Tax Appeals Determination Summaries April 2017
April 4, 2017
As part of the reform of the tax appeals system, with effect from 21 March 2016, the functions of the Appeal Commissioners were taken over by a corporate body known as the Tax Appeals Commission (TAC). Since the establishment of the TAC, all appeals by taxpayers are made directly to the Appeal Commissioners at the TAC. Under the old system a taxpayer who wished to make an appeal to the Appeal Commissioners had to give notice to Revenue that they wished to make an appeal. Revenue were then entitled to refuse notice to appeal, which refusal could in turn be appealed to the Appeal Commissioners.
In addition to providing a system for appeals which was independent of the Revenue, another aim of the reform of the appeals system was to have a more transparent system. With this aim in mind, the Appeal Commissioners are required to publish their determinations on the internet within 90 days of notifying parties of their determination (S.949AO TCA 1997). Now that the TAC has been in operation for almost a year, it is interesting to review the appeals which have been determined by the Appeal Commissioners under the new system.
Overview of Cases taken to Appeal
Since the TAC was established, 26 determinations have been published, although one determination would appear to be a duplicate of another published at the same time so that there have actually been 25 appeals determined and published to date.
Of the 25 appeals determined, 18 appeals were refused (i.e. decided in favour of Revenue), 8 appeals were allowed and 1 appeal was partly allowed.
In terms of the taxes covered by the appeals, just over half (13) dealt with income tax matters. Of the remaining 13 appeals 5 related to VRT, 1 related to VAT, 1 related to VRT and VAT, 3 related to CAT, 1 to corporation tax and 1 to CGT.
One of the differences between the new and old systems of appeals is the power of the Appeal Commissioners under the new system to determine an appeal without a hearing. S.949U TCA 1997 provides that the Appeal Commissioners are not required to adjudicate on any matter by holding a hearing. They can adjudicate on a matter by considering a notice of appeal or a case stated provided by a party, or by discussions with a party or by “any other means they consider appropriate” (S.949U(1)). If they decide to adjudicate on a matter without a hearing, the Appeal Commissioners must notify the parties who are then entitled to request a hearing. Of the 25 published determinations, 9 had been determined by the Appeal Commissioner without a hearing. The published determination noted in all of these cases, except 1, that the matter had been adjudicated on without a hearing either by request of the Appellant or by the parties agreement.
Under the old appeals system, practitioners were at a distinct disadvantage compared with Revenue in that they did not know what issues came before the Appeal Commissioners. A practitioner only became aware of an Appeal Commissioner’s decision if they were actually involved in the appeal themselves or if the outcome of an appeal was shared with them by the practitioner involved in a hearing. This meant that Revenue were at a distinct advantage if an appeal was taken by a taxpayer in that they were aware if the Appeal Commissioners had already considered the same or a similar point, the decision made by the Appeal Commissioners in that similar case and how their decision was arrived at. The publication of determinations considerably levels the playing field for practitioners. Furthermore under the new system if the Appeal Commissioners have already adjudicated on a similar or related issue to that raised in an appeal they can decide to determine the appeal without holding a hearing and with this aim in mind send an anonymised copy of their previous determination on the issue to the parties and request the parties to make a case as to why the previous determination should not be taken into account in deciding the current case. Thus under the new system a taxpayer should always be aware if the Appeal Commissioners have previously considered a point under contention before they decide to proceed to appeal.
Bearing in mind that under the old system we did not know what issues came before the Appeal Commissioners, one might be forgiven for assuming that the Appeal Commissioners spent their time considering only complex technical issues. Assuming the type and nature of appeals under the new system is not significantly different to those under the old system, it would appear that this is not the case. Of the 25 appeals determined, only a small number of cases could be described as dealing with complex technical points. Particularly in those cases concerning income tax, there were a number of cases in which the taxpayer appeared to take their case to the Appeal Commissioners at least in part because they viewed themselves as being harshly treated by the tax system rather than because they thought that there was some technical basis on which their appeal deserved to succeed.
