The Office of the Revenue Commissioners (Revenue) is the body in Ireland responsible for, amongst other things, evaluating and collecting the taxes and duties that make up the majority of the Exchequer’s annual revenue. Official statistics are not available providing a breakdown of the most common causes of tax controversies relative to one another. In Ireland, businesses and self-employed individuals are required to self-assess their tax liability and file periodic returns with Revenue, while individuals employed by an employer without other income are subject to the Pay-As-You-Earn (PAYE) system and their taxes are deducted through payroll by their employer. Revenue adopts a risk-based approach to deploying resources for audits and certain categories of taxpayers would be considered lower risk than others, and thus less likely to be subjected to an audit and consequentially be involved in a tax controversy. For example, taxpayers who pay tax through the PAYE system are considered to be a lower risk than those who file tax returns on a self-assessment basis. Also of note is that different classes of taxpayers will interact with Revenue to differing degrees. For example, companies in the Large Cases Division of Revenue often operate in a system of co-operative compliance working closely with assigned contacts within Revenue, while smaller companies or self-employed individuals would not have such regular contact with Revenue.
While Revenue does not publish statistics of this nature, those available from the Tax Appeals Commission (TAC) are of note. The TAC is the body responsible for hearing appeals in relation to assessments made by Revenue and it is of a quasi-judicial nature.
According to the TAC Annual Report 2017, there were, at the end of December 2017, 4,612 appeals on hand (including those that were both open and closed) since the TAC’s inception in 2016. Of these, 49% related to income tax, 9% related to value added tax (VAT), 8% to PAYE, 7% to capital gains tax, 6% to corporation tax, with other categories of taxes each representing 2-5% of the total on-hand appeals.
Data is not available in respect of the value of such controversies, although those involving taxes applicable to companies (such as corporation tax or VAT) tend to be of higher value.
As mentioned previously, Revenue has a number of assessment mechanisms in respect of verifying compliance with tax laws. These assessment mechanisms range from a relatively informal ‘non-compliance intervention’ to a formal audit. Revenue can raise an assessment within four years of the end of the chargeable period in which the return being questioned is required to be filed (subject to certain exceptions, including fraud or negligence on the part of the taxpayer, which can leave the assessment period open indefinitely). It should be noted that where the taxpayer has not made a full and true disclosure of all material facts, there is no time limit within which Revenue must raise an assessment. Revenue may make such assessments if it is not satisfied with the particular return filed or where a Revenue officer has reason to believe that a return does not contain a full and true disclosure of all material facts. Taxpayers can mitigate the risk of assessment by ensuring their compliance with filing requirements (in terms of content and filing deadline obligations) and other reporting duties. Where a taxpayer becomes aware that they have made an error on a tax return (or returns), they have the option of making an unprompted voluntary disclosure to Revenue. This is a disclosure made at any time before a Revenue audit notification issues or an investigation starts and involves providing, inter alia, all relevant information that has resulted in tax being due or the reasons for non-compliance with tax law. Making a voluntary disclosure can protect taxpayers from certain penalties and publication on the list of tax defaulters.
Ireland is still in the process of implementing many of the base erosion and profit-shifting recommendations of the Organisation for Economic Co-operation and Development (OECD) and EU measures. Changes that have so far been implemented have only been implemented recently so it is early to see any increased or reduced tax controversy trends because of these changes.
Where a taxpayer brings an appeal to the TAC, they are typically not obliged to guarantee the assessed tax. However, in respect of customs duty assessment, the taxpayer is obliged to pay the money assessed as a prerequisite to bringing an appeal to the TAC. If the taxpayer can demonstrate that such payment will cause hardship, the TAC can waive the obligation.
If a taxpayer appeals a tax assessment, interest continues to accrue on the underpaid tax and if the tax is held to be due, penalties may also be imposed. The level of interest and penalties due will not be considered until the appeal is finally determined. Tax criminal cases are relatively unusual in Ireland and generally only arise in cases involving fraud.
