Pilnara Pty Ltd v Commissioner of Taxation

The Notice 3 The relevant parts of the Notice were as follows: To: Pilnara Pty Limited as Trustee for The Peabody Family Trust No. 2 c/- Mr Alan McNaughton 64 Hillsdon Road Taringa QUEENSLAND 4068 INCOME TAX ASSESSMENT ACT 1936 - SECTION 264A OFFSHSORE INFORMATION NOTICE Having reason to believe that the information and documents described in the Schedules ("the Information") and ("the Documents")- 1. are relevant to the assessment of the The Peabody Family Trust No. 2 under the Income Tax Assessment Act 1936 ("the Act") for the years of income ended 30 June 1994 to 30 June 1997 ("Your Assessment"), and 2. is information which- (a) is within the knowledge (whether exclusive or otherwise) of a person outside Australia; or (b) is recorded (whether exclusively or otherwise) in a document outside Australia; or (c) is kept (whether exclusively or otherwise) by means of mechanical electronic or other device outside Australia; and 3. the documents are outside Australia (whether or not copies are in Australia or, if the Documents are copies of other documents, whether or not those other documents are in Australia). Pursuant to section 264A of the Act I request you to give the Information which is relevant to the The Peabody Family Trust No. 2's Assessment and to make copies of the Documents which are relevant to The Peabody Family Trust No.2's Assessment and to produce those copies- 4. to either or both Ms Darlene Dunne or Mr Chris Sonter, whom I authorise for the purpose, on my behalf, 5. at the Australian Taxation Office at 100 Market Street, Sydney, New South Wales, 6. not later than 90 days after the date of service of this notice. … Schedule of Information required pursuant to section 264A of the Act "the Information" In relation to Western Star International Limited (WSIL), the following information is sought in respect of the period commencing 1 July 1993 and ending 30 June 1997 (unless stated otherwise),:- 1. Other than the 1 share held by the The Peabody Family Trust No. 2 in WSIL advise: (a) the names and addresses of all shareholders in WSIL, (b) where shares are held on trust or on behalf of another party, the names and addresses of the beneficial owners of the shares. 2. A list of all investments held by WSIL as at 30 June 1994, 30 June 1995, 30 June 1996 and 30 June 1997 including: (a) the names of all entities in which an interest is held, (b) where the interest in (a) above is in the nature of shares, state in relation to each entity: (i) the number of shares held, (ii) the value in Australian dollars of shares held (state whether this value is at cost, market or some other value), (iii) the class (ordinary or otherwise) of shares held, (c) each loan advanced by WSIL at interest, stating (i) the name of the individual or entity receiving the loan, (ii) the address of the individual or entity receiving the loan and (iii) the value in Australian dollars of each loan, (d) each loan advanced by WSIL at no interest, stating (i) the name of the individual or entity receiving the loan, (ii) the address of the individual or entity receiving the loan and (iii) the value in Australian dollars of each loan. 3. In relation to loans that have been advanced to WSIL, state as at 30 June 1994, 30 June 1995, 30 June 1996 and 30 June 1997: (a) the name of the individual or entity advancing the loan, (b) the address of the individual or entity advancing the loan, (c) the value in Australian dollars of each loan, (d) the interest rate applicable to each advance. 4. State whether WSIL conducted any investment, business or commercial activity in its own right, other than holding shares in Western Star International Pte Limited (WSIPL). If so, state what this activity was. 5. State what activities were performed on behalf of WSIL at International Trust Building, Wickhams Cay, Road Town, Tortola, British Virgin Islands. 6. State what activities were performed on behalf of WSIL at 11/F Tower 2, The Gateway, 25-27 Canton Road, Kowloon, Hong Kong. 7. State whether any gross income was derived, whether of a revenue or capital nature, by WSIL during the period 1 July 1993 to 30 June 1997. If so, (a) list each class of income (ie dividends, interest or other), (b) the amount of each class of income in (a) using Australian dollar values, (c) the date each item of income in (a) was received or credited. 8. In relation to 7 above, state the source of such income. Here, source refers to the identity of the individual or entity from whom the income was derived. 9. Name all positions held by each of the directors of WSIL with: (a) WSIL (positions other than as director), and (b) WSIPL. 10. State whether any of the directors of WSIL, acting in that capacity, were accustomed to taking instructions from or, acting in accordance with the wishes of or, influenced and/or directed in their decision making responsibilities by other individuals or entities. If so, provide the names of those individuals or entities who impacted on the decision making in this manner and state why there were involved. 11. To what extent are administrative and secretarial functions shared by WSIL and Pozzolanic (Holdings) HK Limited. If shared, state whether (i) staff, (ii) management and (iii) directors are common to both entities. 12. Describe the investment, business or commercial activities conducted by WSIPL. 13. State the total number of shares issued by WSIPL (by class). 14. List the names and addresses of all shareholders in WSIPL. 15. Identify each asset and liability held by WSIPL, together with its value in Australian dollars (stating whether the values are at cost, market or some other value). 16. A chart illustrating the ownership structure of all entities in which WSIL holds a direct or indirect interest, including the relative percentage interest held by WSIL in each of these entities. Schedule of Copies of Documents required pursuant to section 264A of the Act "the Documents" In relation to Western Star International Limited, the following copies of documents are sought in respect to the period commencing 1 July 1993 and ending 30 June 1997:- 17. Balance sheets for each financial year which relate to the period 1 July 1993 to 30 June 1997. 