Tuesday 24 April 2018

Tom Maguire: Remove interest charge on genuine appeals to bring justice to tax system

'Finance Minister Paschal Donohoe 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.'
'Finance Minister Paschal Donohoe 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.'

Tom Maguire

I've written about the backlog of tax appeals in this column previously. Thousands of appeals remain outstanding, with over €1.6bn of tax in question. The three appeal commissioners only have 24 hours in their days.

Finance Minister Paschal Donohoe 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 Tax Appeals Commission now receives an estimated 200 appeals a month on top of the thousands outstanding.

Would additional commissioners be enough to make everything alright with the appeals system? Not so much, a barrister colleague of mine and I recently concluded.

Say you and Revenue disagree on a tax assessment. You can tell Revenue "See you in court" and let the appeals 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: Pay the tax Revenue says you owe or don't and prepare for the hearing 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 on to your cash and made it work for you in the meantime.

Say you lose. You pay the tax due but you also have an interest bill on that tax from its original due date, perhaps years ago. The interest rate can be 0.0219pc a day, or almost 8pc a year. The UK's equivalent is less than half, at 3pc per year.

So, taking Dennis Hopper's line in the 1994 film Speed: "Pop quiz hotshot…what do you do?" You could pay the tax to avoid the possible interest charge. If you win, then the Exchequer has 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? The interest can possibility deter taxpayers from taking an appeal in the first place - two years, for instance, between your court gauntlet and its related decision carries an interest charge of around 16pc on the outstanding tax.

So the case is there to remove the interest charge for the time between the taxpayer making the appeal and the appeal commissioner's decision. The taxpayer's interest charge would then be based on their actions and not on system delays that 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 it forms the view that an appeal isn't valid, which the commissioners can take on board. A further check could be that the appeal commissioners could ultimately decide that the appeal was an attempt by the taxpayer to push the tax payment into the future. Then 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. The taxpayer can include a 'letter of expression of doubt' as part of that return. This protects the taxpayer from interest on late payment where Revenue amends their assessment after coming to a different view on the amount of tax due. This protection isn't available where Revenue forms 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 appeal commissioners to improve the appeals system. So this shouldn't give rise to Lord Mansfield's famous 18th 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 1993 film Philadelphia: "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

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