Revenue adopts a risk-based approach to deploying resources for audits and certain categories of taxpayers are considered lower risk than others, and thus less likely to be subjected to an audit or other compliance tool. In conjunction with this risk-based approach, Revenue also utilises its Risk Evaluation, Analysis and Profiling (REAP) software to create risk profiles of entities based on factors such as location, filing compliance and sector, and then uses this information to select particular entities to target for audit.
There are certain common issues amongst entities or individuals who are targeted by Revenue for compliance intervention, some of the most common being (i) failure to meet deadlines in respect of filing tax returns and paying taxes due, which failures are automatically recorded on Revenue’s systems and feed into REAP profiling; and (ii) failure to implement good-quality accounting systems (including appropriate, up-to-date software), which can lead to discrepancies (such as unusual gross profit margins or expenses claims) that may cause a concern if reviewed by Revenue.
Revenue compliance measures (including audits) can be initiated by Revenue within four years from the end of the chargeable period during which a tax return is filed (with no limitation in instances where a taxpayer has not made a full and true disclosure of all material facts in their tax return or in cases involving fraud or negligence). Revenue must give notice of an audit to the chargeable person. Revenue is not limited in terms of the time it has to conduct an audit, the length primarily being dictated by the complexity of the matter. However, it is generally the case that if Revenue wishes to raise an assessment, it will have to be raised within the four-year period; ie, an audit does not suspend the limitation period.
It should be noted that while an audit does not suspend the four-year period, as stated above where a full and true disclosure of all material facts is not provided in a tax return, this four-year limitation period does not apply. If, while auditing particular periods, Revenue discovers discrepancies, it may go back and look at earlier periods.
Typically, Revenue conducts audits from the taxpayer’s premises, although it may take records and other items away and examine them further at its own premises.
E-audit is the term Revenue uses to describe audits consisting exclusively or non-exclusively of an examination of records that are held electronically. In carrying out e-audits, Revenue utilises data analysis software (DAS), which can be programmed to search for specific types of data such as large transactions, or inconsistent numeric patterns, significantly reducing the man-hours required to conduct a traditional, paper-based audit. An increasing number of Revenue audits are conducted as e-audits.
The tax requirements of certain areas of business are reviewed more routinely, such as those relating to oil and mineral oil. Revenue also has special review programmes in place in respect of certain activities such as medical care and care of the body, and other high-risk areas of business. From a corporation tax perspective, it is frequently the case that R&D tax credit claims are subject to detailed audit.
While it is not clear whether Revenue audit activity has increased as a result of exchange of information (EOI) and mutual assistance programmes, it is clear that information received by Revenue through co-operation with foreign tax authorities has enhanced Revenue’s risk assessment tools applied when selecting taxpayers for audit.
Audits or other investigatory measures have been undertaken by tax authorities from multiple jurisdictions. This would relate in particular to clients with internationally focused businesses.
Presenting information in a logical and readable format is important to help manage the taxpayer’s position. In addition, providing precise and clear answers to questions asked is a good idea.
Revenue has an internal (or administrative), non-judicial dispute resolution process, its Complaint and Review Procedure. It is not mandatory for a taxpayer to engage in this process before initiating a claim with the TAC. Indeed, there are certain instances where it will not be possible to bring a claim using Revenue’s Complaint and Review Procedure. Revenue’s Complaint and Review Procedures Leaflet specifically provides that the procedure cannot be utilised where:
Revenue’s Complaint and Review Procedure is a three-stage process, involving:
While Revenue is not subject to any time constraints in completing the various stages of the review process, the taxpayer must request a review by the local manager ‘without unreasonable delay’ and must request a review by an internal or external examiner within 30 working days from the date of the local review decision.
The taxpayer must submit a written notice of appeal to the TAC, which must include all the information relevant to the matter, including any relevant background, the name and address of the appellant, and the grounds for appeal (supported, where relevant, by appropriate case law and legislation). A taxpayer has 30 days to appeal a decision or assessment made by Revenue.
Upon receipt of the notice of appeal, the TAC will send a copy to Revenue, advising it that any objection to the appeal on grounds of validity must be communicated to the TAC in writing within 30 days. Where no notice of objection has been received from Revenue within 30 days, the TAC will decide whether the appeal should be accepted. A decision not to accept an appeal will be made if the TAC is satisfied that the appeal is not a valid appeal, the appeal is without substance or foundation, or the appeal is a late appeal and the requirements for acceptance of a late appeal have not been satisfied.
