Agreeing to pay $575,000 to Ministry of Justice as proceeds of crime, Zhiwei Li failed in his argument that this sum should be credited to his tax liability. Inland Revenue needs to be brought to the negotiating table when settling proceeds of crime litigation, Justice Wylie observed.
Li was caught in a sting after a journalist enrolled undercover for a business course offered by a private training establishment and was awarded his diploma without attending any classes or completing any course work. Media publicity resulted in Li being convicted for fraud in 2015 and sentenced to four months’ home detention. This publicity attracted attention of both police and Inland Revenue. Police inquiries identified $1.8 million banked into accounts in the name of both Li and his wife over a three year period. Cash totalling $135,000 was seized following a search of their North Shore home in Auckland. Police took action under the Criminal Proceeds (Recovery) Act alleging these assets came from both the diploma fraud and tax evasion. Li claimed much of the money was sourced from his accounting practice, AA Taxation & Accounting Service Ltd, paid into their personal bank accounts. He acknowledged income tax from his accounting practice was underpaid.
In 2017, Li and police negotiated a court-approved settlement of the proceeds of crime claim. Li paid $575,000. Two months previously, Li had written to Inland Revenue making a voluntary disclosure of underpaid tax by both himself and AA Taxation. Inland Revenue inquiries were still under way when the proceeds of crime settlement was signed. Inland Revenue was not party to the settlement. The document specifically stated it was for Inland Revenue to decide on the tax status of the $575,000 payment.
One year later, negotiations with Inland Revenue saw Mr Li agreeing to pay tax arrears of some $242,600; AA Taxation $211,800. Inland Revenue refused to allow a tax credit for the $575,000 paid earlier to Ministry of Justice. Mr Li sued. He was being forced to pay twice over, he complained.
The proceeds of crime settlement made it clear the $575,000 payment was to have no bearing on Mr Li’s potential but as then unascertained tax liability to Inland Revenue, Justice Wylie ruled. Police and Mr Li were at that time content to let Inland Revenue decide.
Rules in the United Kingdom prohibit double recovery.
Li v. Inland Revenue – High Court (18.03.22)
22.064