Another point which was brought home rather starkly in some cases, and which was reiterated on a number of occasions by the Appeal Commissioner, is that in an appeal before the Appeal Commissioners the burden of proof lies with the Appellant who must prove his or her case on the balance of probabilities. There is no burden of proof on Revenue. (S.949AH provides that where a matter is adjudicated by way of a hearing the Appeal Commissioners are required to determine the matter by examining the Appellant or by hearing other evidence given at the hearing. S.934(3), which applied to appeals made before 21 March 2016, had a similar provision.) If the Appellant does not prove their case, even if Revenue provide no evidence, the Appeal Commissioner cannot find in favour of the Appellant. This fact was brought home in a number of cases where it was quite astonishing to note the assertions made by Revenue without any attempt to provide any evidence for them. However although Revenue are not required to prove their case, it was noted that in certain instances the Appeal Commissioner did not accept the submissions made by Revenue because of lack of evidence to back up the submissions.
The views expressed below are personal to the author and her interpretation of the decisions given by the Tax Appeal Commission. No responsibility is taken by Purcell McQuillan for the interpretation which should be read as guidance only. Before taking any action or providing advice, the full decision must be read and the reader should decide for himself/herself the relevance of the decision taken by the Tax Appeal Commission to the particular circumstances.
Subject Matter of Appeals
Appeals on Income Tax Matters
Claim for Interest Relief
The very first case published under the new system concerned (01TACD2016) a taxpayer who had been denied an interest deduction by Revenue in respect of interest on borrowings incurred to purchase a site which the Appellant claimed was let. This was one case in which surprising little evidence was put forward by the Appellant. There was no written lease agreement, no evidence was put forward of the receipt of rent which the Appellant said had been paid in cash. The Appellant said the site was let for use as a vegetable garden but put forward no evidence of the site ever having been occupied. While the Appeal Commissioner did conclude that the absence of a written lease agreement was not necessarily fatal to a claim that there was a letting, as the Appellant had failed to establish on the balance of probabilities that the site had been occupied by a lessee the appeal was refused.
Meaning of “assets” and “distribution”
At the other end of the spectrum in terms of complexity was determination 10TACD2016. The issue which was the subject of this appeal was the most technically complex of all of the subject matters of the determinations published. One disadvantage for a reader of published determinations is that the determination just states the facts without necessarily giving any background information. Thus in a case such as this one is left to speculate on the rationale behind the complex transactions undertaken.
Summarising the facts in simple terms, Company X incorporated a subsidiary, Company Y. Company X was issued with ordinary shares in Company Y and the Appellant and his spouse, who were also shareholders in Company X, were issued with A ordinary shares. A resolution was passed by Company Y amending its memorandum and articles of association so that the rights attaching to the ordinary shares and the A ordinary shares were altered so that voting rights and rights to receive a surplus on winding up were transferred to the A ordinary shares from the ordinary shares. Company Y was then wound up, with presumably, all its assets being distributed directly to the Appellant and his spouse. The issue of the A ordinary shares, the exchange of the rights attaching to the shares and the passing of the resolution to wind up Company Y all happened over a 3 day period in 2006.
An amended assessment was raised for the tax year 2006 in respect of the Appellant which included a distribution under Schedule F in respect of the holders of the A shares.
S.130(3)(a) TCA 1997 provides that a distribution shall include a transfer of an asset to its members by a company where the value of the benefit received by the member exceeds the new consideration given. In this case the exchange of share rights between the ordinary shareholders in Company Y and the A ordinary shareholders was treated as a distribution by Company X to its shareholders (the A shareholders in Company Y also being shareholders in Company X). The Appellant argued as follows:
(1) That the word “assets” could only refer to shares in their entire form so that a transfer of intangible rights attaching to shares was not the transfer of an asset (Revenue disputed this).
(2) That even if an asset included intangible rights attaching to shares that there had been no “transfer” i.e. that the exchange of rights was not a transfer.
(3) That the word “company” in S.130(3)(a) was a reference to Company Y (whereas Revenue contended it was to Company X).
