Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I welcome the opportunity to contribute to the Second Stage debate on this important Bill. While I would take issue with some aspects of it, I welcome the fact that the system of tax appeals is to be reformed and modernised. There is no doubt that a comprehensive and fair tax appeals system is required. Figures released to me by the Minister for Finance earlier this year showed that 26% of tax appeals in 2012 and 2013 were decided in favour of the taxpayer, showing that the Revenue does get it wrong sometimes. The current system is beset by unforgivable delays. These are unacceptable from the perspective of individual taxpayers who seek an independent appeal of Revenue decisions but they also tie up hundreds of millions of euro of revenue for the State pending a determination by the appeal commissioners. The Department of Finance confirmed to the Joint Committee on Finance, Public Expenditure and Reform that, 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 is under appeal, as well as claims to repayment which are disputed by Revenue.

The level of delay is astonishing. 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. The joint committee was told of one incredible case involving a transaction which took place in 1991. It is almost beyond belief that, under the current system, it took until 2011 before this case was resolved. The case in question was eventually concluded in the Supreme Court after 20 years of working its way through the various stages of the appeal process. While that may be an extreme example, it highlights the flaws in the existing system. Clarity in regard to tax law is essential in a modern economy.

The Deloitte European tax survey published in 2013 sought the opinions of the heads of taxation of 1,000 companies across Europe and respondents were asked what changes to tax legislation would have the greatest positive effect on their country’s competitiveness. Simplification of the tax system was the preferred option of 36% of respondents. It is interesting, however, that the most popular measure, which attracted the support of 44% of respondents, was increasing certainty about the future of the tax system. In the context of competitiveness, certainty and simplification of the system were even more important to these respondents than a reduction in tax rates.

It is, therefore, very welcome that this legislation will require an appeal commissioner to publish on the Internet a written determination for each case within 90 days, rather than just announcing the decision in private to the parties concerned. This is essential in bringing certainty to the tax system, as businesses will no longer be obliged to speculate on how tax law is being applied once one appeal on a particular question has been determined by the appeal commissioners as a test case. This will also have the added benefit of potentially reducing both the workload of the appeal commissioners and ensuing backlogs. This is because the publication of a written determination in one test case might save dozens of other appellants from having to lodge appeals of their own to revisit issues that have already been decided by the appeal commissioners, unbeknownst to them and the public at large. Putting the principles involved in certain determinations on the public record will make the system far more efficient and prevent a number of appeals.

Publishing determinations also increases fairness in the appeals process. If determinations are given orally by an appeal commissioner, but no determination is made available to the public, the Revenue Commissioners have the considerable advantage of knowing about that case as a precedent but taxpayers in other cases have no way of knowing about precedents which might be detrimental to Revenue’s side of their individual case.

One development which I greatly welcome is the decision of the Government to adapt the legislation to reflect the arguments I and many others raised at the joint committee in relation to the original proposal that tax appeals would be heard in public in all cases. While the facts of all cases should be set out in the written determinations of the appeal commissioners, identifying the individual taxpayers in question in all cases would have added nothing to the process. It is very positive that the version of the Bill that before us allows an appellant to have his or her case dealt with in cameraif he or she so requests.

The initial proposal to allow the public and media attend tax appeals would have forced taxpayers to divulge their most sensitive and private tax and financial information in a public forum. This simply would have been a deterrent to many people submitting appeals. For a great number of taxpayers, it would have been too high a price to pay for making a tax appeal and many would have been forced to choose not to appeal a decision of the Revenue Commissioners in order to protect their privacy. This would be particularly unfair in circumstances where over a quarter of cases are decided in favour of the taxpayer.

My main concern about the current version of the Bill is that appeals to the Circuit Court would no longer be available. I strongly favour an amendment to the Bill which would reintroduce the Circuit Court appeal route. As matters stand, a taxpayer may appeal a finding of the appeal commissioners to the Circuit Court. This takes place as a full rehearing of the appeal before a judge of the Circuit Court. As an alternative, an appeal on a point of law may be taken to the High Court. Instead of dealing with a full rehearsal of the facts of the case, an appeal on a point of law is a very specific form of appeal, limited just to consideration of a purely legal question. The Bill removes the appeal to the Circuit Court and only allows the second form of appeal, an appeal on a point of law to the expensive forum of the High Court, and, as we all know, taking a case to the High Court can often cost €100,000 or more. No rehearing would be available on factual issues and only a purely legal question could be dealt with.

