17 May 2012, 15:58
The State should only get involved in litigation where a successful outcome is necessary to either prevent the State from being exposed to unnecessary costs or where it confers a significant benefit on the State, according to a new report by the Public Accounts Committee
The PAC Report on the charging of VAT on the National Aquatic Centre, while dealing with a narrow issue about whether VAT could be charged on a lease, raises issues that have a broader relevance for State bodies who become involved in litigation. It recommends that State legal strategies should be underpinned by a cost benefit analysis that encompasses the risks associated with litigation and the benefits and costs that are likely to be associated with both success and failure of the litigation.
Committee Chairman John McGuinness, TD said: “If we take the case taken by Campus Stadium Ireland Development Company, which went all the way to the Supreme Court, the rationale of the State not being exposed to unnecessary costs or being conferred with a significant benefit from the case, simply did not apply. Even if the case was won, the Exchequer would have derived no benefit.
This legal action was taken against the correct and common sense advice of the offices of both the Attorney General and the Comptroller and Auditor General, and a number of opportunities to bring the dispute to an end were wasted. What I find most disheartening is that there appears to be no acknowledgement that mistakes were made right through the handling of this case and it should have never been pursued by CSID/NSCDA on behalf of the State.
A second lesson arising from the handling of this case is that there should be an onus on the State not to withhold information simply because it damages its case, according to the Report.
Deputy McGuinness said: “It is the case that CSID withheld a report from the State’s valuer (the Valuation Office) from a party that it wanted to levy a VAT charge of €10 million and this prolonged a case that incurred ongoing legal costs as it wound its way to the Supreme Court.
A third point that arises from this Report relates to the extent to which advisors and consultants do the job they are paid to do. In this case CSID relied on highly paid VAT advisors whose analysis of the application of VAT relied on guidelines produced by Revenue instead of undertaking a comprehensive analysis based on VAT law. I question whether these advisors provided value for money.
Finally, the performance of Revenue in this case raises awkward questions for it and it should review its handling of this case.”
The Report makes a number of recommendations, including:
1. Legal strategies should be underpinned by a cost benefit analysis that encompasses the risks associated with litigation and the benefits and costs that are likely to be associated with both success and failure of the litigation.
2. The robustness of any legal case instigated by a State Body should reply primarily on the legal framework in place and care should be exercised where reliance is place on guidelines that are not a statement of the law and may have been produced for other purposes.
3. Departments, in sanctioning any form of legal action, should not rely on oral advice from the Department of Finance and/or the Department of Public Expenditure and Reform.
4. The Department of Finance and the Department of Public Expenditure and Reform should review its procedures in relation to giving oral advice especially in respect of forthcoming litigation and should give written advice whether by formal letter or email.
5. Given the 2011 split of the Department of Finance, the new Department of Public Expenditure and Reform, in advising a State body in respect of a taxation charge, should liaise with the budgetary division of the Department of Finance which has responsibility for policy on taxation and which draws up the annual Finance Bill. This information so supplied by the Department of Public Expenditure and Reform should be in addition to any legal advice received by the State Body from the office of the Attorney General.
6. The office of the Attorney General should, in reviewing the Supreme Court decision in the case of CSID v DWW, examine whether it is necessary to issue guidelines to State bodies in respect of the sharing of information with the other parties in an effort to prevent disputes escalating to litigation.
7. Revenue should review the way changes to tax law are incorporated into guidelines so as to ensure that avoid a recurrence of the situation in 2002 when a key anti-avoidance measure was incorrectly interpreted by Revenue.
8. Revenue should now carry out a formal review of its handling of the CSID VAT issue, having regard to the finding of the Supreme Court in 2010 and in view of the findings in this Report.
9. The Department of Public Expenditure and Reform should review the performance clauses in contacts of consultants so that under-performance by consultants has an appropriate penalty applied.
Click here to view Committee Chairman John McGuinness discussing the report: http://youtu.be/0QYcwaIlPfE
To view the report click on the following link: http://bit.ly/KStCro
ENDS
For further information please contact:
Ciaran Brennan,
Houses of the Oireachtas,
Communications Unit,
Leinster House,
Dublin 2
P: +3531 618 3903
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F: +3531 618 4551
Committee Membership
John McGuinness (Chairman)
Kieran O’Donnell (Vice Chairman)
Paul J Connaughton,
John Deasy,
Paschal Donohoe,
Gerald Nash,
Simon Harris,
Michael McCarthy,
Mary Lou McDonald,
Sean Fleming,
Eoghan Murphy,
Derek Nolan,
Shane Ross