The objective of this legislation is to establish an independent appeals process that will create an independent, efficient, clear and transparent system for appeals relating to decisions of the Revenue Commissioners, something which is not available at present. It is positive that this legislation is being brought forward to establish this independent agency. Such an agency should act primarily in the interests of the citizens while being fair to the tax gathering authorities of the State and tax legislation as enacted by the Oireachtas.
There are a number of positive aspects to the Bill, most notably the requirement for publication of reasoned determinations, new transparent procedures for appointment and tenure of the appeal commissioners, a better framework for progressing a case to the High Court and the proposal to publish an annual report on tax appeals. All of these changes will help ensure more effective operation of the appeals regime. However, there are important measures included in the Bill which I believe require further consideration, such as the ending of the in camera rule with proposals that all appeal hearings be held in public, the removal of the taxpayer's right to have the facts of their case re-heard at the Circuit Court, the need for clarity to be provided by the Revenue Commissioners at the time when the assessment is issued, and the importance of transitional arrangements.
The removal of the in camera rule will have a negative impact on the rights of Irish taxpayers and their access to the administration of justice. Taxpayer confidentiality is enshrined in Irish tax legislation, administration and legal practice. This has been at the heart of our tax regime for over 50 years. Taking a case to appeal is simply an extension of this process, whereby an independent arbiter, the appeal commissioner, is seeking to determine the facts of the matter before it enters the court process. The tax appeals system is not a court of law. It is a fact-finding tribunal and until the facts are determined and the case moves into the courts the taxpayer is entitled to have their affairs dealt with confidentially. In hearing an appeal the commissioners are exercising an administrative function. They are adjudicating on the quantum of tax due from the taxpayer. They are not addressing the interpretation of a point of law, which would have a wider application and public interest.
Confidentiality underpins our regime of voluntary compliance and has been a fundamental pillar of a successful Irish tax administration system. Tax compliance rates here are among the highest internationally, at up to 99% for large businesses and 83% for smaller taxpayers. While taxpayers might not always agree with the Revenue Commissioners' view on an issue, there is a widespread confidence within the tax paying community that their confidentiality will be respected when dealing with the Revenue Commissioners to resolve an issue. This understanding has been a significant contributory factor in achieving our high rates of voluntary compliance. We risk undoing a regime that has been working very effectively up to now by changing the rules on taxpayers' confidentiality.
The principle is that our tax appeals regime should be open and transparent, which is to be lauded. However, transparency can be achieved by publishing details of determinations by the appeal commissioners, with the taxpayer names simply redacted. The taxpayer does not have to be personally identified either in a public hearing or in a written determination in order to achieve transparency.
In its submission to the consultation on appeals reform, Revenue sought the hearing of cases in public as being in line with best international practice. In particular, it cited the UK tribunal regime as a model. However, there is mixed experience internationally as to whether hearings should be held in public. New Zealand is a country with a similar size population to Ireland and its hearings are held privately. A small society such as Ireland is no bigger than a large city in the United Kingdom and the two countries cannot be compared on this issue. Therefore, it is very hard to draw a comparison between the Republic of Ireland and the whole mass of Great Britain, given the context for holding hearings in public is totally different. In smaller societies, the prospect of being named in any proceedings with revenue authorities is a much greater deterrent for taxpayers. The issue here is not the number of taxpayers who actually end up taking an appeal and having their identities published; it is the number who will be deterred from doing so because of the potential impact on their business and personal reputation, particularly in a small, insular community.
When a taxpayer takes a case to appeal, he or she is exercising his or her legal right to disagree with an assessment that Revenue has raised and to have the facts determined by an independent appeal commissioner. If the taxpayer disagrees with the technical basis for Revenue’s assessment, his or her only option is to go to appeal on the matter. While he or she has not done anything wrong, there is a public perception that having legitimate tax arguments with Revenue means he or she has done something wrong, perhaps verging on the criminal, when this is not the case. Perhaps this is our legacy of 20 years of reporting on the tax defaulters list or the public debate on tax avoidance versus tax evasion that is ongoing at the moment. Whatever the reason, there is huge scope for public misunderstanding of what a tax appeal is and what it is not. If tax appeals are held in a public forum, this will naturally attract media attention and such public analysis of the taxpayer’s business affairs will undoubtedly and unfairly lead to difficulty for them.
Holding tax cases in public will mean that all aspects of a taxpayer’s sensitive, commercial and financial affairs would be in the public domain at an appeal hearing and accessible to their competitors, suppliers, creditors and customers. This could have serious implications for a person’s business and for their professional reputation and good character. A key supplier or creditor could withhold credit if they become aware that a customer has outstanding debts. The disclosure of commercially sensitive information may detrimentally impact the future prospects of the business or a person's livelihood.
Section 949Y of the heads of Bill allows the appeal commissioners to give direction that a hearing be held in camera. However, subsection (3) goes on to specifically exclude confidentiality of tax, financial and business affairs as grounds for a private hearing at the appeals commissioners' discretion. The proposed exception to the public hearing rule is, therefore, of very limited application in practice.