It is not open to the Government to claim that a right of appeal still exists under the Bill in circumstances where only one subset of cases could be appealed. In reality, there is no appeal if the decision relates to factual or practical matters rather than to the interpretation of legislation. This gives an extraordinary level of power to the appeal commissioners, who will be able to decide any factual issues without an avenue of appeal being available to a dissatisfied taxpayer. In removing any appeal from many decisions of the appeal commissioners, the Oireachtas might place itself in difficult constitutional territory. Our constitution only permits justice to be administered by the courts, allowing only limited functions and powers of a judicial nature to be given by law to non-judicial bodies. I would have grave reservations as to whether the appeal commissioners could be regarded as having only limited powers of a judicial nature if they can decide on factual questions in a multi-million euro tax case, with no option to appeal to the courts available.

Two concerns that exist with the current provisions on appeals to the Circuit Court are the absence of specialist judges with expert tax knowledge and the considerable delays that exist in some Circuit Court areas. One suggestion that may resolve these issues would be that a small number of dedicated Circuit Court judges could take responsibility for hearing tax cases locally throughout the country, with the benefit of strong case management powers and separate tax appeal lists to eliminate delays. I remain to be convinced, however, that Circuit Court judges who deal with complex legal and factual issues on a daily basis are not eminently qualified to deal with appeals on taxation matters. While the appeal commissioners may constitute an expert tribunal on technical taxation matters, the Circuit Court is even more of an expert tribunal in determining factual disputes and deciding cases on the merits. Further, the evidence given to the joint committee during pre-legislative scrutiny was that Circuit Court judges have ample experience to deal with the sort of matters they would face in these appeals.

I am also uncomfortable with the attitude that has been taken to delays in the Circuit Court. Delays have been used as an excuse to get rid of the Circuit Court process altogether. However, the Government should have set itself the task of designing case management procedures and other structures to eliminate delays, rather than just scrapping Circuit Court appeals altogether.

The numbers of cases appealed to the Circuit Court is so small that there should be no reason such appeals could not be dealt with in a speedy manner. The joint committee was told that only 14 cases were appealed to the Circuit Court in 2013. Some of those cases were also settled between the taxpayer and the Revenue without a hearing being necessary. In the five years from 2010 to 2014, the number of cases actually adjudicated by the Circuit Court appears to be a total of only 46. In such circumstances, there is simply no reason the Circuit Court process should not be capable of being dealt with efficiently and fairly in a short period. In the final analysis, such a small number of cases can hardly make a significant impact from the perspective of the enormous number of taxpayers dealt with by the Revenue every year. However, from the perspective of those individual appellants who have accessed an appeal in the Circuit Court, the importance of that route of appeal could be enormous. It could be the difference, for example, between a small business providing jobs locally either surviving or not.

While many cases have been decided by the Circuit Court in favour of Revenue, some have been decided in favour of the taxpayer. It seems unjust to deny those taxpayers a full appeal on the merits to the Circuit Court. In any event, the argument the current Bill would reduce delays in court appeals does not stand up to scrutiny when we look at the evidence given by the Revenue Commissioners to the joint committee. That evidence was that a hearing in the High Court could take a minimum of two years to take place. It is difficult to imagine why the issue of court delays could be used to justify forcing appeals into the High Court if delays are so long in that forum.

It is also important to note the costs of dealing with a case in the High Court can be particularly high in comparison to costs in the Circuit Court. The Circuit Court also provides a local forum for the determination of a case, whereas cases in the High Court would require a taxpayer and his or her representatives to travel to Dublin, perhaps on several occasions. The cost of an appeal to the Appeal Commissioners itself may be beyond the reach of many taxpayers, but the considerable costs of the High Court would be many multiples of that amount.

If the Circuit Court appeal is reinstated, it should be on the current basis of an in cameraappeal to remain in line with the decision to allow a taxpayer a right to have his or her appeal dealt with by the Appeal Commissioners on an in camerabasis. By eliminating the Circuit Court appeal, the Bill forces a person dissatisfied with a decision of the Appeal Commissioners to challenge it in the public forum of the High Court rather than in a private hearing in the Circuit Court. For all of the reasons I have already outlined, it is not an appropriate position in which to place taxpayers. We should not ask taxpayers to choose between having access to appeal procedures and their privacy.

On balance, Fianna Fáil welcomes the idea of modernising the tax appeal system. There are many positive elements in the Bill, including measures to increase the efficiency of the tax appeal system, the proposal in section 949U to allow a more informal appeals process with the agreement of the parties and the retention of the in camerarule for tax appeals. This is an example of the pre-legislative scrutiny phase actually having an impact. We will, however, be urging the Minister on Committee Stage to consider an amendment to provide for an appeal to the Circuit Court for those who wish to appeal factual or practical aspects of their case, rather than the narrow and purely legal appeal on a point of law to the High Court currently envisaged in the Bill.

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