Pre-legislative Scrutiny of the Heads of the Finance (Tax Appeals
Commission) Bill - Opening Statement by Des O’Leary, Department of
Finance, 27th January 2015
1. Introduction
Thank you Chairman for the opportunity to outline to the committee the
heads of the Finance (Tax Appeals Commission) Bill and the Minister’s
plans for reform of the system for appeals against decisions of the
Revenue Commissioners.
Introduce Finance and Revenue officials:
I propose to describe the main features of the legislation and reasoning
behind the proposals. Mr Smyth will then address a number of issues
that are of particular importance as far as Revenue is concerned.
2. Background
In Budget 2014 the Minister for Finance announced a reform of the role,
functions and structure of the Office of the Appeal Commissioners and of
the tax appeals system. The Appeal Commissioners hear appeals
against assessments, decisions and determinations of the Revenue
Commissioners on a variety of taxes and duties which are under the
latter’s care and management. Most appeals relate to the amount of an
appellant’s tax liability.
The Minister’s stated objective was "To ensure an enhanced and cost
effective appeal mechanism for tax cases, providing transparency and
increased certainty for taxpayers." I should point out at this stage that
Page 1 of 11
the Minister is on record in the Dáil in noting the important role that the
Commissioners had to play in the operation of a fair and efficient
taxation system. He also acknowledged the important contributions of
the current Appeal Commissioners, Mr O’Callaghan and Mr Kelly.
Since the Budget we have had a public consultation process. We
received a number of submissions, in the main from tax and legal
representative bodies and from the Revenue Commissioners. These
have been made available to the Committee.
The Department had further engagement with some of these parties
about their recommendations for reform. We also consulted with the
Office of the Attorney General about some of the proposed measures
and with the Appeal Commissioners.
Current Appeals System
Not all taxpayer grievances come within the remit of the Appeal
Commissioners. The avenue of appeal for a taxpayer who does not
agree with a proposed monetary penalty is to the Courts. The legislation
does not propose to change this position.
Grievances about how the Revenue Commissioners handle a taxpayer’s
case are dealt with by way of judicial review. Taxpayers who feel that
they have been unfairly treated by Revenue can also complain to the
Ombudsman. Once again, it is not proposed to disturb this position.
I will give a quick outline of how the present Appeals system operates.
At present, a taxpayer appeals directly to the Revenue Commissioners,
Page 2 of 11
who then liaise with the Appeal Commissioners to secure a date for a
hearing.
Appeals
are
heard
‘in
camera’
following
which
the
Appeal
Commissioners make their decision. Hearings are held in various
locations around the country and are more informal than in a Court
situation. A taxpayer can represent him or herself or can be represented
by a legal or a taxation professional. Witnesses may be called by either
side.
Decisions are given orally or in writing and, while they can be published
in redacted form to preserve anonymity, publication has been limited in
practice.
There is no register of precedents as the Appeal
Commissioners is not a tribunal of record.
Decisions of the Appeal Commissioners can be appealed to the Courts.
Appellants may seek a complete rehearing of the appeal by a Judge of
the Circuit Court or on a point of law to the High Court. The Revenue
Commissioners are restricted to an appeal on a point of law to the High
Court, except in the case of Capital Acquisitions Tax where they too
have a right of rehearing by a Judge of the Circuit Court.
A taxpayer has to pay his or her self-assessed liability before an appeal
can be made but any disputed part of the tax is not payable until the
matter is finally determined.
Previous Reviews of the Tax Appeals System
Over the last 15 years, a number of reports have examined the appeals
process, including the report on the DIRT enquiry in 2001; the Revenue
Page 3 of 11
Powers Group Reports 1999 and 2003; a Law Reform Commission
Report in 2004 and the Commission on Taxation Report in 2009.
The recommendations in these reports focused on the importance of
ensuring the independence of the Appeal Commissioners through
appropriate appointment procedures and providing an enhanced and
cost effective appeal mechanism for tax cases, to provide transparency,
proportionality and increased confidence for taxpayers.
3. Objectives of the proposed legislation
The objectives of the proposed legislation are:
 To enhance the independent status of the Appeal Commissioners
while ensuring appropriate accountability,
 To make the system more transparent, and
 To make the process more efficient, so as to speed up the
resolution of appeals.
Independence and Accountability
The current legal provisions dealing with the appointment of Appeal
Commissioners are contained in section 850 of the TCA 1997.