The Appeal Commissioners may direct the taxpayer or the Irish Revenue Commissioners (or both) to furnish it with such information (a Statement of Case) as they may direct in relation to a taxpayer’s Notice of Appeal. The Statement of Case will generally include an outline of the facts and relevant law, details of any evidence and witnesses that may be relied upon, and an estimate of the duration of a hearing. The Appeal Commissioners will specify in their direction the time in which the Statement of Case should be provided. The preliminary procedures provide that the period will normally be three to six weeks, but this period may be longer or shorter (and may be extended) if the Appeal Commissioners think it appropriate.
In addition to the requirement for a Statement of Case, the Appeal Commissioners may also direct the parties to provide an 'outline of arguments' that they will make at hearing. Such an outline would include details of the statutory provisions and relevant case law. If the Appeal Commissioners consider that there are substantial grounds for doing so, a direction for such an outline of the arguments may be given to one of the parties only. Depending on the complexity of the case, a case management conference might be required by the Appeal Commissioner.
The Appeal Commissioners will decide the time and place that the appeal will be heard and the parties will receive not less than 14 days’ notice of the time and date fixed for the appeal by the Appeal Commissioners.
The default position is that all appeals are to be heard in public. However, the Appeal Commissioners will hear an appeal in camera if the taxpayer requests this in its Statement of Case. Where proceedings are held in camera, no third parties (other than witnesses and representatives) or journalists are permitted entry to the hearing.
An appeal may be heard by one Appeal Commissioner sitting on his or her own. If more than one Appeal Commissioner is to hear an appeal, it must be heard by at least three Appeal Commissioners.
A typical appeal case would proceed as follows:
The Appeal Commissioners are obliged to determine an appeal as soon as practicable after hearing both sides. If possible, the Appeal Commissioners will inform the parties how long following the hearing of the appeal it will take for them to make a determination.
The Appeal Commissioners will notify the parties in writing within 21 days of making a determination. The notification will include:
The Appeal Commissioners will also advise the parties of the time in which they may make an appeal against the determination on points of law to the High Court.
The Irish Revenue Commissioners are required to give effect to a determination of the Appeal Commissioners, unless a party appeals the determination to the High Court on a point of law. If such an appeal is made, the effect of the determination is effectively suspended, pending the outcome of that appeal (and any subsequent appeals on points of law). Importantly, interest continues to accrue, notwithstanding the appeal to the High Court.
The Appeal Commissioners must publish a report of their determination no later than 90 days after they have notified their determination to the parties. However, for appeals held in camera (currently, almost all appeals are held in camera), the report published by the Appeal Commissioners must be in a form that protects the taxpayer’s identity and confidentiality rights as a taxpayer.
As noted above, the TAC may direct that the Revenue or the taxpayer furnish it with a Statement of Case (which would typically contain an outline of the relevant facts, copies of documents to be used during the hearing or in support of a case, witness details and the statutory provisions or any case law being relied upon).
In cases before the TAC, the Appeal Commissioners are permitted to admit evidence that may not be admissible in a court.
In addition to written evidence, the Appeal Commissioners may summon any person who they think is able to give evidence regarding a Revenue assessment made on another person to appear before them to be examined. A person who, after being summoned, neglects or refuses to appear before an Appeal Commissioner when required, or appears but refuses to be sworn or subscribe to the oath or refuses to answer any lawful question will be liable to a penalty. In general, the taxpayer may decide, but will not be compelled, to give evidence.
In Ireland, the burden of proof in civil cases generally (including those in respect of taxation matters generally, although the exact burden of proof will depend on the particular section of legislation to which the matter under appeal relates) is on the balance of probabilities and (again, generally although dependent on the particular section of legislation under consideration) the burden rests with the taxpayer. In criminal cases in Ireland the burden of proof required is beyond reasonable doubt and the burden will rest with the prosecuting authority, Revenue or, in certain circumstances, the Director of Public Prosecutions.
