Mr. Des O'Leary:

I propose to describe the main features of the legislation and the reasoning behind the proposals included in it. Mr. Smyth will address a number of issues that are of particular interest to the Revenue Commissioners. As the joint committee has a copy of my statement, I do not propose to read it in full and it might perhaps be accepted for the record.

In budget 2014 the Minister announced a reform of the role, functions and structure of the Office of the Appeal Commissioners and the tax appeals system.

The commissioners hear appeals against assessments, decisions and determinations of Revenue on a variety of taxes and charges that are under the care and maintenance of the Revenue Commissioners. Most of those appeals relate to the amount of an appellant’s liability.

The Minister’s stated objective was to ensure an enhanced and cost-effective appeal mechanism, which provided transparency and increased certainty for taxpayers. I should point out at this stage that the Minister is on record in the Dáil in noting the important role that the Appeal Commissioners had to play in the operation of a fair and efficient system. He has also specifically acknowledged the important contributions of the current Appeal Commissioners, Mr. O’Callaghan and Mr. Kelly, since their appointments in 1992.

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. Subsequent to the public consultation, we have had further contact with these parties about their recommendations. We have also consulted with the Attorney General's office about some of the proposed measures and have discussed them with the Appeal Commissioners.

To give a quick run-down of what the process is like at the moment, not all taxpayer grievances come within the remit of the Appeal Commissioners. Where a taxpayer does not agree with a monetary penalty, his or her recourse is through the courts. Grievances about how the Revenue Commissioners handle cases can be dealt with by way of judicial review. There is also provision for going through the Ombudsman in the case of people who feel that they have been unfairly treated.

I will give a quick outline of the present appeals system. At present, a taxpayer appeals directly to the Revenue Commissioners, rather than the Appeal Commissioners, and Revenue then liaises with the Appeal Commissioners to set a date for a hearing. Appeals are held in camera- in private - following which the Appeal Commissioners make their decision. Hearings are held in various locations throughout the country and are much less formal than a court situation. A taxpayer can represent him- or herself or can be represented by a legal or taxation professional. Decisions by the commissioners are given orally or in writing and, while they can be published, publication has been limited in practice. In recent years it has certainly not been the practice to publish the decisions that are issued. There is no register of precedents as the Appeal Commissioners are 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, from the very start, by a judge of the Circuit Court or, on a point of law, they can go to the High Court. The Revenue Commissioners are restricted to an appeal to the High Court only on a point of law, except in the case of capital acquisitions tax, where they may make an appeal to a judge of the Circuit Court. This is one of the inconsistencies that are evident throughout the current system. A taxpayer has to pay his or her self-assessed liability before an appeal can be made but any disputed amount between the appellant and the taxpayer is not payable until the matter is completely determined through the appeals process, even when that involves going to the superior courts.

Over the past 15 years, a number of reports have examined the appeals process. These include the DIRT inquiry and the Revenue powers' groups in 1999 and 2003. The Law Reform Commission issued a report in 2004 and there was a commentary from the Commission on Taxation in 2009. The recommendations in these reports focused on the importance of ensuring the independence of the Appeal Commissioners through appropriate appointment procedures and by providing an enhanced, cost-effective appeal mechanism.

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.

The current legal provisions dealing with the appointment of the commissioners are contained in a very small section of the Taxes Consolidation Act - it is only a few lines. 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 in the legislation 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. Appointments would be for a fixed term which may be renewed once. There are various provisions on such matters as disqualification and removal from office, which are broadly in line with the arrangements for other independent office holders. The Bill also provides for the Appeal Commissioners to report annually on their work and for that report to be laid before the Houses of the Oireachtas. There is no provision to that extent at the moment.

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 thereof,in camerain certain circumstances, for example, where confidential information is being discussed, or where they felt the issue was not of great consequence. 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, in the UK and Australia, for example, which have a comparable legal background, towards public hearings for tax appeal cases.

