Mr. Seamus McCarthy:

The main role of the Tax Appeals Commission is to adjudicate, hear and determine appeals by taxpayers against decisions and determinations of the Revenue Commissioners concerning taxes and duties. The 2019 appropriation account of the commission records gross expenditure of €1.77 million. The estimate was €3.3 million and, as a result, there was a surplus of almost €1.5 million at the end of the year. Most of the underspend relates to the planned recruitment of additional staff taking longer than expected. I issued a clear audit opinion in relation to the account.

The commission was established on 21 March 2016 as an independent statutory body, replacing the previous Office of the Appeal Commissioners. As a result, the commission has been in a development phase over the past several years. It has had to develop new operating systems at the same time as it dealt with legacy cases it inherited, as well as new cases lodged since its establishment. The report before the committee today examines the management of the tax appeals process, and provides analysis on the value of tax under appeal at the end of 2019, the outcome of appeal cases and the time under appeal.

At the end of 2019, there were 3,357 open appeal cases, with a combined value of €3.8 billion. A small number of very high value cases accounted for 58% of the combined value. The average time that cases had been under appeal at that date was around two years. Almost a quarter of cases, accounting for €508 million in value, had been in the appeal system for three years or more. Some taxpayers pay the amount of tax in dispute before lodging an appeal. If the taxpayer is successful in the appeal case, Revenue is required to refund the taxpayer the amount prepaid. Revenue could not quantify for us the total amount prepaid relating to tax under appeal at the end of 2019. However, that information would be available on Revenue’s individual taxpayer records. In the period 2016 to 2019, the commission closed more than 3,900 appeal cases. Over 70% of the cases closed were either settled by the taxpayer with Revenue, or the taxpayer withdrew the case. The commission refused or dismissed 22% of the cases that had been closed.

The commission was required to make a formal determination in only 5% of the cases closed between 2016 and 2019. Once an appeal has been heard by the commission, there is no time limit within which the commission must issue its determination. At the end of 2019, a determination by the commission was awaited in 57 cases, and 23 of those cases, with a quantum under appeal of €114 million, had been heard prior to 2018. The outcome of an appeal can result in a revised tax assessment. Monitoring of the outcome of appeal cases would potentially provide Revenue with information about circumstances where there are significant reductions or increases in the original assessment for a particular tax type. While Revenue considers determinations issued by the commission, the examination found that Revenue did not actively monitor the impact of the appeal process on tax assessed at a global level.

In 2016, the commission procured a case management system at a total cost of €202,000. It was subsequently decided in 2018 that the system did not operate as intended and was written off by the commission. A replacement case management system developed as a temporary measure was still in place at the end of 2019. As the report was being finalised in September 2020, work was continuing to develop a permanent case management system for the commission. The examination identified some errors in the data recorded on the case management system, which better data entry controls could have eliminated. Discrepancies were also identified in the recorded quantum of tax under appeal when the commission’s data were compared to data extracted from Revenue’s appeals module system. This finding resulted in Revenue conducting a review and subsequently revising its data on appeal cases.

The chapter made five recommendations, three of which are addressed to the commission. These relate to improving the timeframe for the disposal of cases and the development of escalation procedures when delays arise; the setting of time targets for the issuing of a determination following a hearing; and a review of the commission’s requirements in advance of the procurement of a new case management system. The examination made two further recommendations addressed to Revenue, concerning the recording of tax appeal data on its own case management system; and monitoring of the overall change in assessed liabilities as a result of appeals. The commission has agreed to implement the recommendations addressed to it and the witnesses will be able to provide the committee with an update on the implementation of those recommendations.