Drop the “not guilty tax” to improve the tax appeals system
I’ve written about the backlog of tax appeals in this column previously. Thousands of appeals remain outstanding with over €1.6 billion of tax in question. The three Appeal Commissioners only have 24 hours in their days. The Minister noted in the Dail recently that his Department is considering requests for additional resources including staff but that did not involve any further appointments at Commissioner level. More Commissioners are needed especially when you consider that the Commission now receives an estimated 200 appeals per month on top of the thousands outstanding.
Would additional Commissioners be enough to make everything alright with the appeals system? I was chatting to a barrister colleague of mine recently and we concluded…Not so much.
Say you and Revenue disagree on a tax assessment then you can tell Revenue to “See you in court” and let the Appeal Commissioner decide who’s right. That’s fair but the time to get to that decision isn’t and that’s down to the number of Appeal Commissioners and their enormous workload.
When you throw down your “court gauntlet” you have two choices: You pay the tax that Revenue say you owe or you don’t. Then you prepare for the hearing which may be months or years later. Say you don’t pay the disputed tax and you win before the Commissioner then, subject to Revenue deciding not to appeal to the High Court, you’ve held onto your cash and made it work for you in the meantime.
Say you lose, then you have to pay the tax due but you also have an interest bill on that tax from its original due date which could have been years ago. The interest rate can be 0.0219% per day or almost 8% per year. The UK’s equivalent is less than half at 3%.
So taking Dennis Hopper’s line in “Speed” (1993) “pop quiz hotshot…what do you do”. You could pay the tax to avoid the possible interest charge. If you win then the Exchequer had an interest free loan from you while you await the appeal hearing’s decision; you’re at the loss of your cash in the meantime. You might have borrowed at lower commercial rates to fill that cash hole. Think about that for a second: If you win your case then you’ve borrowed to fund someone else’s use of your cash. Bad answer. You could have left the money in your bank account suffering restless nights due to the haunting ticking sound of the interest clock.
The potential interest charge together with the opportunity cost of using your cash combine to form what I call the “not guilty tax” where you win your appeal. In order to defend your tax position then the “not guilty tax” must be paid; you merely get to choose its form, cash or insomnia.
Is that fair? You’ll guess that’s rhetorical! The interest possibility can deter taxpayers from taking an appeal in the first place e.g. Two years between your “court gauntlet” and its related decision carries an interest charge of around 16% on the outstanding tax. I cited a recent Dail debate in this column previously which said some appeals wait “on average” 319 days for determinations so my earlier two year example is far from science fiction.
Therefore the case is there to remove the interest charge for the time between the taxpayer making the appeal and the Appeal Commissioner’s decision as to who’s right. The taxpayer’s interest charge would then be based on their actions and not on system delays which are outside their control.
Of course, some would say, rightly, that abolishing such an interest charge might allow a taxpayer to throw down the court gauntlet knowing that the time to appeal may be significant and therefore push its tax due date far into the future. That would effectively give the taxpayer an interest free loan from the exchequer where it was clear that the tax was due in the first place.
The Appeal Commissioners don’t have to take an appeal. Revenue can send a written notice to the Appeal Commissioners where they form the view that an appeal isn’t valid which the Appeal Commissioners can take on board. A further check could be that the Appeal Commissioners could ultimately decide, notwithstanding they had chosen to take the appeal, that it became clear that the appeal was an attempt by the taxpayer to push the tax payment into the future. There the interest clock would run from due date to payment including the appeal process time and in that way a full interest charge would apply to a sham justice seeker.
The issue of whether a tax position is genuine is not a new concept to Irish law. For example, a taxpayer may doubt their treatment of a particular matter on their tax return. In that instance, the taxpayer can include a “letter of expression of doubt” with accompanying information as part of that return. This protects the taxpayer from interest on late payment where Revenue amend their assessment after coming to a different view on the amount of tax due. This protection isn’t available where Revenue form the view that the doubt was not genuine. The taxpayer can appeal Revenue’s “non genuine” conclusion to the Appeal Commissioners. So ascertaining the genuine nature of a taxpayer’s position would not be a new legal concept to the Appeal Commissioners.
The removal of the interest charge on genuine appeals could remove a deterrent that currently exists for certain taxpayers taking appeals and possibly leading to more appellants seeking justice. More appeals bring about an even stronger case for additional suitably qualified Commissioners to improve the appeals system. So this shouldn’t give rise to Lord Mansfield’s famous eighteenth century dictum “Let justice be done, though the Heavens fall”.
If we got to remove the “not guilty tax” and saw the appointment of more Appeal Commissioners then as Tom Hanks said in “Philadelphia” (1993) “occasionally you get to be a part of justice being done. That really is quite a thrill when that happens”. Here’s looking forward to being thrilled!
Tom Maguire is a Tax Partner in Deloitte and his monthly columns on tax matters appear in the Sunday Independent. The above article was first published on 15th April 2018.