Effectively, the Minister has discretion as to who is appointed and on
what terms, subject only to laying details of the appointment before the
Houses of the Oireachtas. The proposal is to change this by specifying
that an appointment will in future be made by the Minister following an
open competition run by the Public Appointments Service. The Minister
would have power to specify the kind of qualifications necessary for
appointment.
Page 4 of 11
Appointments would be for a fixed term which may be renewed once.
There are also provisions on such matters as disqualification and
removal from office, which are broadly in line with the arrangements for
other independent office holders.
The Heads also provide for the Appeal Commissioners to report
annually on their work and for the report to be laid before the Houses of
the Oireachtas. It is not intended that the Commissioners would
comment on specific matters that come before them for decision, but
that they would give statistical information as well as any observations
on, for example, the functioning of the appeal system.
Transparency
Currently appeals and rehearings by a Circuit Court Judge are held in
camera. The Bill proposes that they would in future be held in public.
However, the Appeal Commissioners would have scope to hold hearings
(or parts of hearings) in camera in certain circumstances, for example,
where confidential information is being discussed.
There is no reason in principle why tax appeals ought to be heard in
camera. Appeals to the High Court from decisions of the Appeal
Commissioners and from the Circuit Court Judge are held in open court.
There is also a trend internationally (UK, Australia for example) towards
public hearings for tax appeal cases.
Public hearings of tax appeal cases would promote public confidence in
the tax system by showing that it is being administered, and the law is
being applied, in an even-handed way.
Page 5 of 11
Practitioner and representative bodies have argued that public hearings
for tax appeals are not appropriate as they may deter individuals from
appealing. Moreover, the argument is made that cases sometimes
require that information about third parties is divulged. Representative
bodies also draw a distinction between the role of the Appeal
Commissioners as part of the administration of taxation rather than of
justice, and that therefore the principle that Justice be administered in
public as enunciated in article 34 of the Constitution1 does not
necessarily apply to their activities.
The Minister has been advised that public hearings of tax appeal cases
would not breach the constitutional right of privacy or confidentiality of
appellants if such hearings were to be provided by law, and that the
legislature is not precluded from providing by law that hearings of the
Appeal Commissioners are to be held in public.
Notwithstanding the concerns of tax practitioners, the Minister considers
that the holding of tax appeals in public would improve the operation of
and confidence in the administration of the tax system. He is very
conscious of the differing views on this issue and is willing to engage on
the matter as the proposals are taken forward.
Transparency will also be promoted by the requirement for the
publication of concise reasoned decisions in all cases, including a
summary of the facts and indications of reasons for the decision.
1
Justice shall be administered in courts established by law by judges appointed in the manner provided by this
Constitution, and, save in such special and limited cases as may be prescribed by law, shall be administered in
public. Constitution of Ireland 1937, Article 34.1
Page 6 of 11
Efficiency
The proposed reform has significant implications for the Exchequer
given that the current appeals process can extend over a number of
years, with collection of the disputed tax liabilities being suspended until
the appeal process (including all appeals to the Courts) has been
exhausted.
As of last January, Revenue estimates there was then €770 million
where assessments had been raised but collection could not proceed
pending resolution of the disputed matters.
At any time, Revenue
estimates the overall amount of tax that is in dispute is in excess of €1
billion when account is taken of tax not yet assessed pending the
outcome of some other case which was under appeal, as well as claims
to repayment which are disputed by Revenue. In the case of almost 600
appeals, over 5 years has elapsed since the appeal was lodged, with
almost 30 of these cases under appeal for more than 10 years.
It is very important to bear in mind that these statistics refer to amounts
in dispute. The amount of taxes that may be liable to payment depends
on the outcome of the appeals process. Furthermore, even where
liability is determined, there is no guarantee that all of the amount that is
subject to appeal will actually accrue to the State following completion of
the appeal cases involved.
From the Exchequer’s point of view, it is important that tax that is due is
collected as quickly as possible, and Mr Smyth will outline, in due
course, some of the concerns that Revenue has about the effect of
delays in the appeal system. Equally, of course, taxpayers ought to be
able to obtain certainty about their financial affairs, something that is not
possible if the appeal process is a long drawn out one.
Page 7 of 11
A number of procedural changes are being proposed which are intended
to streamline the process. In particular, the Appeal Commissioners will
be given explicit power to issue directions to a party to an appeal
allowing them, for example, to require a person to provide documents
and information, to consolidate two or more appeals, to hold preliminary
hearings and so on. The intention is to give the Appeal Commissioners
clear power to manage the cases that come before them.
