Onus of Proof in Tax Cases

2017 • Number 02 135 Mark Ludlow Solicitor, Ronan Daly Jermyn, Solicitors Tom Power Barrister-at-Law Onus of Proof in Tax Cases Onus of Proof in Tax Appeals: or Circuit Court Judge1 that the assessment 2 The Historical Position is incorrect. Although Revenue may produce evidence to support an assessment at an Historically, in a tax appeal the burden of appeal, there is no requirement for it to do so. proof falls on the taxpayer to demonstrate to If the taxpayer does not convince the Appeal the satisfaction of the Appeal Commissioner Commissioners that the assessment is 1 Under the new system the right of the appeal to the Circuit Court has been abolished. Accordingly, the remaining parts of this article will refer only to the Appeal Commissioner. 2 Menolly Homes Ltd v Appeal Commissioners and another [2010] IEHC 49, para. 22: “The burden of proof in this appeal process is, as in all taxation appeals, on the taxpayer.” 136 Onus of Proof in Tax Cases incorrect, the assessment will stand.3 The new Tax Appeals Commission (TAC) in The Appeal Commissioner is not merely settling decisions to date has adopted the historical a dispute between the parties – he or she is position.7 deciding the matter in the national interest.4 Unless the appellant provides sufficient Onus of Proof in Tax Prosecutions evidence that the assessment is incorrect, the Unlike the situation with tax appeals, the onus assessment must be confirmed. If the Appeal of proof in criminal prosecutions remains on the Commissioner is left uncertain, the taxpayer State. This has recently been emphasised by the will not have met the standard of proof: Court of Criminal Appeal in DPP v Mounsey,8 which quashed a Revenue conviction on the basis, inter alia, that Revenue did not disclose “in order to make good their case the details of the basis of its assessments to the Revenue need only produce a situation defendant taxpayer. where the Commissioners are left in doubt. In the world of fact there may be Onus of Proof in Penalty only two possibilities: innocence or fraud. In the world of proof there are 3: proof of Determinations one or other possibility and a verdict of The European Convention on Human Rights not proven. The latter will suffice so far as (ECHR) provides a right to fair procedures in the Revenue are concerned.”5 respect of criminal proceedings. Although tax penalties are imposed under a fiscal regime, The rationale for this approach reflects that the the courts have treated them as criminal taxpayer alone has access to all of the facts sanctions as they are often imposed for relating to his or her personal tax situation: punitive and deterrent purposes. Accordingly, the ECHR has been held to be applicable to penalties. The Jussila decision9 has been “The [Revenue Commissioners] are only used in the UK to reverse the burden of proof required to make an assessment on in a case concerning a tax surcharge and the person concerned in such sum as penalty, requiring HMRC to establish that 10 according to the best of the Inspector’s the penalty applies. Revenue imposes tax- judgment ought to be charged on that geared penalties in the case of careless or person…in any event it has to be borne in deliberate defaults. If the level of the penalty mind that since an assessment can only is not agreed between the taxpayer and relate to the applicant’s own income and Revenue, Revenue can make an application gain, any materially relevant matter would to the appropriate court to have the level of have to be or have been in the knowledge the penalty determined. In any such hearing and in the power procurement and concerning the penalty, the onus of proof is control of the applicant.”6 on Revenue. 3 Ibid., para. 20. “This reversal of the burden of proof onto the taxpayer is common to all forms of taxation appeals in Ireland. Powers are given to the inspector to be present, to produce evidence and to give reasons in support of the assessment. The Appeal Commissioners, if the taxpayer proves over-charging, must abate or reduce the assessment accordingly, but otherwise an order must be made that the assessment shall stand.” 4 The King v Income Tax Special Commissioners. Ex parte Elmhirst. [1936] 1 KB 487, Lord Wright MR. 5 Brady (Inspector of Taxes) v Group Lotus Car plc [1987] 3 All ER at 1058, Mustill LJ. 6 TJ v Criminal Assets Bureau [2008] IEHC 168 para 50. 7 In its written determination of the tax appeal case 06TACD2016, the TAC cited many of the historical authorities cited above with approval when considering the scope of its statutory jurisdiction. 8 DPP v Mounsey [2015] IECA 349. 9 Jusilla v Finland [2006] ECHR no. 73053/01. 