(4) If assets were transferred to the Appellant that he received them in his capacity as a member of Company Y and not a member of Company X (Revenue argued that S.130(3) does not require a transfer of assets to members “qua member” and so this argument was not relevant).
The Appeal Commissioner considered case law on what is a share which has held that basically a share is a bundle of rights. It would be inconsistent to conclude that intangible rights are not an asset if a share is made up of intangible rights and a share itself is an asset. Accordingly the Appeal Commissioner determined that rights attaching to shares come within the definition of assets referred to in S.130(3)(a).
With regard to whether or not there had been a “transfer”, the Appeal Commissioner concluded that it can be said that a transfer is a decision to move an asset (intangible share rights) from its ownership into the ownership of another. To achieve this transfer certain actions must be undertaken including passing special resolutions.
The Appellant had argued that S.130(3)(a) applies on a transfer of assets by a company to its members and in this case assuming the process of altering articles was a transfer that this had been effected by Company Y not Company X . There were no assets belonging to Company Y which were transferred so if the transfer was effected by Company Y S.130(3)(a) could not apply. In order for S.130(3)(a) to apply the process would have to be effected by Company X. The Appeal Commissioner did not accept this argument saying that while Company Y passed the resolutions the co-operation and consent of Company X was required. The transfer could not be by Company Y in any sense because the assets being transferred did not belong to Company Y.
The appeal was refused.
Claims for a Refund under S.865 TCA 1997
There were 4 appeals concerning claims for refunds made outside the 4 year time limit (18TACD2016, 19TACD2016, 21TACD2016 and 26TACD2016). In two of these cases no evidence was provided by the taxpayer that their refund claim was outside the time limit. In both cases the taxpayer had overpaid tax through no fault of their own, in one case because they had not received a tax credit to which they were entitled and in the other case because tax had been overpaid because their spouse’s pension income had been wrongly attributed to them. In both cases although the Appeal Commissioner sympathised with their position he/she confirmed the position that under the legislation the Revenue, and indeed the Appeal Commissioners, have no discretion. If a claim for a refund is not made within the 4 year time limit a refund cannot be made. In the other two cases concerning refunds, the taxpayer made an attempt to bring themselves within the 4 year time limit by arguing that early action taken vis a vis the Revenue constituted a valid claim for a refund within the 4 year time limit. In both cases the Appeal Commissioner held that the earlier actions did not constitute a valid claim for a refund.
Another case concerning refunds out of time which was made simply because the taxpayer felt aggrieved by the system concerned RCT (16TACD2016). Revenue had raised assessments in 2015 for RCT due for 2010 and 2011. The Appellant did not dispute that the tax was due but refused to pay because Revenue had indicated that the subcontractors in question would not be entitled to a credit for the 2010 tax as they were now out of time. The taxpayer lodged an appeal against the assessment with the Revenue under old appeal system which then applied and their appeal was denied by Revenue. It was Revenue’s refusal of their appeal which was before the Appeal Commissioners in this case. The appeal was refused by the Appeal Commissioners on the grounds that as the no statable grounds for the appeal had been put forward in the case by the Appellant. It was noted that this was one case in which the Appellant was excused from appearing at the hearing by the Appeal Commissioners (in accordance with S.949AA TCA 1997).
Artists Exemption
Three cases were appeals against a determination by Revenue that they did not qualify for the artists exemption under S.195 TCA 1997 (15TACD2016, 17TACD2016 and 20TACD2016). All three cases involved non-fiction books. The exemption under S.195 applies to income from “work” which has cultural or artistic merit. In order to come within the definition of “work”, the item must be original and creative. Revenue cannot determine that a work is original and creative or has cultural or artistic merit unless it complies with the guidelines prepared by An Comhairle Ealaíon. These guidelines set out the criteria to be taken into account in determining whether a non-fiction work is to be regarded as original and creative and having cultural or artistic merit. The Appeal Commissioner summarised the tests which must be satisfied in accordance with the guidelines, that (1) the work must incorporate the author’s unique insight, (2) the work must be regarded as “pioneering” and (3) the work must make a significant contribution to the subject matter by casting a new light on it or by changing the accepted understanding of it. In two cases the Appeal Commissioner allowed the appeal. In the third case the Appeal Commissioner concluded that because the book was largely a book of quotations and did not have any narrative by the author that it could not be said to incorporate the author’s “unique insight”. Accordingly the appeal was refused.
