Tom Maguire: 1.5 billion reasons to revamp our tax appeals process
As the amount of disputed tax and number of cases grows, it's time to build on the positive reception for the TAC
The Finance Minister responded to a question prior to this year's budget by noting that the Revenue Commissioners had advised him that the aggregate amount of all taxes and duties in dispute by way of tax appeal stood at almost €1.5bn.
The minister went on to explain that this was spread over 4,387 appeals. Almost half the number of those appeals covered tax disputes totalling €3.4m comprising a mathematical average per appeal of €1,500. Almost half the value of those appeals (€811m) related to just 26 cases with a mathematical average tax in dispute of €31m. But whatever way you slice and dice it €1.5bn is a whole lot of disputed tax.
Some of that tax may be payable to Revenue, some not, depending on the decision of the Tax Appeals Commission (TAC) or the courts if matters are taken further. The TAC is independent from the Revenue Commissioners and was set up in March 2016 after the passing of the Finance (Tax Appeals) Act 2015.
Last week, the chairman of the Revenue Commissioners, Niall Cody, appeared before the Joint Committee on Finance, Public Expenditure and Reform on various matters and he was asked for his observations on the TAC's performance.
The chairman saw the setting up of the Commission as one of the most positive moves that has been seen in tax administration in a long time. Reference was made to the significant delay in getting an appeal through the system with the consequential costs associated with such delays and the chairman acknowledged that as a challenge faced by the TAC.
Right now, there are three Appeal Commissioners as a temporary Commissioner was recently recruited. There were over 4,000 outstanding appeals earlier this year. That gives rise to almost 1,500 cases each. More maths: let's say the average hearing lasts two days with another, say, two days to allow the Commissioner cogitate and arrive at a decision. That's 6,000 work days for each Commissioner and I'll let you do the maths as to how many years it would take the Commissioner to clear the current workload. I say "current" deliberately in that appeals will continue to come through the TAC's letterbox for their determination while the existing cases are being considered.
This is all very high-level stuff especially when you consider that the level of time involved at hearing and determination may vary depending on the complexity of the matter at issue thereby affecting the number of years you just calculated. The Chairman also recognised at the Joint Committee that some of these appeals may be grouped together as part of a test case. The result of that test case is then applied to the remainders of the group.
Therefore, the 4,000 or so appeals may not ultimately equate to a similar number of hearings, so the number of years you calculated earlier may be overstated. Further, it's possible that cases may be settled before they ever get heard so this may be another reason to further reduce the number of years you calculated earlier.
The Chairman recognised the difficulties the Commission had in terms of resourcing and referred to the recently advertised search for caseworkers to assist the Commissioners through, among other matters, the provision of detailed briefings on complex tax issues. Such additional resource would be great news for the TAC as it's only when you look at the numbers that you understand the level of workload before them.
So what to do? The clear solution is to have more suitably qualified Appeal Commissioners on their bench. Some have suggested a form of small claims court.
You'll recall that almost half the number of appeal cases only made up €3m out of the total €1.5bn tax in dispute. According to the Minister's statistics, each one of those individual claims sat in a claims scale of less than €10,000 tax in dispute, so a small claims appeal court could alleviate matters. That's not to say that such a court could be a form of TAC-lite because interest may be clocking on these amounts while they remain outstanding and would become payable by the taxpayers concerned if the decision went against them.
Put aside the €1.5bn for a second. One of the main public benefits of the TAC is that it is required to publish its decisions on an anonymous basis. This wasn't the case previously. Right now we haven't got as far as 50 such publications but that's just the reality of the resourcing issue that the Appeal Commissioners face.
The publication of these decisions is important. It can form the basis of reducing appeals in that taxpayers with similar circumstances become more informed as to whether to engage in an appeal process in the first place.
Don't get me wrong - that shouldn't be the determining factor for the taxpayer given that all cases stand or fall on their own facts and merits and the TAC is not the only source of resolution. The matter can be further appealed through the courts.
Ben Kingsley in the 1992 movie Sneakers opined that "What we see and hear, how we work, what we think... it's all about the information!"
The information in published decisions allows a taxpayer to decide on appropriate action. It allows practitioners to advise based on the decision, to inform taxpayers of their impact and for commentators to discuss and debate the decisions in various fora because it's all about the information ... timely information.
It's clear that change is needed for the benefit of both taxpayers and the TAC. Coming back to the Chairman's comments at the Joint Committee that this is one of the most positive changes to be made in tax administration for some time, so let's build on that positivity.
It's 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. Let's make the necessary changes and let's find out who owns that €1.5bn.
Tom Maguire is a tax partner in Deloitte
Sunday Indo Business