The timing for production of documents, evidence and legal arguments is to a degree determined by the TAC’s procedural rules. In the Statement of Case, the taxpayer and Revenue will provide an outline of the facts and materials that they will rely on. Generally, the Outline of Argument is more detailed and in their submission, each party will develop their legal arguments and reference the law and materials that they intend to rely on. It is typically possible for Revenue or the taxpayer to introduce additional material and arguments on the day of the hearing. If either party builds a particularly strong technical case in their Outline of Argument, it is possible that such arguments may persuade the other party to settle.
Deciding whether to pay the tax that Revenue alleges is underpaid is a critical decision for any taxpayer who appeals an assessment. Paying the tax upfront inevitably gives rise to a cash-flow cost for the taxpayer. However, if the taxpayer loses the appeal, interest will accrue on the unpaid tax throughout the appeal period at a rate of approximately 8% annually (or 10% for VAT appeals). Taxpayers appealing decisions of Revenue can face long delays on appeal (in excess of a year and in some cases two years) given the significant backlog of cases under appeal.
As Ireland is an EU Member State, the decisions of the Court of Justice of the European Union (CJEU) are binding in Ireland. Its rulings on the interpretation of EU law have led to changes to Irish legislation as well as Revenue guidance and are often quoted from or relied upon in judicial proceedings arising as a consequence of a tax controversy. Given the similarity between the Irish and English legal systems, it is also common for decisions of the courts of England and Wales to be cited in arguments and in decisions in Irish tax cases (both at the TAC and the higher courts). English case law is persuasive, but not binding on the Irish courts. Increasingly, decisions from other common law jurisdictions (most notably Canada and Australia) are relied on in Irish tax cases. As Ireland is a member of the OECD, it is not unusual for OECD tax papers (in particular the commentary on the Model Convention) to be relied upon in international tax cases.
While, in respect of matters within their legislative remit, decisions of the Appeal Commissioners are final in respect of the facts of a case, it is possible for either party to the appeals process to appeal the decision to the High Court on a point of law only. Unlike appeals at the TAC, appeals before the High Court are public. By notice in writing to the TAC Appeal Commissioner, the said party can require the commissioner to state a case for the opinion of the High Court. Written notice of such notice must be given to any other party to the appeal no later than 21 days from the Appeal Commissioner’s determination being notified to the parties, specifying which element of the determination is alleged to be erroneous in law. Where a party is dissatisfied with the outcome of the High Court’s determination of the point in question, this may in turn be appealed to the Court of Appeal and the Supreme Court.
In short, if a party is dissatisfied with a determination by the TAC on a point of law, it may provide notice in writing to require the Appeal Commissioners to state and sign a case for the opinion of the High Court. This written notice must broadly:
The Appeal Commissioners are responsible for drafting the case to be stated to the High Court, although the Irish Revenue Commissioner may make representations in relation to the draft. The case stated must contain broadly:
The Appeal Commissioners will send a copy of the draft case to be stated to the parties before submitting it to the High Court, which will be given 21 days to provide comments to the Appeal Commissioners, who shall have regard to any representations and may amend the draft of the case stated before completing and signing it.
The Appeal Commissioners will then send the final copy to the appellant. The Tax Appeals Act requires the Appeal Commissioners to do this within three months of receiving the notice requiring the case stated to be prepared. The appellant is then required to submit the signed case stated to the High Court within 14 days of it being provided by the Appeal Commissioners.
The High Court will hear and determine any question of law arising in the case stated from the Tax Appeals Commission. The High Court may:
The parties may appeal any decision of the High Court to the Court of Appeal. In turn, may also possibly appeal a decision of the Court of Appeal to the Supreme Court.
It is important to note that, when EU law arises within an appeal, a reference for a determination in that respect can be made to the CJEU at any stage within the judicial appeals process.
At the TAC, the case will be decided by the Appeals Commissioners who heard the case (usually one Appeal Commissioner but in some cases three). The Appeal Commissioners to date have been appointed following a recruitment process conducted by the Public Appointments Service. Commissioners will assign cases amongst themselves.