10 The Source Partnership v Commissioners for Her Majesty’s Revenue and Customs [2012] UKFTT 458 (TC). See also HMD Response International v Commissioners for Her Majesty’s Revenue and Customs [2011] UKFTT 472 (TC). 2017 • Number 02 137 Environment for Change to reverse Appeal Commissioner decisions. Clearly, the Circuit Court was a critical check Times, technology and Revenue powers are and balance. There is no reason to believe that changing, and there is therefore a logical basis the new TAC is any less fallible than the Appeal for a shift in the onus of proof towards a more Commissioners were. balanced approach. The historical position was based on the understanding that Revenue The only avenue of appeal is on a point of law suffered from a lack of information and that to the High Court. This is generally regarded by the taxpayer held all of the facts. Revenue has taxpayers as much less accessible, especially since been granted extensive powers to obtain where they are exposed to having the appeal information from taxpayers and third parties heard in public and can be held liable to pay (including from third-party taxpayers in Form the full legal costs (of both sides) if they lose 46G and through exchange of information with the appeal. other tax authorities). In addition, Revenue now regularly carries out e-audits where it The loss of the Circuit Court appeal makes it downloads taxpayers’ raw accounting data more important than ever for the TAC to embrace and processes it through powerful software fair procedures. The TAC is obliged to follow systems. Accordingly, the information what is often called “natural justice” to ensure asymmetry argument is no longer supportable. a fair hearing.12 At its simplest, it means that the TAC must hear both sides13 and act reasonably Revenue has the power and resources of the and rationally. The obligation to hear both sides State. In contrast, taxpayers are often in difficult includes the requirement that a person should financial positions and have to weigh up the know the case against him or her and should be costs of an appeal (which are not recoverable in a position to respond to that case. even if they are successful), as well as the time and stress involved. One of the new provisions (s949AG TCA 1997) provides that: The case law often refers to the safeguards that a taxpayer has, including recourse to the High “Unless the Acts provide otherwise, in Court through judicial review or case stated adjudicating on and determining an or a rehearing of the appeal in the Circuit appeal, the Appeal Commissioners shall Court. However, in reality, taking High Court have regard to all matters to which the proceedings is feasible only for the wealthiest Revenue Commissioners may or were of taxpayers. The abolition of the Circuit Court required by the Acts to have regard – appeal alone now necessitates a rebalancing of (a) in making their decision or the parties’ positions. determination, (b) in making or amending an New Rules assessment, (c) in forming an opinion, or The new appeals procedure became effective (d) in taking any other action, from 21 March 2016.11 Under the old system it was not uncommon for the Circuit Court in relation to the matter under appeal.” 11 Finance (Tax Appeals) Act 2015. 12 See Mark de Blacam, Judicial Review (Dublin: Bloomsbury Professional, 3rd Ed., 2017), para. 14.25: “What comprises a fair hearing? – The scope of the audi alteram partem right, in any given situation, depends, as we shall see, on a number of factors. In general terms, a fair hearing entails giving the person affected by the decision in question notice of the fact that a decision is to be made; if there with an allegation of wrongdoing, the person affected must be informed of the charge against him. Having got notice, the person must be given an opportunity to make his case and to challenge the case made against him. Sometimes challenging the case entails allowing him to cross-examine witnesses, and making the case entails allowing him to give evidence and to call his own witnesses. In some instances the person should be given prior notice of the evidence which will be adduced against him, and in some cases he may be entitled to representation. After he has been heard, the person is entitled to a decision based on the evidence and, again in some cases, to reasons for that decision.” 13 This is generally referred to in Latin as audi alteram partem. 138 Onus of Proof in Tax Cases This is a mandatory provision that obliges and consequentially then be exposed to the TAC to “have regard to” all matters that cross-examination. Revenue may, or was required by the legislation to, have regard to when performing various The historical judicial precedents that limited a functions, including, in particular, making tax appellant’s right to cross-examine Revenue or amending assessments.

Load more