The Irish and international media seem not to be subject to any similar restriction from identifying either the taxpayer or the commercially sensitive information considered at the appeal. Therefore, the holding of hearings in public, with unlimited rights of reporting, renders meaningless the restrictions placed upon the appeal commissioners when making their own decisions in the public arena. Removing the in camera rule would be a very significant change to the appeals regime - in fact, it would be one of the most significant elements of any reform. Notwithstanding this fact, there was no mention of such a change in the public consultation document issued last October. The matter was, therefore, not brought to the public’s attention as one of the measures being considered for reform, yet it has now been included in the heads of Bill. There is no doubt that the removal of the in camera rule will deter taxpayers from exercising their right to appeal Revenue assessments that are excessive. In particular, it could act to disenfranchise those taxpayers who use and need the appeals system most, for example, small to medium sized business taxpayers who are such an important part of our economy.
Section 949AM provides that either party to the appeal - the taxpayer or Revenue - can only appeal a determination of the appeal commissioners to the High Court. The existing right that taxpayers have to a rehearing of the facts at the Circuit Court is thus being removed as part of this reform process. The removal of this right, combined with the prospect of hearings being played out in the public arena, compounds the deterrent for taxpayers of taking an appeal. The option of a rehearing at the Circuit Court should certainly be open to both the taxpayer and Revenue.
A tax appeal is a difficult and costly step for any taxpayer to take. In most cases, it takes time, resources and the payment of professional fees to engage in the appeals process, without any certainty of success. It is certainly not a route that is embarked on by taxpayers in a frivolous manner. One of the stated objectives of the appeals regime upon its establishment was to provide ease of accessibility for taxpayers. A taxpayer may represent himself or herself before the appeal commissioners without legal counsel or professional advice, and approximately 10% of taxpayers avail of this option. Removing the right of rehearing at the Circuit Court increases the pressure on all taxpayers to incur additional costs in engaging professional expertise, even in straightforward cases.
The only avenue open to a taxpayer dissatisfied with a decision of the appeal commissioners will now be an appeal to the High Court on a point of law. However, High Court costs are beyond the means of all but the wealthiest of taxpayers. It is estimated that the minimum costs a taxpayer must budget for in taking a case to the High Court is €100,000, which makes such an option inaccessible to most Irish businesses and individuals. Revenue’s right to appeal a decision to the Circuit Court, while limited, will also be impacted by the changes proposed.
This has the potential to increase the cost to the Exchequer of engaging in the appeals process.
A taxpayer will now have to weigh up a range of business risks, reputational risks and compliance costs in deciding even whether to enter the first stage of the appeals process. In many cases, taxpayers will determine that the risks or costs outweigh the benefits and will waive their right to appeal, even when they are certain Revenue's assessment is incorrect.
In the interests of improving the efficiency of the appeals regime, I believe there is merit in appointing several Circuit Court judges with specific expertise in tax matters whose remit would be solely tax cases. Proceedings could be centralised through the Dublin Circuit Court. This proposal would, of course, require discussion and negotiation with the Courts Service. This would facilitate an appropriate through-put of cases in a prompt and efficient manner.
Section 949Q deals with the provision of information in regard to the matter under appeal. However, I believe that the obligation to provide information on the matter under appeal rests with Revenue first at the outset of the appeals process, that is when it has issued the assessment. Under the current assessment and appeals regime, it is difficult for the taxpayer to make an informed decision about whether to appeal an assessment, because taxpayers generally have limited information on Revenue’s grounds for making the assessment. This is a matter of fundamental importance that needs to be addressed as part of this reform of the tax appeals regime.
The Taxes Consolidation Act 1997 requires a taxpayer to outline each amount or matter in the assessment with which the taxpayer is aggrieved and to provide detailed grounds for the appeal on each matter or amount when lodging a notice to appeal. There is no corresponding obligation on Revenue to provide information as to why the assessment was raised in the first place and how the tax sought in the assessment was calculated. There has been a number of cases where taxpayers have not been informed of Revenue's legal grounds and reasoning for the issue of an assessment until Revenue served its legal submissions in the weeks leading up to the hearing of the appeal itself. This places taxpayers in the impossible position of first deciding whether they should incur the time and expense of appealing a decision which has been made on an undisclosed basis and, second, or prepare for an appeal when they do not know precisely why and what they are appealing. It is critical that sufficient information is provided to the taxpayer at the beginning of the process to enable him or her to comment on the basis of the assessment and prepare a response. This is particularly important, as the onus of proof falls on the taxpayer to prove that the Revenue assessment is excessive. There are some outstanding test cases but I will not go into those matters as that would prolong this debate.
In the Irish regime, there is currently little clarity on the basis for many assessments that are issued. Not only does this mean that taxpayers are in the dark when considering whether to appeal an assessment, but it also creates inefficiencies in the system in terms of delays and in respect of the lodging of appeals that may be inappropriate and could be settled by agreement. The Taxes Consolidation Act should be amended so that Revenue is required to issue a full statement of reasons to accompany any assessment issued. This statement of reasons should clearly outline the basis for the assessment. For example, it should state the facts as Revenue understands them; the relevant statutory provisions and case law upon which Revenue relies; Revenue’s application of the statutory provisions and case law to the facts; and the basis for its computed assessment. This clarity would clearly assist the taxpayer in making an informed decision about whether to appeal any assessment. I call on the Minister for these matters to be taken into consideration when the Bill is being finalised.