DIRT
In a case involving a sports body qualifying for exemption from income tax under S.235 TCA 1997, (09TACD2016) the Appellant put forward the interesting argument that the body should qualify for a refund of DIRT as it qualified for exemption from income tax and DIRT was essentially income tax. The Appeal Commissioner determined that only those which the legislation specifically provided could claim a refund of DIRT were entitled to a refund of DIRT (S.261(b) provides that “Notwithstanding anything in the Tax Acts…..except where otherwise provided for in S.267 no repayment of appropriate tax in respect of relevant interest shall be made” and as a sports body entitled to exemption from income tax in accordance with S.235 is not listed among those entitled to a refund, it was not entitled to a refund.
Wholly and Exclusively for the Purpose of the Trade
In another case (13TACD2016) a self-employed person claimed a deduction for wages paid to his sister. At the time the sister was still in school. A deduction had been disallowed by Revenue on the basis that the expenditure was not wholly and exclusively laid out for the purpose of the trade. The sister had given evidence that she worked for the Appellant every day after school for 3 hours and a full day on Saturday. Surprisingly, while the Appeal Commissioner did not accept that the evidence of the hours worked given by the sister was credible and held that the apparent hourly rate paid was excessive, the Appeal Commissioner determined that an amount was deductible based on the normal wage which would be paid to a teenager and for reasonable hours which could have been worked.
Deduction for Maintenance Payments
The remaining income tax case (06TACD2016) concerned a claim for a deduction for maintenance payments made by the Appellant which had been disallowed by Revenue. Initially the appeal concerned Revenue’s claim that the appeal was not a valid appeal. This was not accepted by the Appeal Commissioner who confirmed that Revenue cannot determine that an appeal is not a valid appeal simply because they believe the grounds were not meritorious. The appeal on the substantive issues then proceeded. In this case the Appellant claimed he had contacted Revenue before he had separated from his wife and had been advised that he would be entitled to a deduction for maintenance payments made in accordance with an Order of the Family Court. Although the payments made were in respect of maintenance, the facts showed that essentially this had been a lump sum payment made in two instalments and accordingly were not “annual” or “periodic”, which they were required to be in order to be deductible (S.1025 TCA 1997). However the Appellant also argued that even if it were held that the payments were not deductible that he should be entitled to a deduction (1) because when he claimed a deduction for the first payment made, it was allowed and an amended assessment issued and it was only when a claim for the second payment was made and queried that a the deduction for the first payment was withdrawn and (2) before the payments were made the Appellant had been advised by Revenue that payments for maintenance were deductible. With regard to argument (1) the Appeal Commissioner pointed out that S.959Y TCA 1997 specially allows Revenue to amend an assessment at any time even if tax has been paid or repaid in respect of the assessment. With regard to argument (2) the Appeal Commissioner determined that while it was conceivable that the Appellant could have a cause for action based on the doctrine of legitimate expectation and/or estoppel or grounds for judicial review this was outside the statutory jurisdiction of the TAC.
Appeals Relating to CAT
There were three determinations which concerned CAT.
Business Relief
In the first one, 02TACD2016, the Appellant claimed business relief in respect of the inheritance of a pharmacy business. The inheritance included a retail shop located on the ground floor. Amended assessments were issued disallowing business relief in respect of the first floor of the premises. This was another case in which surprisingly little evidence was put forward by Revenue as to why business relief had been denied. S.100(1) CATCA 2003 provides that an excepted asset does not qualify for business relief. Under S.100(2) an excepted asset is an asset which was not used wholly or mainly for the purpose of the business concerned for the required two/five year period. S.100 (5) provides that where part of a building, which would otherwise be an excepted asset, is used exclusively for the purpose of the business that part is treated as a separate asset and will qualify for business relief. Revenue submitted that the entire pharmacy premises comprised an “excepted asset” because the first floor was not in use for the purpose of the business but that as the ground floor was used exclusively for the purpose of the business that part qualified for business relief.
The Appellant stated that the first floor was used primarily as a store unit for the shop, as a changing area for staff and as an area where confidential calls relating to the business could be made. There were also toilet and washing facilities and employees bicycles were kept there. The Appellant gave evidence that nobody resided on the first floor of the premises, this was corroborated by his siblings. Revenue accepted the evidence that nobody had lived in the first floor. No alternative evidence was put forward by the Revenue. The evidence of the Appellant was accepted by the Appeal Commissioner who allowed this part of the appeal.
The Appellant also separately challenged a valuation for goodwill set out in a valuation report which had been supplied by his agents to Revenue and which the Appellant claimed was too high. No detail on this aspect of the case was given. The Appeal Commissioner said that as the Appellant had not supplied an alternative valuation the valuation in the report was accepted.
Deductible Consideration
The second case involving CAT (published as 03TACD2016 and also 04TACD2016) concerned an Appellant who had received a cash gift from his/her sibling in 2012. As assessment issued charging CAT on the gift. The Appellant appealed the assessment claiming it did not take into account consideration which had been given for the gift. In 2002 the Appellant’s father had died leaving a one third interest in a property to each of his three adult children. By agreement one of the children lived in the house for 9 years. In 2012 the property was sold and the child, who had occupied the house, gave 50% of his/her share of the proceeds to the Appellant. Separately in 2010 the Appellant had entered into a deed of family arrangement in relation to the estate of an uncle under which the amount the Appellant would have inherited was reduced. The Appellant claimed that his consenting to his sibling occupying the house in which he was a part owner and/or his entering into a deed of family arrangement relating to his uncle’s estate was consideration for the cash gift.
The Appeal Commissioner held that as there was no evidence of any link between the deed of family arrangement and the cash gift and that as there was no evidence that any consideration should be paid by the sibling for being allowed to occupy the house in question, neither could be regarded as consideration for the cash gift. The appeal was therefore refused.
Application of TCA 1997 Appeal Provisions to CAT
The third case relating to CAT (12TACD2016) concerned an Appellant who inherited a property at X, an apartment and a share of the residue of the estate of her father. Residue contained a share of proceeds of a life assurance policy. Initially the appeal concerned three issues, namely whether CAT dwelling house relief applied to property X and also whether the amount in respect of which Appellant had been assessed on in respect of her inheritance of a share of the life assurance policy was excessive. Prior to the hearing the parties accepted that the dwelling house relief was no longer in dispute and at the start of the hearing the Revenue said they accepted the amount assessed in respect of the life assurance policy was excessive. One would have thought, and this was commented on by the Appeal Commissioner, that Revenue should have notified the parties in advance of the hearing that they were no longer disputing the amount assessed in respect of the life assurance policy. However there is no requirement in the legislation for them to do so. Accordingly the hearing dealt with the remaining issue which concerned the an appeal regarding the valuation of property X.
This case might seem a little unusual at first in that the Appellant was disputing a valuation for the property in question which had been submitted by the Appellant’s own agent to Revenue and which they had used in completing their CAT return. For income tax purposes it is not possible to lodge an appeal which has been raised in agreement with a return filed by the taxpayer (S.959AI TCA 1997 and formerly contained in S.957 TCA 1997). CAT legislation applies certain of the provisions regarding making appeals contained in the TCA 1997 to CAT however CAT legislation also contains specific provisions regarding appeals relating to the value of real property. The question was whether the provisions regarding the making of appeals in the TCA 1997 (including the provision which would prohibit an appeal against an assessment made in accordance with a return filed) applied to appeals regarding the value of real property.
The Appeal Commissioner held that the S.67(5) CATCA 2003 which applies some of the TCA 1997 provisions regarding appeals to CAT did not apply to appeals made in relation to the value of real property under S.66 CATCA 2003. Accordingly an individual who filed a CAT return was not precluded from appealing against a valuation of an asset in an assessment based on the return filed. The appeal was allowed.