At the High Court, the case stated will be determined by a High Court judge, who will be appointed by the President, on the recommendation of the government. Typically, the High Court President will assign cases, usually based on the relevant expertise or experience of the various judges.
At the Court of Appeal, the case will be determined, typically, by three judges. These judges are appointed by the President on the recommendation of the government.
At the Supreme Court, the case will be determined, typically, by five judges, who are appointed by the President of Ireland on recommendation of the government.
There are no ADR mechanisms for taxes in Ireland.
Such measures are not in place in Ireland.
Binding advance opinions are only available in limited circumstances; for example, where the law is unclear and no guidance has been published by Revenue. Where a taxpayer seeks an advance, Revenue, in providing such, stipulates that they are only valid for five years, are only as good as the information you provide to them, they cannot be relied upon by any other party and, specifically, they are not binding. However, in the limited circumstances where advance opinions are available, they can be useful and generally Revenue will not resile from a position on which it has opined unless the facts have changed.
Where it is determined by Revenue that the correct tax was not paid, administrative fines (ie, surcharge and interest on the tax due) are automatically imposed on the taxpayer. Additionally, a criminal prosecution for tax evasion may be initiated where a taxpayer fraudulently reports its tax affairs, but this would only arise in limited circumstances. More on how the criminal process is initiated will be discussed below.
As detailed above, a taxpayer aggrieved by a tax assessment conducted by Revenue is entitled to appeal to the Appeal Commissioners in writing within 30 days of the notice of Revenue assessment. Once the appeal is finally determined, administrative sanctions (eg, interest and penalties) will be automatically applied. If a case is directed by the Director of Public Prosecutions to be brought before a criminal court on suspected offences such as tax evasion or fraud, Revenue pauses its review of the file until a determination is made.
Administrative sanctions automatically apply where tax is underpaid. Criminal tax cases are only initiated in Ireland in serious cases involving evasion or tax fraud. During 2018, Revenue secured 17 criminal convictions for serious tax evasion and fraud.
If Revenue encounters strong indicators that a serious tax offence has been committed, the case is referred to the Revenue Investigations and Prosecutions Division for assessment on whether the case is suitable for prosecution. The final decision in relation to any criminal prosecution rests with the Director of Public Prosecutions, who would initiate criminal proceedings where the legality of the adjustment/assessment will be decided. Such cases are heard in Ireland’s court system, either in the District Court, Circuit Court or Central Criminal Court depending on the seriousness of the offence.
A taxpayer has an opportunity to mitigate penalties on underpaid tax by making a ‘qualifying disclosure’, in writing. Such a decision must contain complete information in relation to all matters relating to a tax liability in question. The disclosure must be accompanied by a payment of the tax due plus interest. The level of reduction in penalty will depend on (i) whether the disclosure was prompted or voluntary and (ii) whether the taxpayer co-operated with Revenue in respect of the matter.
However, a taxpayer will not be able to benefit from making a qualifying disclosure in the event where Revenue believes that there is a serious tax evasion and makes a decision to investigate further.
In non-criminal cases, it is possible to reach a monetary settlement with Revenue in circumstances where the taxpayer and Revenue reach an agreement on the tax due and relevant penalties arising. If a formal agreement cannot be reached with a taxpayer, and Revenue is unable to secure payment, the collection of tax, surcharge and interest will be referred for appropriate enforcement proceedings. If no agreement is reached, Revenue will refer the matter to court. If a case is criminal and is referred by Revenue to the Director of Public Prosecution, it is no longer possible to reach a settlement with Revenue and the case will be decided by a judge before a criminal court. However, this is only applicable to the most serious tax offences.
Possible appeal routes depend on which Court of First Instance the original trial took place in. If the trial that decided on the tax offence took place in the District Court then the accused can appeal the conviction or sentence to the Circuit Court, where a full re-hearing of the case will be undertaken.
If the trial took place in the Circuit Court, the Central Criminal Court or the Special Criminal Court then the accused can appeal the conviction or sentence to the Court of Criminal Appeal. In this court, the appeal is heard by a Supreme Court judge and two High Court judges. A full re-hearing of the case is not taken here; instead, the judges read the transcript of the original trial that decided on the criminal tax offence.
