court disputes. Based on this experience, let me give you an example and wish every one of you to understand the working definition of the terminologies – balance of probabilities and beyond reasonable doubt. Let us assume that a Chinese businessman is under tax audit in New Zealand. He is asked to forward all the copies of his New Zealand bank statements. He did it. Somehow, the IRD obtained his Australian bank statements where the IRD notices that there was a credit of a big sum of money, $600,000 AU. IRD claims that this credit was a direct result of his tax evasion, or the cash income in other words, resulted from tax avoidance of his New Zealand business for the last five years. The taxpayer, whereas, claims that the sum was a gift from his parents in China. The issue to determine is which accounts of facts is more probable – IRD interpretation or the taxpayer interpretation.

Now we assume that there are 100 members of jurors in the jury box. We can start by asking, would you consider that 51 out of the 100 jurors will find for the IRD or for the taxpayer? If 51 jurors eventually find for the Chinese businessman, you can say that the jury, on a balance of probabilities, is for the taxpayer. Alternatively, if 63 jurors eventually find for the IRD, then you can say that the jury is, on a balance of probabilities, for the IRD. You need to have a minimum of 51 out of 100 for you to claim on a balance of probabilities. The civil standard is comparable to a simple majority rules to some extent.

What about the criminal standard? The courts need to be satisfied, if an issue is one of those criminal liabilities – on a beyond reasonable doubt standard. Again, let me give you an example to help you understand. There is a person killed by someone last night. Police investigation reveals that the victim is a female. The victim was sexually assaulted before the death. Thus, there is a reasonable ground to believe that the suspect is a male, not a female. Suspect A, who lives in 20 minutes away from the crime scene is arrested for a suspected murder/manslaughter and a rape. The suspect advances, by way of a defence, a video footage showing that he visited a café which is located 15 minutes away by car from the crime scene, meaning that it was unable to reach the victim’s place and commit the crime. Now, this summary of facts is delivered to the jurors asking for verdict. The question for the jurors to consider is whether the suspect, on a beyond reasonable doubt, is considered to have committed the crime.

You need to focus on the questions you can think of. You know that the suspects was videotaped at a location which is 30 minutes away to the crime scene. Did the suspect drive his car? Can the suspect drive a car? Is there any other person who can witness the suspect’s alibi? How old is the suspects? If the suspect is old enough and unable to make an erection of his genitals, can the police show that the DNA evidence obtained from the victim is his? The police need to answer all these questions arising in the eyes of a reasonable person. Again, it is the responsibilities of the prosecution to prove all the reasonable question arising. You can say that the police is confident to prove, on a beyond of reasonable doubt standard, those questions arising.

This article is designed to give general information to the audiences and readers of this article. This is not designed to provide a legal advice to a particular person of particular circumstance. If you have any enquiries, you should seek legal advice on that issue. A. B. Lawyers Limited does not accept any liability arising from misjudgment by the audience, without having independent legal advice on his/her case.

The writer advises that translation to Chinese, from English version, is done by one of the office legal assistant. There may be occasions you notice misinterpretation, despite we do our best to make correct translation. If you notice that, it is much appreciated you let us know that.