18. Profit and loss accounts or profit and loss statements for each financial year which relate to the period 1 July 1993 to 30 June 1997. 19. Copies of all minutes of the meetings of the directors. 20. Copies of the Articles of Association. Facts 4 On 19 January 1999 the respondent wrote to the applicant requesting information regarding the income years 1 July 1993 to 30 June 1997 in the following terms: In your capacity as trustee of the trust, the following information is sought: 1. The name of the entity' or entities' in which the Trust holds an interest'. 2. In relation to each entity', please state: (a) the nature of theinterest' held; (b) the place of its incorporation, where theentity' is a company; (c) the address of its registered office; (d) its postal address; (e) its principal place of business; (f) its principal assets (including investments); (g) its principal activities; (h) in respect of each class of shares issued in the capital of a company, list as at each year end': (i) the total number of shares on issue; (ii) the number of shares held by the Trust; (iii) a description of the rights attaching to each class of shares; (iv) the dividends that have been declared by the company; and (v) the amount of any dividends received, credited or applied to the benefit of the Trust by the company; (i) the amount of any loan funds received from an entity' stating the terms and conditions governing each advance. This would include any advances applied to the benefit of any discretionary beneficiary of the Trust; (j) the amount of any loan funds advanced to the entity' stating the terms and conditions governing each advance; (k) the amount of any debts that have been forgiven by the Trust in relation to a debt owing by the entity'; (l) details of any expenses that have been met on behalf of the entity' by the Trust; (m) the name of the representative of the Trust who either alone or together with other persons or entities' was able to direct or influence the manner in which the entity' (in which an interest was held) acted, and (n) the name of the person or persons who controlled the affairs of the Trust'. … Defined terms are as follows:- Entity' or entities' means any body or organisation of any kind, whether incorporated or not, including any company, trust, establishment, foundation, anstalt, partnership, society, association, charitable body or fund. Interest' means any legal or beneficial interest or interests, whether held directly or indirectly, or held indirectly through one or more interposed entities'. At each year end' means as at 30 June 1994, 1995, 1996 and 1997. Controlled the affairs of the Trust' means not only the circumstances where majority voting power at meetings of members of, or of the governing body of, the trustee or appointor', was exercised, but also the circumstances in which: (a) a person (alone or together with other persons or entities') was able to direct the manner in which the trustee or appointer' [sic] acted; or (b) the trustee or appointor' or its governing body is accustomed, or is reasonably likely, to act in accordance with the wishes or instructions of a person, or (c) it is reasonably likely that upon a person's request or suggestion, a nominated person or entity' would be appointed to the governing body of the appointor' or trustee, or would be added to the class of objects of a power of appointment; or (d) it is reasonably likely that upon a person's request or suggestion, a power in respect of the Trust would be exercised so that an interest in the capital or income of the Trust would be vested (contingently or absolutely, and whether or not defeasibly) in a nominated person or entity'. Appointor' means a person or entity' who, alone or together with any other person or entity', may participate in, or whose consent is required for, the appointment or removal of a trustee or trustees. Those who may have been nominated as governor, protector or guardian of the Trust would also be included in this definition. 5 The applicant, by its tax agent, replied on 29 January 1999 as follows: In answer to your letter of 19 January 1999, and on behalf of the trustee, the following are the answers to your questions:- 1. The trust holds an interest in Western Star International Ltd. 2. Details of Western Star International Ltd are:- (a) Ordinary share held directly by the trust (b) British Virgin Islands (c) International Trust Building Wickhams Cay Road Town Tortola British Virgin Islands (d) 11/F Tower 2, The Gateway 25-27 Canton Road Kowloon, Hong Kong (e) British Virgin Islands (f) Investment holding (g) Investment holdings (h) Ordinary shares - this has not varied from the date of incorporation to the present (i) 10,000 shares (ii) 1 share (iii) Ordinary (iv) None (v) None (i) None (j) None (k) None (l) None (m) The trust has not appointed a representative in connection with Western Star International Ltd (n) The trust is controlled by Pilnara Pty. Ltd., the trustee. 6 On 11 February the respondent sought further detailed information from the applicant's tax agent as follows: 1. Advise whether Western Star International Ltd was formerly known as Pozzolanic International Ltd (as per the 1 share interest disclosed in the Trust's income tax return for the year ended 30 June 1997) or, whether they were separate entities. 2. Advise who were the directors of Western Star International Ltd during the period. 3. Advise where the administration centre of the company is located. 4. Advise what actual business was performed by Western Star International Ltd. 5. Advise what are the major investment activities of Western Star International Ltd. 6. Provide a chart illustrating the entities with which Western Star International is associated, reflecting the respective ownership %'s held by each entity and the place of incorporation of each such entity. 7. Provide the names of the parties who hold the remaining shares in Western Star International Ltd. 8. Advise the names of the representative(s) of Western Star International Ltd with whom the Trust has had communication. 9. State what the principal assets of Western Star International Ltd are. This would necessitate identifying the actual investment holdings of the company. In this regard, please provide a copy of the balance sheet of the company in respect of each year ended 30 June 1994 to 1997, inclusive. 10. Advise the date on which Western Star International was incorporated. 11. What are the voting rights attaching to the 1 share held by the Trust in Western Star International Ltd. 12. In addition, you are asked to provide the following information: (a) State why the Trust holds an investment in Western Star International Ltd. (b) State the circumstances in which Western Star International Ltd was introduced to the Trust as an investment vehicle. (c) Provide a copy of the relevant resolution which authorised the Trust to make the investment in Western Star International Ltd. (d) Advise what the Trust anticipates receiving by way of investment return in Western Star International Ltd. (e) Advise what role the Trust, or any persons or entities with which it is associated, has played in the affairs of Western Star International Ltd. (f) State the role played by the following entities in the affairs of Mr Peabody or his Group: (i) Pozzolanic International Ltd, and (ii) Western Star International Ltd. (g) State whether any market valuation of the share holding of the Trust in Western Star International Ltd exists and, if so, provide details of that market value. (h) State what information is held by the Trust or, by any persons or entities with which it is associated, in relation to Western Star International Ltd, and (i) Advise from whom you obtained the information regarding Western Star International Ltd. 7 The applicant's tax agent responded, on 22 February, as follows: 1. Western Star International Ltd. (WSIL) was formerly known as Pozzolanic International Ltd. The name change occurred on 17 February 1994. 2. The directors of WSIL during the period from 1 July 1993 to 30 June 1997 were Mr Wilfred K Timso and Mr. John W Crawford. Terry Peabody has never been a director of WSIL. 3. Hong Kong 4. Investment company 5. Western Star International Pte. Ltd 6-9 This information is not known to Mr. T.E. Peabody 10. The date of incorporation of WSIL is 28 January 1991. 11. Ordinary shares voting rights 12. (a) The trust acquired one share in 1991 (b) No particular circumstances, as it was a minimal investment at the date of acquisition with a prospect of some return in the future (c) No such resolution was executed (d) Minimal investment with a prospect of some future return (e) Nil (f) Nil (g) No (h) No information is held by the Trust. The only information known by Mr. Peabody is as stated herein. (i) Mr Peabody. 8 On 2 March a submission to issue the Notice was made and authorisation was given accordingly. The relevant portion of the Submission ("the Submission") was as follows (omitting some material the subject of a claim for public interest immunity): Name of taxpayer into whose affairs enquiries are being made: Pilnara Pty Limited as trustee for The Peabody Family Trust No.2 Taxpayer's File Number: 39 247 828 Address to which 264A notice is to be issued: c/- Mr Alan McNaughton 64 Hillsdon Road Taringa 4068 QUEENSLAND Brief description of information and/or documents sought: Information concerning the ownership of and, business carried on by, Western Star International Limited (the company). In addition, information is sought as to the relationship of the company to other related entities and, in particular, its relationship to the business of Western Star International Pte Limited, over which it appears to exercise control. Documents sought are limited to financial statements and copies of directors minutes. Year/s for which information and/or documents are to be requested: Generally, in respect of the income years ended 30 June 1994 to 30 June 1997, inclusive. Record of previous action taken to obtain information and/or documents requested in the notice: Letter dated 11 February 1999 was addressed to the Trust regarding, in part, the information now being sought via the 264A notice. However, limited information was provided in a response from the Trust dated 22 February 1999. This letter also stated that no further information was available other than what Mr Peabody could advise and, the extent of this knowledge had been provided in the response. Responses of taxpayer to action taken: None, as no action has yet been taken by this office. Basis on which information and/or documents are relevant to the taxpayer's assessment: As it is believed that the Trust has 100% control (either direct or indirect) of the company, then profits flowing to the company which have not previously been subject to comparable tax in an overseas jurisdiction, should be attributed as income back to Australia and assessed to the Trust. However, without any clear understanding of the role played by the company in the structure, it is impossible to consider either the evidentiary or factual circumstances behind the Trusts' involvement with the company's activities offshore. Despite attempts to elicit information regarding the Trust's interest in the Western Star business in Canada, and its related interests in interposed entities in the British Virgin Islands and Singapore, only negligible information has been disclosed by the Trust or Mr Peabody. … it is considered that Mr Peabody and a number of entities over which he exercises control may not be meeting their proper tax liability. Without the relevant disclosure of these interests or activities, it is impossible to determine the extent to which tax is being avoided or control is being exercised by Mr Peabody or his family. Basis on which there is reason to believe that the information and/or documents are held outside Australia: Advice has been received that the only information that is known in relation to the company has been provided by the Trust. Apart from that information, no further information is held by the Trust (or presumably Mr Peabody). Therefore, the only possible source of information is the company itself. This information and documentation would either be retained in its registered office in the British Virgin Islands or in its administration centre in Hong Kong. Action to be performed by addressee to comply with notice: To on-forward the notice to Mr Terrence Peabody as the representative of the Trust and a