Revenue Commissioners feeling the force of appeals overload
Deloitte's Tom Maguire - perhaps Ireland's top expert on tax - tells Gavin McLoughlin about the issues we can't avoid
The bible of Irish income tax is almost 2,500 pages long and a very weighty tome. First published in 1985, it was the brainchild of Norman Judge, who retired from practice as a partner at KPMG in 1993. Today, additions to the book are looked after by Tom Maguire, a tax partner in Deloitte, who leads the firm's tax-policy and technical-services team. Maguire is also the author of two major texts dealing with tax and accounting principles and Ireland's general anti-avoidance rule.
That makes him well placed to provide insight on how Ireland's tax system functions.
Although the economy is performing well - at headline level, at least - the Exchequer could still use every cent it gets. And for that reason, it is concerning to see potential tax revenues of €1.5bn locked up in the tax appeals system.
How the system works is that if Revenue and a taxpayer disagree on whether a sum is owed, ultimately the case is likely to end up before the Tax Appeal Commissioners. But the commissioners have, to say the least, a little too much on their plate.
"Right now, there are three appeal commissioners, as a temporary commissioner was recently recruited. There were over 4,000 outstanding appeals last year. That gives rise to almost 1,500 cases to each commissioner and that is a long 'to do' list," says Maguire, who is a regulator contributor to the Sunday Independent Business section.
"If the average hearing lasts two days, with another, say, two days to allow the commissioner arrive at a decision, that is 6,000 work days for each commissioner. So it would take the commissioners years to clear that workload. And that is before you take into account appeals that will continue to come through their letterbox while the existing cases are being considered."
It may, says Maguire, end up that multiple cases are grouped together or that some matters are settled before hearing. But in any event, it is a lot to sort through.
"The clear solution is to have more suitably qualified appeal commissioners on their bench. It is clear that the €1.5bn belongs to someone; be it the Exchequer or the taxpayer. Someone must benefit and someone else must decide, so that those funds can be put to work appropriately.
"Therefore, changes are necessary, so that we can find out who owns that €1.5bn."
Other changes to the system are coming too, of course, and are perhaps more important. Various international reform programmes are under way, as the world tries to get to grips with how to tax multinationals. This country is routinely labelled a tax haven - just one example of how the country's reputation has taken a battering on this topic in recent years. And reputation, says Maguire, is critical if you want to win business.
"We compete on rate, regime and reputation, and reputation is a key issue. As Warren Buffett said, 'It takes years to build and five minutes to ruin it.'
"The key point is that when it comes to our reputation, we have dealt with it instantly - if there was an issue.
"The double Irish is gone. Stateless companies - dealt with. A couple of years ago, securitisation came up as an issue and that was dealt with over a period of months. That was incredibly complex legislation to deal with and it was dealt with in a very short period of time."
He rejects the notion that Ireland is a tax haven, citing definitional guidelines from the OECD. According to it, a tax haven has: no (or only nominal) taxes; a lack of transparency; unwillingness to exchange information with other countries; and lacks requirement that companies' in-country activity has to be substantial. Ireland, says Maguire, cannot be said to fall into any of those categories.
Nevertheless, the country is facing lots of challenges as reform progresses. Plans are afoot in Brussels for what is known as the Common Consolidated Corporate Tax Base (CCCTB), a common set of rules for calculating how companies' profits are taxed in the European Union.
Given the sensitivity around Ireland's tax sovereignty and the protection of the 12.5pc corporate tax rate, it is perhaps unsurprising that the idea has been roundly rejected by Irish politicians. It is widely seen as having a negative impact on Ireland if implemented.
Fiscal Advisory Council chairman Seamus Coffey memorably described the potential effects as "bigger than Brexit" for the economy.
Maguire doesn't back the plan either.
"We (Ireland) always engage constructively in that debate, but as currently written, it's not in our interest." The other major reform programme is the OECD's Base Erosion and Profit Shifting (Beps). This one is different, Maguire says.
"Beps is dealing with anti-avoidance. You have almost 100 countries coming together to deal with a particular problem in a particular way, rather than each one of those 100 countries going off and doing their own thing.
"That brings certainty in relation to tax. There will be interpretive issues between countries but at least we're all going down the particular road.
"So to the extent that you bring certainty to tax law, that can only be a good thing."
The Beps programme will undoubtedly pose challenges for the Irish economy but there are opportunities too, says Maguire, specifically when it comes to making this country a hub for companies' intellectual property.
The conclusion of Beps will not, of course, bring an end to the issue of multinational tax avoidance. There are plenty of clever accountants in the world and they will probably always figure out ways to take advantage of legal loopholes, and reduce tax bills.
But reducing your bill is not always a bad thing, says Maguire. After all, the tax system is an important way of incentivising people to behave in a way that is beneficial for society.
"The recent Finance Act brought about tax depreciation for employer gyms as a carrot for employers to invest in such things for the wellbeing of their employees.
"In my Sunday Independent column, I've mentioned Myron Scholes a few times in that he and others said that when it comes to tax, success is achieved when the tax rules subsidise activities that benefit society as a whole more than they benefit the individuals engaging in the activities. More healthy people running around is a good thing.
"The difficulty occurs when these reliefs are used in a manner that wasn't intended. That's why we have anti-avoidance rules to deal with such situations.
"We also have a general anti-avoidance rule in our law, which says that even though we might not have specific rules to counter a transaction, if it would be 'reasonable to consider' that a transaction was done primarily for tax reasons, then that tax advantage can be removed."
Other tax reliefs exist to subsidise other areas seen as beneficial by policymakers - R&D tax credits, for example, or reduced VAT on tourism services. But for film buff Maguire, perhaps one stands out more than any other - the film tax relief.
"Look, we saw Luke Skywalker teaching the ways of the Force to the next generation of Jedi on Skellig Michael last year and the tourism benefits of that are still being counted.
"These are all commercial activities that we want to promote and if tax can help that, then is that not the very essence of success?"
Sunday Indo Business