Revenue has invoked the general anti-avoidance rule (GAAR) and other anti-avoidance rules against taxpayers, and some of those cases have reached the Supreme Court. More recently, Revenue has issued assessments under Irish transfer-pricing rules and those assessments are under appeal. Generally, such cases do not lead to criminal prosecutions. Only cases involving serious tax offences such as fraud tend to result in prosecution.
In cases of double taxation, whether domestic legislation or a double tax treaty will be relied on to progress the taxpayer’s position will depend on the facts of the case. Mutual agreement procedures (MAPs) can be lengthy, so if a solution under domestic law is available, a taxpayer might be inclined to seek relief under the domestic system. If both options are commenced, Ireland’s competent authority will request the taxpayer to stay its domestic tax appeal pending the outcome of the MAP.
The Irish GAAR applies to transactions involving avoidance of Irish tax only. This is explicit in the legislation. To the extent that a cross-border transaction involved an abuse or misuse of an Irish tax provision and gave rise to underpayment of Irish tax, it is possible that Revenue would seek to invoke the GAAR.
Ireland introduced transfer-pricing legislation for the first time in 2010. As a result, it is only recently that transfer-pricing cases have made their way to the appeals system. The first cases that will be heard will be in respect of adjustments made under domestic law.
Revenue will not conclude unilateral advance pricing agreements (APAs) but will engage with taxpayers and tax authorities on the negotiation and agreement of bilateral or multilateral APAs with tax-treaty partner countries. This has been enhanced by the introduction of the formal APA programme in 2016 and it is now possible to initiate bilateral APAs in Ireland. A company’s access to the APA programme is subject to the terms of the MAP article of the relevant double tax treaty. An application for an APA may be made by a company that is tax resident in Ireland, or by a permanent establishment of a non-resident company.
The APA programme progresses in the following five stages: (i) pre-filing, (ii) formal application, (iii) evaluation and negotiation, (iv) agreement and (v) annual reporting.
In 2017 (being the most recent year for which data is available), Revenue received eight new APA requests and concluded two APAs initiated by taxpayers.
Most recently, there has been an increase in litigation relating to relief for foreign withholding taxes. The earliest of these cases have been heard by the TAC and one will be appealed to the High Court. Determination of the High Court appeal will likely give rise to more certainty for all taxpayers, thereby mitigating litigation.
Each party would be responsible for their own costs at the Appeal Commissioners level (ie, the first option of appeal available to a taxpayer questioning an assessment made by Revenue). However, if a taxpayer loses their appeal, they are exposed to high rates of interest – interest is charged at 8% in most cases and 10% per annum in the case of VAT and PAYE. This interest accumulates on a daily basis from the date the disputed tax was due until it is paid and the interest continues to accumulate while the appeal is going through the appeals process.
If litigation progresses beyond the Tax Appeals Commissioner to the High Court or the Court of Appeal then generally the party that is unsuccessful would bear its own costs and those of the winning party. The overall cost will depend on the time and complexity involved in the case, although it is likely to be in six figures. The fees are usually paid at the end of the proceedings; however, interim payments can be made to the lawyers supporting the running of the litigation proceedings.
A taxpayer cannot request an indemnity to cover the risk of the additional tax assessment being incorrect. In Ireland, if the taxpayer decides to appeal an assessment, the taxpayer takes the risk of not only having to cover the litigation fees of the winning party, but also additional interest arising on the tax due and unpaid.
From the latest report published by the TAC, it has been recorded that at the end of 2017, the TAC had 3,247 cases pending before it and that in 2018, the TAC had received approximately 150 appeals per month.
The following statistics have been extracted from the latest report of the TAC. The statistics relate to all taxes and are for year 2017.
In relation to appeals received in 2017, income tax remains the most frequently appealed matter, followed by VAT and PAYE (Irish-specific tax).
From the most recent statistics available, in 2017 there were three requests for an appeal by way of a case stated (ie, where the appeal is brought before the High Court) and the taxpayer succeeded in all three determinations.
The key strategic guidelines to consider in a tax controversy are as follows: