It’s time to look again at the law on refunds of overpaid tax

I’ve written about this issue a few times over the years. I’ve lost count as to how many cases have come before the Tax Appeals Commission (TAC), a tax court, where a taxpayer has overpaid tax but because the related tax return was filed after the statutory time limit the answer was the same each time: Refund denied.

Right now decisions are being made as to what should be in this year’s Budget, which will ultimately make its way into law through the Finance Act. In my view, an appropriate refund of overpaid tax is one area where the law should be looked at again this year. When you pay tax, you give your hard earned cash over to the Exchequer so it seems somewhat unjust that there should be a timeline on getting your overpaid tax back. It’s one thing to effectively lend your overpaid tax to the Exchequer (generally without interest) until you claim it back but seeing it disappear in front of your eyes because of a technicality, that’s something else.

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 generally 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. Keeping me honest, 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 that 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 have a quid pro quo relaxation of the time limits in cases of taxpayer hardship and extenuating circumstances?

Tax nerds will say that would make for subjective law but from a taxpayer’s perspective, isn’t that better than an objective ‘no’ where hardship and other extenuating factors prevail? Isn’t it better from a policy perspective to show that Ireland doesn’t go beyond what’s necessary to protect the Exchequer to the detriment of others? Proportionality matters. Separately, if such “extenuating circumstances law” had been enacted before now then fewer cases may have come before the TAC thereby freeing up their resources.

Many of the above-mentioned Commissioners’ decisions say that the law does not provide for “extenuating” circumstances, which could mitigate the 4-year rule. Before continuing, it should be noted that generally decisions of the TAC are given on an anonymised basis.

A TAC decision was published on 17th August last where the taxpayer was looking for a tax refund of €11,990.19 for tax years 2013 and 2014 and both returns were submitted outside the 4-year time limit for claims of repayment.

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”.

In addition, it was noted at the start of her decision that “The Appellant submitted the appeal on 16th February 2020. The Commission noted that the Appellant’s father also passed away in November 2020. In addition, the Commissioner notes that the Appellant was made redundant with effect from March 2020. The Appellant held senior positions within the airline industry. The Commissioner notes the many personal challenges the Appellant and his family have suffered and extends the utmost sympathy in relation to his circumstances”. So, in terms of the overpaid tax, the tax returns at issue and in taking the appeal itself the “extenuating circumstances” were clear and were proven by medical evidence. Nonetheless, the absence of discretion in the law meant that the refund was denied.

The TAC published another decision on the same day as the one described above where the taxpayers concerned had filed their income tax return late and were seeking a tax refund of €758. This too was denied based on the absence of discretion in the law notwithstanding the Commissioner’s “….sympathy for the Appellants’ personal circumstances in this uncertain time”.

Bottom line, if you have a tax repayment claim to make, then make it on time, because it’s your cash. However, clarifying the law to allow the application of “extenuating circumstances” would appear appropriate. This would involve a requirement that the 4-year rule stand unless the circumstances could be appropriately explained. That explanation could not be of “the dog ate my tax return” variety given the requirement to protect the Exchequer’s resources. Nevertheless, once those circumstances could be explained as “extenuating” then the 4-year limit could be put to one side so that the taxpayer can retain what’s theirs. We’ve changed our law in the past based on TAC decisions; so in my view, let’s do it again.

Please note this article first featured in the Business Post on Sunday 5 September and was re-published kindly with their permission on our website.