director of the trustee company. Proposed date of service of notice: Tuesday 2 March 1999 Other comments: In a letter dated 22 February 1999, the Trust (Mr Peabody appears to have in fact provided this information on behalf of the Trust) has advised that no further information can be provided in relation to the company. This is a cause of concern for this office. It is the role of the HWI Taskforce to review the income tax affairs of taxpayers where there is an apparent lack of correlation between assessable income and assets owned or controlled. In the case of Mr Peabody, he has returned a taxable income of $74,100 in his income tax return for the year ended 30 June 1997. Net assets held or controlled by Mr Peabody have been estimated at 100's of $M's. 9 The actual decision-maker made the following memorandum on 2 March: Taxpayer The Peabody Family Trust No.2 Ms Dunne is conducting an audit of Mr Terrence Peabody and associated entities. This audit is being conducted as a part of the High Wealth Taskforce Programme. In order to ascertain information concerning the affairs of The Peabody Trust No. 2 Ms Dunne has found it necessary to issue a notice under Sec 264 A of the Income Tax Assessment Act. I have been advised that other methods of obtaining the required information have proved unsatisfactory. Prior to reading the notice and submission prepared by Ms Dunne, I have read Chapter 4 of `Guidelines Access and Information Gathering Powers' ,published by the ATO in September 1996. I have also read the decision in FH Faulding & Co Ltd v FC of T 94 ATC 4867. I am concerned by the role played by Western Star International Limited and am of the view that this role is significant in ascertaining the taxation liability of The Peabody Family Trust No. 2. After discussing the matter with Ms Dunne, I have formed the view that the request for information and documents is reasonable. This material is relevant to the assessment of The Peabody Family Trust No. 2. 10 In November 1998, the applicant's tax agent provided the respondent with copy resolutions of directors for each of the years to 30 June 1994 to 30 June 1997 inclusive, resolving a distribution of income from The Peabody Family Trust No. 2 as to 100% to Western Star Trucks (Australasia) Pty Ltd. This was in answer to a request by a First Assistant Commissioner of Taxation said to be of the High Wealth Individuals Taskforce, which is also the Taskforce in relation to the issue of the Notice.

Reasons for decision 11 The statement of reasons under s 13 Administrative Decisions (Judicial Review) Act 1977 (Cth) ("the s 13 Reasons") was as follows: The Facts The material findings of fact that were taken into account in making the decision to issue the notice are set out as follows; 1. The taxation affairs of the taxpayer are subject to audit by the Australian Taxation Office. 2. The taxpayer acquired one ordinary share in Western Star International Limited (WSIL), a company which was incorporated in the British Virgin Islands, on 28 January 1991. 3. The British Virgin Islands is a non comparable tax jurisdiction with which Australia does not have a double tax treaty. 4. The Australian Taxation Office is unable to access information or documents in relation to companies in the British Virgin Islands. 5. The taxpayer has continued to hold one share in WSIL since 1991. 6. The administration centre of WSIL is located in Hong Kong. 7. The directors of WSIL during the period 1 July 1993 to 30 June 1997 have been Mr Wilfred K Timso and Mr John W Crawford, both of whom are non residents of Australia for taxation purposes. 8. The actual business performed by WSIL is that of investment. 9. The taxpayer has not returned any income from its shareholding in WSIL. 10. The agent for the taxpayer, Mr Alan McNaughton, has advised that the trust is unaware as to the identity of the holder/holders of the remaining 9,999 shares on issue by WSIL. 11. Mr McNaughton has advised that the trust has no knowledge concerning the investment activities of WSIL. 12. The Commissioner of Taxation has enquired as to the circumstances under which WSIL was introduced to the Peabody Family Trust No. 2 as an investment vehicle. He was advised that there were `no particular circumstances as it was a minimal investment at the date of acquisition with a prospect of some return in the future'. The Evidence The evidence or other material upon which the findings on material questions of fact are based, is set out as follows: 13. The income tax returns of the taxpayer for the years ended 30 June 1994 to 1997. 14. Letters issued to the taxpayer by the Commissioner of Taxation dated: (a) 19 January 1999, and (b) 11 February 1999. 15. Letters received from Mr McNaughton, in reply to the above correspondence, dated: (a) 29 January 1999, and (b) 22 February 1999. The Reasons for the Decision In his audit of the taxation affairs of the taxpayer, the Commissioner is concerned to determine whether all income from all sources has been returned by the taxpayer in order to assess its liability to income tax. The Commissioner has been advised that the taxpayer holds one share in WSIL, a company which is incorporated in the British Virgin Islands. The Commissioner has been further advised that the directors of WSIL are non residents of Australia and that the administration centre of the company is located in Hong Kong. In order to obtain further information concerning the activities carried on by WSIL, the Commissioner has made enquiries of the taxpayer but the taxpayer could not provide sufficient information to fully satisfy those enquiries. As WSIL, its directors and its administration centre are all situated overseas, I formed the view that information relevant to the assessment of the taxpayer is within the knowledge of the directors of WSIL, is recorded outside Australia and, that documents relevant to the assessment of the taxpayer are outside Australia. Without the information sought in the notice, the Commissioner is not in possession of full and complete knowledge that would enable him to properly consider the taxpayers liability to taxation. Accordingly, I decided to issue a notice seeking further information and documents pursuant to section 264A of the Act.

