Time Limits for Repayments IT, CT & CGT

Time Limits for Repayments of Income Tax, Corporation Tax and Capital Gains Tax.

Payment of Interest on Repayments of Tax arising from a Mistaken Assumption by Revenue.

Overview

Issue 56 of Tax Briefing carried an article on the new regime of tax repayments, interest and time limits arising from Section 17 Finance Act, 2003. The purpose of this article is to provide further clarification of a number of issues, including circumstances in which repayments of tax might arise due to a mistaken assumption in the application of a provision by Revenue.

Section 17(1)(a) TCA 1997 replaced the existing Section 865 TCA, 1997 with effect from 31 October, 2003. The new section provides for a general right to repayment of tax (income tax, corporation tax or capital gains tax). Specific entitlement to repayment may arise under various provisions of the Tax Acts - these entitlements are unaffected by this general right to repayment but all entitlements to repayment are made subject to the time limits contained in Section 865.

Who is entitled to repayment?

The new Section 865(2) provides that a person who has paid tax which is not due, or which but for an error or mistake in the person’s return would not have been due, is entitled to repayment of that tax.

The reference to tax which is not due is to be taken as including tax that has been charged in an assessment which has become final and conclusive but which is later found to have been charged incorrectly. This may arise where, for instance, the Appeal Commissioners or the Higher Courts find in another case, with similar facts, that the tax is not chargeable and the Revenue Commissioners decide not to appeal against that decision. It may also arise where the Revenue Commissioners accept, in a case with similar facts, without going to appeal, that a different interpretation of the law than that adopted in other cases is correct.

Time Limits

Time limit for making a claim for repayment

Section 865(4) provides new time limits for the making of claims. In general, a valid claim to repayment must be made within 4 years after the end of the chargeable period to which the claim relates. All claims under the new general repayment provision, Section 865(2), must be made within this time limit.

Transitional provision

In the case of claims under any provision of the Tax Acts or the CGT Act, other than the new Section 865(2),

• For any chargeable period ended on or before 31 December 2002,
  and
• Where the claim was made by 31 December 2004,

a ten year time limit will apply.

Claims under specific provisions containing their own time limits

Where a claim arises under a provision which contains a shorter time limit than the time limit mentioned above -4 years or 10 years - which would otherwise apply, that shorter period will be the time limit. On the other hand, where a claim arises under a provision which contains a longer time limit than the 4 year time limit mentioned above, the 4 year time limit will apply. For example, if a claim relating to the year 2004 arises under a provision which includes a 6 year time limit, the 4 year time limit in Section 865 will apply. But if the time limit in the particular provision is 2 years, that shorter time limit will prevail.

Claims for Repayment

Valid Claims

Section 865(3) provides that the Revenue Commissioners may not make a repayment of tax referred to in Section 865(2) unless a valid claim to repayment has been made. A valid claim must contain all the information the Revenue Commissioners may reasonably require to determine if and to what extent a repayment is due.

Return or statement may be a valid claim

A return or statement which a person is required to deliver under the Acts and which contains all the information that the Revenue Commissioners may reasonably require to determine if and to what extent a repayment is due is regarded as a valid claim. Where such information is not contained in a return or statement, a claim to repayment is not regarded as a valid claim until that information is furnished.

Practical issues relating to time limits and valid claims

Repayment arising from error or mistake in a return

Where the repayment arises because of an error or mistake in a return or statement, the return or statement will not constitute a valid claim until the return or statement is corrected. This is so, irrespective of the reason why the taxpayer made an error or mistake in the return.

For example, where a taxpayer fails to claim some deduction in calculating profits for tax purposes and it is found later, in a case with similar facts, that the deduction is due, the return would not constitute a valid claim. The taxpayer would have to provide all the information necessary to determine if and to what extent a repayment is due before that taxpayer would have made a valid claim.

Repayment arising from mistaken view taken by Revenue

Where the repayment arises as a result of a mistaken view taken by Revenue of the tax treatment of some item, and that item had either been correctly dealt with in the return or statement or correctly excluded from the return or statement, the return or statement should be regarded as a valid claim for the purposes of the time limit for claims.

An example of an item correctly contained in a return or statement giving rise to a repayment, would be where Revenue disallowed a claim to relief claimed in a return and the relief is subsequently found to be due - the return would be regarded as a valid claim, assuming the return contained the information necessary to quantify the relief.

For practical purposes, a return should be regarded as containing all the information that Revenue may reasonably require to determine if and to what extent a repayment is due if either assessing in accordance with the figures contained in the return or amending the assessment made to bring it into line with the figures contained in the return would result in the repayment concerned becoming due.

Payment of interest on repayments arising from a mistaken assumption by Revenue

Relevance of mistaken assumption in the context of interest

The relevance of a mistaken assumption by Revenue is that the interest regime differs depending on whether a repayment arises because of a mistaken assumption by Revenue or arises for some other reason. In cases of mistaken assumption giving rise to repayments of income tax, corporation tax or capital gains tax¹, interest is payable from the day after the end of the chargeable period for which the repayment is due or the date on which the tax was paid, whichever is the later.

In all other repayment cases² not involving a mistaken assumption by Revenue, interest becomes payable from a day which is 6 months after the day on which a valid claim for the repayment is made.

When does Mistaken Assumption arise?

Whether or not a repayment of tax arises from a mistaken assumption in the application of the law by Revenue can only be determined by reference to the relevant facts and circumstances surrounding that repayment. Such a repayment can only arise where the overpaid tax was originally paid because of a position adopted or a ruling made by Revenue in a particular case or because of a published interpretation of the law by Revenue and the position, ruling or interpretation was subsequently revised or found, for whatever reason, to be incorrect. The fact that Revenue processed a return or statement that contained a mistaken treatment of some item by the person making the return does not make any repayment subsequently arising from the correction of that mistake a mistaken assumption repayment.

Revenue will, therefore, accept that a mistaken assumption is established where, for instance, repayments arise because -

• The High Court or the Supreme Court or the European Court of Justice has found against Revenue’s interpretation of the law
• Revenue accepted a ruling of the Circuit Court or of the Appeal Commissioners that they had incorrectly interpreted a particular provision
• Revenue accepted a recommendation of the Ombudsman that they had applied the law incorrectly in a particular case
• Revenue otherwise revised its published interpretation of a particular provision or a position adopted, or ruling made, in a particular case. Mistaken assumption would not, however, apply where, in a particular case, Revenue, for whatever reason, settled that case and agreed to repay tax without prejudice to its view of the meaning of a particular legal provision underlying the case.

Apart from the situations indicated above, it is difficult to be more specific. Essentially, repayments will have to be looked at on a case by case basis to determine whether they arise because of a mistaken assumption in the application of the law by Revenue or whether they arise for some other reason.