Let’s bring about a more “quid pro quo” law for tax controversy matters

The Tax Appeals Commission is where you go if you disagree with the tax bill that Revenue sent you. It’s a form of tax court. The Commission’s determinations can be appealed to higher courts if you or Revenue disagree with its ruling in your case. The website of the Tax Appeals Commission outlines some highlights for 2023. It notes that it closed 1,521 appeals valued at €1.4bn (130% more than 2022). It received 1,156 appeals valued at €613m (20% less than 2022) and it issued 175 determinations valued at €409m (40% more than 2022). They were and continue to be busy.

During the week I discussed the above with my colleague Fiona McLafferty. She is a former Tax Appeal Commissioner and heads up our Tax Controversy team. Given she’s been there and done that from a tax controversy perspective, we discussed what changes could be made to improve the whole adversarial system.

Let’s start with where the taxpayer has underpaid tax. Interest is due at a daily rate of 0.0219% on late payments or payments of certain taxes that are not made in full (c.8% p.a.) and can be 0.0274% (c.10% p.a.) in other instances. Compare that to market deposit rates and indeed borrowing rates. Ireland has a separate system for penalties which apply with respect to the underpayment of tax or late filing of returns and so such interest rates are not appropriate on underpaid or late tax which should reflect the time value of money. The rates of statutory interest on underpaid tax should be reviewed. 

A previous Finance Act brought about a provision to deal with the position where a taxpayer appeals a tax assessment and pays the disputed tax liability before the appeal. In that instance, the provision seeks to provide that where any person appeals an assessment, makes a payment to Revenue in connection with that appealed assessment and is subsequently entitled to a refund of that payment, either because the person settles with Revenue, is successful at appeal, or the assessment is determined in her/his favour by a court, repayment of that amount will not attract interest. The exchequer had use of that money between the time the payment was made and the time the appeal is eventually decided but no interest is paid to the taxpayer for the use of their money. Now look to the other side I mentioned earlier; if tax is found to have been underpaid then the taxpayer is charged interest from the date the tax liability falls due. In short interest is payable for the period that the taxpayer had use of that money. Consideration should be given a quid pro quo change to our law as written be brought about. 

Tax refunds are an issue I’ve written about in these pages previously. I mention it again because I’ve lost count of how many times this issue has come before the Tax Appeals Commission with the taxpayer consistently losing because of the law as written. Where a taxpayer has overpaid tax but because the related tax return was filed after the required time limit then the refund question could come before the Tax Appeals Commission. The answer was the same each time: Refund denied.

Generally, a claim for a refund of overpaid tax must be made within four years of the chargeable period to which the claim relates and is often referred to as the “four-year rule”. The law says that a repayment of tax “shall not” be made unless that rule is adhered to. Therefore, the Tax Appeal Commissioner “shall not” go rogue on the law and allow the appeals where the rule isn’t adhered to.

The reasoning behind the four-year time limit is understandable. The Exchequer has to protect its resources and can’t entertain refund claims going all the way back to the dawn of time. Certainty, to the extent it can be achieved, is a necessity in running any business, let alone a country. However, Revenue can look back beyond the 4 years where they suspect fraud or neglect has been committed in paying tax. So why not bring about a quid pro quo relaxation of the time limits for refunds in cases of taxpayer hardship and extenuating circumstances? 

In one appeal, the Commissioner explained that “due to his wife’s serious health complications and personal challenging circumstances relating to extremely private matters, he [the taxpayer] was not in a position to apply for tax relief and his tax affairs were understandably not his top priority. The Appellant provided a doctor’s letter in support of his personal circumstances. The Commission accepts the truth of these circumstances based on his own report and that of his doctor”. In addition, the decision explains “The extenuating circumstances in this appeal have been recognised by the Commission. The Commissioner has the utmost sympathy for the position the Appellant found himself in, relating to his challenging personal circumstances”. Nonetheless, the absence of discretion in the law as written meant that the refund was denied. 

Some may argue that such a move could bring a subjective matter to our law but it is one which could benefit the taxpayer in times of hardship or other extraneous circumstances. Surely an objective benefit in such circumstances would outweigh the subjective cost.

The Finance Bill is not that far away, and we would argue, dearest gentle reader, that the more “quid pro quo” provisions we can bring to our law the better.

Please note this article first featured in the Business Post on Sunday, 23 June 2024 and was re-published kindly with their permission on our website.