Got a doubt in your tax return? Express it if you have.

Regular readers of this column will know my view that simplicity eats complexity for breakfast when it comes to investment. That’s especially the case when it comes to understanding a nation’s tax code in that it should be made as simple as possible but no simpler. But there are times when this isn’t the case by necessity or otherwise so sometimes doubts can arise regarding the interpretation of tax law. To give you an example the Irish Supreme Court explained one of the provisions of our tax code as one of “mind numbing complexity” but still had to provide an answer to its interpretation. The ultimate arbiter will the courts.

I was chatting with Fiona McLafferty this week on this whole issue because Revenue recently issued an e-brief, a form of newsletter for practitioners, outlining their views on this area. Fiona leads out tax controversy team, but she was formerly a Tax Appeal Commissioner which meant that she had to make the call on these difficult interpretative matters in the past.

Such doubts will come up for resolution when you’re filling in your tax return. You should read “you” here as a human, company or other form of taxpayer. The price of getting an interpretation of the tax code wrong on your tax return is penalties and interest when Revenue comes knocking. That’s why our law has a provision allowing the taxpayer the option of filing what is known as “an expression of doubt” with the tax return. This basically means the taxpayer saying to Revenue I think this is how the tax code applies to me but if I’m wrong then I’m expecting no penalties to be applied. Put another way “shields up” in Star Trek lingo. Of course, Ts and Cs apply.

Revenue’s updated guidance explains the purpose of an Expression of Doubt is to indicate to Revenue a genuine doubt about the application of law or the treatment for tax purposes of anything contained in the return. The guidance continues that taxpayers must have consulted all relevant Revenue manuals and guidelines published on Revenue’s website with a view to establishing the treatment of the point at issue.

Pausing here for a minute, it is possible that Revenue’s view on the interpretation of the tax code, may not agree with your interpretation of it. Therefore, two opinions clash but that does not mean that the doubt is obviated. Of course, having read Revenue’s view you might see where they are coming from and then see their light but not always such that the doubt remains.

Revenue’s guidance explains that to submit a valid Expression of Doubt, then taxpayers must complete all relevant sections on their tax return. Fair enough. On top of that, documentation in support of the Expression of Doubt must be received on or before the return filing date. Otherwise, the submission will be deemed an invalid Expression of Doubt. Such invalidity will mean loss of protection for the taxpayer.

The guidance explains that the following information must be supplied: (a) full details of the facts and circumstances of the matter in doubt; (b) the doubt, the basis for the doubt and the law giving rise to the doubt; (c) the amount of tax in doubt; and (d) a list of the supporting documentation being supplied. The taxpayer must clearly identify that s/he is submitting a “letter of Expression of Doubt” for the avoidance of (ahem) further doubt. The guidance explains that can be done by ticking the box on the relevant tax return indicating that the taxpayer is making an Expression of Doubt).

Importantly, the guidance explains that a separate Expression of Doubt should be made for each return where a taxpayer has a genuine doubt as to the application of the law. In addition, taxpayers making an Expression of Doubt should give details of Revenue guidelines consulted regarding the application of the law in similar circumstances. So there’s a lot in this before you can tick the appropriate box.

The guidance explains that where a taxpayer makes a “genuine” Expression of Doubt and it is subsequently found that the view taken by the taxpayer was incorrect, the taxpayer will nevertheless be regarded as having made a “full and true disclosure” on their return. “Full and true” are the magic words here in that this means that any additional tax due because of the correction of the error will be due and payable within one month of the date on which the assessment is amended. That in turn means that the Expression of Doubt therefore brings about protection from interest charges (provided the taxpayer has paid the due tax within 30 days of the assessment being amended) and penalties, in the given circumstances. This protection isn’t there where valid Expressions of Doubt are made which are not genuine.

These protections from penalties will not be mitigated where (1) all the information mentioned earlier is not provided to Revenue or (2) where Revenue’s opinion, having regard to guidelines published and to any supporting documentation provided, is that the matter is sufficiently free from doubt, the Expression of Doubt shall not be accepted as genuine or (3) where Revenue’s opinion is that the taxpayer was acting with a view to the evasion or avoidance of tax, then the Expression of Doubt shall not be accepted as genuine.

Where the Expression of Doubt is not accepted as genuine by Revenue, the taxpayer will be advised of that, but all is not lost because the taxpayer has a right to appeal the decision that the Expression of Doubt is not genuine. Any tax due on foot of an amended assessment where an Expression of Doubt was found not to be genuine is due and payable on the date it was originally due. Again, the taxpayer has a right to appeal against any amended assessment issued as a result of the processing of the Expression of Doubt.

An Expression of Doubt is not an ultimate panacea, but it is an important protection if there is genuine doubt regarding the tax treatment of income, expenditure or a transaction.

Please note this article first featured in the Business Post on Sunday, 25 June 2023 and was re-published kindly with their permission on our website.