Grounds of Review 12 The amended Application sets out the grounds which were relied upon although they were refined by written and oral submissions.

Relevance of the information 13 The applicant has submitted in various ways that the s 13 Reasons do not disclose a proper basis for the decision to give the Notice. The most general is that they do not provide any prima facie support for the view that Western Star International Ltd ("WSIL") was a "controlled foreign company" within the meaning of s 340 of the Act on the assumption that this was the matter being investigated. The point, of course, is also made that there should be no need to make any assumptions. 14 The respondent submits that the facts recited by the s 13 Reasons are sufficient to form a reasonable belief that information and documents located overseas are relevant to the ascertainment of assessable income of the applicant under Part X of the Act, and relies in particular upon s 456(1). 15 In particular, it was submitted that: (1) The information and documents required by the respondent for the purpose of ascertaining the amount (if any) to be included in the assessable income of the applicant under s 456(1) includes information concerning and documents recording: · the structure and shareholding of WSIL (being relevant to whether or not WSIL is a controlled foreign company under s 340); · the nature and extent of the applicant's interest in WSIL and of WSIL's interests in other entities (being relevant to determining whether or not the applicant is an attributable taxpayer in relation to WSIL under s 361 and (if so) the applicant's attribution percentage under s 362; as to WSIL's interests in other entities see particularly s 352 and s 353); and · the nature and extent of the income of WSIL (being relevant to calculating the attributable income (if any) of WSIL under s 382) (2) The information and documents requested in the schedules to the Notice all fall within that description. 16 There was some debate as to the meaning of the phrase "the assessment of a taxpayer" in the section. In my view, this refers to the whole process of ascertaining the amount of taxable income, rather than the completion of the process by issuing an assessment. In addition to the definition in s 6 of the Act, see Industrial Equity Ltd v Deputy Commissioner of Taxation (1990) 170 CLR 649 at 658 and Commissioner of Taxation v Stokes (1996) 72 FCR 160 at 166G-167B. 17 The width of the notion of relevance and the width of the process of assessment mean that the basis of the respondent's satisfaction as to the nexus between information and assessment does not require a prima facie case as was submitted by the applicant. The respondent is correct in submitting that the threshold is not high, and that the nature of the power is essentially that of inquiry (Southwestern Indemnities Ltd v Bank of New South Wales (1973) 129 CLR 512 at 518). 18 However, there must objectively be reason for the Commissioner to have the relevant belief. This requires the existence of facts which are sufficient to induce that belief in a reasonable person (George v Rockett (1990) 170 CLR 104 at 112; WA Pines Pty Ltd v Bannerman (1980) 41 FLR 175 at 180, 186). There is a statutory threshold. All that the s 13 Reasons amount to is that a taxpayer holds one share out of 10,000 shares on issue in a foreign corporation from which no income has been returned and is unable to provide any meaningful information about that corporation. 19 The contrast between the Submission (set out in paragraph 8 above) and the s 13 Reasons is instructive. The Submission gives a rational, albeit very general, argument for issue of the Notice and includes material - both of fact and opinion - not included in the s 13 Reasons. Even so, the Submission is deficient in not stating any grounds or factual basis at all for the belief that the Trust has 100% control of the company, which is the fulcrum upon which the matter turns. An unsourced belief cannot be enough to induce the "reason to believe" required by the section. 20 In my opinion, the s 13 Reasons do not disclose any adequate factual basis giving reason for the statutory belief and the decision cannot stand on that account. There may well be a proper basis for having reason to believe that the application of Part X of the Act might attribute assessable income to a taxpayer, so permitting the exercise of the power granted by s 264A. If so, that basis has not been demonstrated. It is not suggested that the s 13 Reasons can be supplemented by other material to overcome any deficiency in them. In coming to this conclusion, I have taken account of the respondent's point that documents such as s 13 Reasons (as with the Notices themselves) should not be subject to an over-technical or highly critical approach to construction, citing SA Brewing Holdings Ltd v Baxt (1989) 23 FCR 357 at 370.