As part of the consultation process, practitioner and representative bodies have argued that public hearings for tax appeals are not appropriate as they may deter individuals from appealing. The argument is also made that cases sometimes require that information about third parties is divulged. We feel that the provision for Appeal Commissioners to hear some cases in private at their discretion would continue to deal with such issues. The Minister has been advised by the Attorney General's office that public hearings 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 that have been expressed, 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.

As regards 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 estimated that €770 million was in question where assessments had been raised but collection could not proceed pending resolution of the disputed issues. At any time, the total 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 more than five years have elapsed since the appeal was lodged, with almost 30 of these cases under appeal for more than ten years. It is important to bear in mind that these statistics relate to the amounts in dispute. The amount in taxes that may be liable for payment depends on the outcome of the appeals process. Furthermore, even where liability is determined, there is no guarantee that all of the amount subject to appeal will actually accrue to the State. In many cases, the proposals contained in the Bill will not change the amounts in dispute, but they are intended to speed up the process of resolution of disputes.

From the Exchequer’s point of view, it is important that tax due is collected as quickly as possible. Mr. Smyth will in due course outline some of the concerns Revenue has about the effect of delays in the appeals system.Equally, of course, taxpayers ought to be able to obtain certainty about their financial affairs, something that is not possible if the appeals process is long drawn out. A number of procedural changes are being proposed which are intended to streamline the process. I do not propose to go into them in detail. However, one of the main changes is that an appellant will now make his or her appeal directly to the Appeal Commissioners, rather than via Revenue. Also, the Appeal Commissioners will decide the timing of hearings and have the power to deal with an appeal, in some cases without a hearing, provided there is no objection from Revenue or the appellant. This will possibly suit cases which are not of great import or significance.

Appeals in respect of which there are common or related issues can create an unnecessary burden on the appeals 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 will allow the Appeal Commissioners to make the decision in one case and notify the other appellants of that decision. Unless the other appellants can explain why a hearing is necessary or it would not be appropriate to have regard to the first decision, the commissioners will be able to decide the other appeals without a hearing. Where there is an appeal to the High Court, the Appeal Commissioners will 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 also be required to draft the case stated within three months of being notified of the appeal. This is an area in which there has been considerable delay at times in that where a case stated is being put together, the two sides may disagree and it can be a long time before the text is ready to go to court. Originally, this process was dealt with by the Appeal Commissioners, but this has been the responsibility of the appellants and Revenue since the 1980s.

In summary, the procedures set out in the heads of the Bill are aimed at preserving fairness, while reducing scope for delay. The key policy change aimed at reducing the scope for delay is the abolition of the right to a 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. Appellants are not confined to arguments made to the Appeal Commissioners. There is some evidence that this right to a rehearing means that the initial appeal hearing can be a dress rehearsal. If that does not work, we may change tack.

Significant delays can arise in this process, particularly in court areas outside Dublin where it can be difficult to get a case listed for hearing.

A complete rehearing would be justified if there were reasons to suppose that poor decisions on matters of fact were a particular problem in the decision making process of the Appeal Commissioners. We are not aware of any evidence that this is the case. I understand that of the 14 cases appealed to the Circuit Court in 2013, the court found in favour of the appellant in one case and in most of the others, it repeated the decision of the Appeal Commissioners or a settlement was reached outside the court.

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. As this will have resource implications, we have entered into discussions with the Department of Public Expenditure and Reform on the matter.

Consideration was given to the option of continuing with the Circuit Court rehearing for cases, particularly where they involved small amounts of disputed tax liability. However, according to the legal advice received, this would effectively mean that an appellant who was in dispute in a case involving large amounts of tax liability would potentially be treated less favourably than appellants disputing minor tax liabilities. Having taken account of all the expressed views and arguments, the Minister considers that, on balance, the provision for full rehearing by a judge of the Circuit Court should be removed.

I hope I have given members an understanding of the thinking underlying the legislation and the reasons the Minister believes it will enhance the independence of the Appeal Commissioners and increase transparency. I will be pleased to answer any questions members may have about the proposed legislation.