Appeal Relating to CGT
There was only one published determination which related to CGT (08TACD2016). In 2011 an assessment was raised on the Appellant in respect of CGT due for the tax year 2004 as trustee of a settlement (Settlement X). In 2013 the parties entered into a settlement agreement under S.933(3) TCA 1997, whereby an appeal could be settled between the taxpayer and Revenue before it proceeds to a hearing before the Appeal Commissioner. The appeal was settled because Revenue accepted that the CGT had been paid by the Appellant and a return filed under his own name because there was no separate tax reference number for the settlement. The assessment raised on Settlement X was therefore reduced to nil. The Appellant then filed a claim for a repayment of the CGT paid (by requesting that the CGT should be offset against other liabilities) on the basis that as the assessment was nil no CGT was due to be paid. Revenue refused the Appellant leave to appeal their determination that a repayment was not due. This appeal was made against Revenue’s refusal to allow the appeal to be made.
The Appeal Commissioner pointed out that Revenue were not entitled to conclude that a person was not entitled to make an appeal simply because the Appellant is more likely to lose than to win their case. However in this case the Appeal Commissioner said that the Appellant was unable to set out any statutory basis on which the reduction of an assessment to nil, because it was agreed that the liability had been paid, gave rise to a repayment of the tax paid. On this basis the Appeal Commissioner concluded that the Appellant did not make out an arguable case which would allow the Commissioners to determine that the appeal should proceed to a full, substantive hearing. The appeal was therefore refused.
Appeals Concerning VAT and VRT
There were 5 cases concerning VRT (07TACD2016, 22TACD2016, 23TACD2016, 24TACD2016 and 25TACD2016) all of which were appeals against the valuation of vehicles made by Revenue for the purpose of applying VRT. In all cases except one (07TACD2016) the Appeal Commissioner determined that the valuation used by Revenue was fair and reasonable.
Determination 05TACD2016 dealt with VAT and VRT. It concerned a company limited by guarantee with charitable status. It was a voluntary non-commercial body whose primary focus was the provision of personal assistance to people with disabilities. One of the services provided by the body was the provision of transportation to people with mobility issues. The company was funded 97.5% by the Department of Social Protection. The company applied for a repayment of VRT and VAT on the purchase of a new motor vehicle which was refused. Legislation (S.12 of SI No. 353/1994 (Disabled Drivers and Disabled Passengers (Tax Concessions) Regulations)) provides that a “qualifying organisation” are entitled to make such a claim. A “qualifying organisation” is defined as a philanthropic organisation not funded primarily by the State, a board established by statute or any public or local authority. The Appeal Commissioner refused the appeal on the grounds that the company being funded by the Department of Social Protection did not come within the definition of a “qualifying organisation”. It had been argued by the Appellant that they should not be precluded from making a repayment claim in this case as the Department of Social Protection had not provided the funding for the vehicle in question. The Appeal Commissioner set out the principles of statutory interpretation in his/her decision noting that unless an exemption is expressly given in clear and unambiguous terms within the letter of the statute it is not possible to extend the exemption beyond what is clearly stated.
There was only one case which dealt only with VAT (11TACD2016). This case was interesting in that it showed that the standard which an invoice must satisfy in order to be regarded as a valid VAT invoice may be a lot lower than one might have assumed. The Appellant was a self-employed courier. An assessment was raised for VAT due because VAT deduction for certain expenses was denied. The invoices were for delivery services provided to the Appellant by other drivers. Revenue said the invoices had only be provided after an audit was carried out, that there was no evidence the invoices were provided at the time of the supply and that they did not contain all the information required by legislation (the invoices did not contain the address of the customer and supplier, there were no specific details of service provided, did not say the date of supply or date of issue). The invoices contained the names and VAT numbers of the suppliers and the Appellant claimed that the dates of invoices were the annual dates as the invoices were annual invoices and for these reasons they should not be regarded as invalid. Payment of the invoices not in dispute (evidence had been given by the Appellant to Revenue to show that monthly payments had been made)
Revenue submitted that the drivers in question were employees not self-employed and so no VAT deduction could ar