Existence of the information 21 The applicant also argued that it is necessary that the decision-maker should reach the appropriate belief as to each item of information and each document sought, and that it was clear on the evidence that this had not been done in the present case. It was submitted that it is implicit in the section that the starting point is that there is reason for the Commissioner to believe that the information or documents actually exist, and it is only at that point that a reason to believe as to relevance and as to the location of the information or documents comes into play. 22 The respondent conceded that the words in the section "any such" clearly enough limit the information and documents requested to information and documents falling within the class of documents or information that the Commissioner believes, on reasonable grounds, are located overseas and are relevant to the assessment of the taxpayer, although it was submitted that the Commissioner need have no belief as to the form or precise content of the information or documents. 23 In my view, the applicant's contention as to the proper construction of the section is correct. The issue is, thus, whether the mind of the decision-maker was turned to that point. The s 13 Reasons deal with the matter in the following way: As WSIL, its directors and its administration centre are all situated overseas, I formed the view that information relevant to the assessment of the taxpayer is within the knowledge of the directors of WSIL, is recorded outside Australia and, that documents relevant to the assessment of the taxpayer are outside Australia. 24 The Submission included, under the relevant heading, the following: Advice has been received that the only information that is known in relation to the company has been provided by the Trust. Apart from that information, no further information is held by the Trust (or presumably Mr Peabody). Therefore, the only possible source of information is the company itself. This information and documentation will either be retained in its registered office in the British Virgin Islands or in its administration centre in Hong Kong. 25 The way in which the s 13 Reasons have been framed would suggest that the decision-maker only had regard to the fact that all of the information in relation to the company was outside Australia, without paying attention to whether there was reason to believe that the information and documents in fact existed. The specification of the information sought in the Schedule to the Notice points in the same direction. 26 In considering this issue, it needs to be borne in mind that a notice may not request the taxpayer to whom it is addressed to bring new information or documents into existence (save for copy documents) - Fieldhouse v Commissioner of Taxation (1989) 25 FCR 187 at 193-5; Insurance & Superannuation Commissioner v Glaser (1997) 79 FCR 505 at 517. 27 The list of information and documents looks like a relatively standard list of questions that would be asked if the Commissioner were undertaking a comprehensive review or audit of the affairs of a company or companies governed by Australian corporations law, with a relatively small degree of customisation to meet the particular circumstances. It calls for information in a form which might or might not exist. 28 In considering the degree of particularity or specificity which is required, it is relevant to take into account the provisions of s 264A(10) which, sufficiently to follow the point, is as follows: 264A (10) [Non-compliance without consent] If the taxpayer refuses or fails to comply with the request or requests set out in the offshore information notice, then, except with the consent of the Commissioner: (a) if the information or documents to which the request or requests apply are only relevant to one issue concerning the assessment of the taxpayer: (i) where the request, or any of the requests, apply to information - the information is not admissible in proceedings disputing the taxpayer's assessment; or (ii) where the request, or any of the requests, apply to documents - neither the documents, nor any secondary evidence of the documents, are admissible in proceedings disputing the taxpayer's assessment; … To construe the section to enable the Commissioner to request what amounts to, in effect, a general audit of a foreign corporation, and then apply s 264A(10) may have drastic effects. 29 Whilst I agree with the respondent's submission that there is no need to know the precise content of information or documents, there must be a factual basis disclosed which enables the necessary reasonable belief to be formed. As the issue of the existence of the information and documents is not expressly dealt with in the s 13 Reasons, or indeed in the Submission, the information and documents sought must so obviously exist as not to require discussion. Whilst I consider this might well be so in relation to some of the information sought, it certainly does not follow in relation to much of it. Items 15 and 16 in the Schedule are the most obvious examples, but I do not know in what form the law requires the corporations in question to keep their affairs or what books and records must be maintained. It is not clear from the s 13 Reasons that the documents called for as items 17, 18, 19 and 20 exist. I do not suggest that my knowledge is the extent of the Commissioner's knowledge. He may well have knowledge of facts which would properly found a belief in the existence of much of that which is sought. However, again, that factual basis has not been disclosed but has been left to inference alone. I cannot draw that inference. 30 It follows that, in my view, there is no proper factual basis disclosed to ground a reasonable belief in the existence of all of the information and documents which have been sought. In view of my conclusions in other respects, it is not necessary to consider the question of severability in this regard.