However, the legislation also requires them to manage proceedings in a
flexible way to, as far as possible, avoid unnecessary formality and
delay.
The Heads contain detailed provisions on the procedure for making an
appeal including a late appeal. In many ways these reflect the current
position. The main change is that an appellant will now make the appeal
direct to the Appeal Commissioners instead of via Revenue and it is the
Appeal Commissioners who will decide the timing of the hearing.
There are detailed provisions covering pre-hearing proceedings, giving
the Appeal Commissioners power to seek further facts and submissions
in advance of the actual hearing.
The Commissioners will also have the power to deal with an appeal
without a hearing, provided there is no objection from Revenue or the
appellant.
Page 8 of 11
Many of the Heads dealing with hearings reflect either the existing law or
current practice. The one exception is the proposal to remove the “in
camera” rule, which I have already mentioned.
Appeals where there are common or related issues can create an
unnecessary burden on the appeal system.
For example, if a large
number of a people used the same tax avoidance scheme, it does not
make sense to allow each appellant to insist on a separate oral hearing.
The new Bill would allow the Appeal Commissioners to make the
decision in one case and to notify the other appellants of the decision.
Unless the other appellants can explain why a hearing is necessary or
why it would not be appropriate to have regard to the first decision, the
Commissioners could decide the other appeals without a hearing.
Where there is an appeal to the High Court, the Appeal Commissioners
would be responsible for drafting the case stated and the current
practice of delegating this task to the party seeking the case will end.
The Commissioners will be required to draft the case stated within three
months of being notified of the appeal.
In summary, the procedures set out in the Heads are aimed at
preserving fairness while reducing the scope for delay.
The key policy change aimed at reducing the scope for delay is the
abolition of the right of rehearing before a Judge of the Circuit Court.
As matters stand, a complete rehearing of an appeal is available to a
taxpayer in the Circuit Court and such appeals are also held “in camera”.
Page 9 of 11
Appellants are not confined to arguments made at the Appeal
Commissioners.
There is some evidence, including in submissions
made to the public consultation process, that this right of rehearing
means that the initial Appeal hearing can be a ‘dress rehearsal’; and that
the right of full rehearing, in providing a ‘second chance’ means that
appellants in some cases may not adequately prepare for the hearing at
the Appeal Commissioners. There can be significant delays, particularly
in court areas outside Dublin where it can be difficult to get a case listed
for hearing.
A complete rehearing could be justified if there are reasons to suppose
that poor decisions on matters of fact are a particular problem in the
decision making process of the Appeal Commissioners. We are aware of
no evidence that this is the case. The Appeal Commissioners are a
specialist expert tax tribunal. On the other hand, a Circuit Court Judge
may encounter a tax case only infrequently.
The planned reform of the appeal system envisages a better-resourced
and more efficient Appeal Commissioner stage with, for example, more
flexible and active case management by the Appeal Commissioners,
with pre-hearing and preliminary matters considered and resolved where
possible, and written and published determinations and a revised case
stated procedure.
In the light of this, the modus operandi of Circuit
Court rehearings would be anomalous.
Representative bodies have argued for the retention of the Circuit Court
stage of the appeal process. The Irish Tax Institute (ITI) for example
considers that a rehearing is useful in that many taxpayers might not be
in a position to afford to make an appeal to the High Court after losing at
the Appeal Commissioner stage. The Consultative Committee of
Page 10 of 11
Accountancy Bodies-Ireland want the continuation of the Circuit Court
stage on the grounds that it offers more flexibility for taxpayers.
Consideration was given to the option of continuing with the Circuit Court
rehearing for cases involving small amounts of disputed tax liability.
However, it was considered that this would mean that an appellant who
was in dispute in a case involving large amounts of tax liability would
potentially be treated less favourably than those disputing minor tax
liabilities.
Having taken account of all the expressed views and arguments, the
Minister considers that, on balance, the provision for full re-hearing by a
Judge of the Circuit Court should be removed.
4. Conclusion
I hope this statement has given Committee members an understanding
of the thinking underlying the legislation and why the Minister believes it
will enhance the independence of the Appeal Commissioners, increase
transparency and provide a more efficient appeal system in relation to
tax disputes to the benefit of compliant taxpayers and the Exchequer
alike. I would be glad to answer any questions that the Committee has
about the proposed legislation.
Page 11 of 11