Uncertainty 31 The first point taken by the applicant under this heading is the lack of any particulars in the Notice which could enable a recipient to know whether the request is authorised by s 264A, which the Notice identifies as the source of power. 32 Relevantly, what the recipient knows from the Notice is: 1. what is requested; 2. that the Commissioner claims to have reason to believe that the information or documents is or are relevant to the assessment of the applicant as trustee of the identified trust for the relevant years; and 3. that the Commissioner claims to have reason to believe that the information or documents is or are outside Australia. 33 The Notice does not disclose the factual or objective basis for the Commissioner's reason to believe (2) or (3). Mr Sullivan SC, for the applicant, contends that the recipient has no means of judging whether the request is authorised or not, and contrasts the form of this notice with that in contest in FH Faulding & Co Ltd v Commissioner of Taxation (1994) 54 FCR 75, the only other case that the researches of counsel have discovered which deals with notices pursuant to s 264A. The notice in that case is set out at 85E-92E. That notice identified the general issue to which the request related (at 85F) and, in relation to categories of information, identified particular issues to which the information related (at 86A, 87C, 88C, 88F, 89D, 89F, 90C, 90E). 34 Mr Sullivan points to the authorities which hold that the phrase "has reason to believe" requires that there be, objectively, reasonable grounds or cause for belief to which I have earlier referred (eg, George v Rockett (supra) at 112; WA Pines Pty Ltd v Bannerman (supra) at 180, 186). This is not disputed by Mr Robertson SC, counsel for the respondent. Mr Sullivan then takes the next step and contends that to merely assert, as this Notice does, "having reason to believe" that the information and documents are relevant to the assessment of the trust for the relevant year, does not satisfy what the majority in SA Brewing Holdings Ltd v Baxt (supra) called the "entitlement disclosure condition", which requires that a notice must disclose the necessary relationship between the information sought and the matter in respect of which it is sought (see page 370). 35 Mr Robertson says that this case, and the authorities to which it refers (including the High Court authorities on s 264 of the Act), concerned disclosing the matter sufficiently, whereas in the present case the matter was identified as the assessment of the applicant as trustee of the trust for the specified years. He also submitted that there was no requirement that a request be a speaking request in the sense put by the applicant, and that provided the statutory pre-conditions in fact existed, the Notice was good. 36 A similar point arose in Faulding. The applicant there (as here) relied upon the cases concerning s 155 of the Trade Practices Act 1974 (Cth), although SA Brewing does not appear to have been cited to Cooper J. His Honour held that the correct analogy was with s 264 of the Act and examined those cases in some detail. His Honour then said at 134: It was submitted by counsel for the respondent that the statement on the notice: "… do by this notice pursuant to paragraph 264A(1)(c) and (d), require you to provide me, on or before 18 January 1993, with information and documents relevant to the assessment of FH Faulding & Co Ltd for the year ended 30 June 1987 as specified in the following paragraphs" entitled the respondent to undertake a general investigation of all aspects of the applicant's financial affairs for the year ended 30 June 1987 to determine whether an amended assessment ought to be made as a result of that investigation. Without more in the notice the submission may well be correct. However the notice in terms identified the specific issue to which the request for information and documentation related. By the inclusion of the following: "ISSUE TO WHICH THIS REQUEST RELATES This request relates to your claim for exemption from tax pursuant to section 23(q) of the Income Tax Assessment Act of interest of $1,164,304.90 derived from an investment of $A10m in the Cook Islands in the Income Year ended 30 June 1987." the respondent has identified the relevant issue as being whether or not the income of the applicant in the sum of $1,164,304.90 claimed by the taxpayer as interest derived from an investment of A$10,000,000 in the Cook Islands is assessable income because of the operation of s23(q) of the Act. (emphasis added) 37 Mr Robertson relied upon this dicta as supporting his position. Mr Sullivan, however, submitted that his Honour had misdirected himself by applying s 264 cases rather than the s 155 cases. He pointed out that s 264 has no statutory pre-condition to the exercise of the power involving "reason to believe", whereas s 155 was in similar terms in this respect to s 264A. Indeed, he submitted that s 264A was introduced into the Act after the authorities had construed similar language in s 155 and that Parliament must have intended to pick up those authorities. He also stressed that the notice considered in Faulding was obviously drawn consistently with his submission. 38 I agree with the submission that s 155 is a surer guide to this issue than s 264, and regard the settled authorities in this Court on that provision as most persuasive. It is instructive that when the statements as to the issues recited in the Faulding notice entitled Cooper J to judge the objective relationship between the issue and the information sought, he upheld many of the objections to the notice, and, indeed, declared that the notice was not valid and set it aside. 39 The question as to what extent, if at all, a statutory notice should recite the fulfilment of conditions precedent has received different answers depending upon the statutory scheme in question. If, as I think I should, I follow the reasoning of the Full Court in SA Brewing, following, as it does, the earlier Full Court decision in Pyneboard Pty Ltd v Trade Practices Commission (1982) 57 FLR 368, in my opinion it is not sufficient to satisfy an "entitlement disclosure condition" by simply identifying the taxation assessment of the party served with the notice. This link, in any event, is inherent in the section itself. As the passage from SA Brewing to which I referred at paragraph 34 makes clear, it is the relationship between one thing and the other which is necessary to be disclosed. In the present circumstances, that link would normally be the objective facts which link the material sought with the assessment. For the purposes of this case, it is not necessary to decide what information should be provided, or in what form it should be provided, as none was provided. However, it would follow from my discussion of the statutory pre-conditions that a sufficiently demonstrated link to Part X of the Act might be seen as an irreducible minimum. 40 In distinguishing the s 264 cases, I have in mind not only the fact that s 264A has a statutory pre-condition involving "reason to believe" and s 264 does not. Section 264 most naturally is to be read with s 263. These sections give far-reaching powers to the Commissioner subject to little limitation other than that they must be exercised for the purposes of the Act and the necessity to identify the taxpayer for the purposes of s 264(1)(b). It is to be assumed that the powers provided by s 263 and s 264 will be directed to places and persons from which or from whom relevant information can be obtained. Section 264A is an entirely different kind of provision. It requests a taxpayer to give information or documents which the taxpayer does not have or hold. If it did, it would be subject to a s 264 notice or seizure pursuant to s 263. (See generally the discussion by Hill J in Fieldhouse v Commissioner of Taxation (supra) at 206-7.) Where, as in this case, most or all of the information sought might be unknown to the taxpayer, it is to be assumed that Parliament would intend that the notice would disclose the circumstances linking the information or documents with the assessment. 41 The respondent submitted that to impose this requirement would be inconsistent with the investigative nature of the power. The first answer is that the same could be said of s 155. The second is that I see no inconsistency between the requirement that a taxpayer be given information which permits it to discern the lawful nature of the request made, on the one hand, with proper investigations by the respondent, on the other. I see no relevant parallel between, for example, covert police investigations into serious crime and the respondent's investigations. 42 In short, I uphold the applicant's arguments on this point. The view of the law adopted by the respondent when the notice before the Court in Faulding was drafted was correct and the current form is inadequate.

Other grounds 43 These findings are sufficient to dispose of the matter. A number of the other points taken relate to matters of form, or to part, but not all, aspects of the information sought. By and large, they could be accommodated by a fresh notice drafted with a closer eye to the section and the authorities. I do not propose to deal with them. If it becomes relevant for a Full Court to consider any of them, the written submissions of the parties sufficiently identify the respective arguments which were advanced. These points do not depend upon any disputed evidence, and I thus have no special advantage in dealing with them. The only other issue to which I will refer is the constitutional validity of s 264A.

Constitutional validity 44 The constitutional validity of s 264A was unsuccessfully challenged in Faulding. The respondent's initial position was to submit an argument which it suggested was not put to Cooper J in that case, particularly relying upon the later High Court decision in Nicholas v The Queen (1998) 193 CLR 173, and otherwise to simply preserve its position in relation to those matters which it wished to agitate which were covered by the decision of Cooper J. This was not an entirely satisfactory course, as Faulding is not a decision which binds me and because, whilst the precise argument may not have been put to his Honour it could be seen as a variation on a theme which was. The applicant then widened its attack to include a number (but not all) of the grounds taken in Faulding. All of those which were taken were based upon Chapter III of the Constitution. 45 As I have found the decision and the Notice invalid on other grounds, it is unnecessary that I decide the constitutional questions. I can also indicate that, even if it had been necessary to decide them because the decision and the Notice were not otherwise flawed, I would have been disposed to follow Faulding and so reject the applicant's challenge. I do not regard the separate argument now sought to be put as sufficiently distinct and separate from that which was argued in Faulding to enable it to be dealt with without considering the reasoning which underlay that decision. In other words, to dispose of this argument it would be necessary to form a view as to the validity of the reasons of Cooper J. Next, having considered the arguments of counsel, I was not convinced that his Honour was plainly wrong, and, in those circumstances, I would have been disposed to follow his decision as a matter of comity. I should also say that whilst I regard the decision of the High Court in Nicholas as being of considerable significance to the applicant's arguments, I would not regard it as sufficient in itself to warrant me departing from the earlier decision. I should make it clear that I have not formed any independent view which accords with that of Cooper J. 46 I should also note that Mr Robertson put the argument that any challenge based upon Chapter III of the Constitution was premature and would only arise if and when the Commissioner sought to preclude the admission of evidence pursuant to s 264A(10) by the Court.

Conclusion 47 I propose to make orders accordingly. I certify that the preceding forty seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.

Counsel for the Applicant: Mr BJ Sullivan SC Mr NJ Williams

Counsel for the Respondent: Mr A Robertson SC Mr S Gageler

Solicitor for the Respondent: Australian Government Solicitor

Date of Hearing: 18, 22 and 23 June 1999