Does the taxpayer have a right to cross-examine a tax inspector on an appeal before the Appeal Commissioners?

In 2004 the Revenue Commissioners assessed the taxpayer Menolly Homes Limited to just under €20m in unpaid VAT on the sale of new houses. Usually such sales are subject to VAT but in the taxpayer's case, it was claimed that the sales were VAT exempt as they took place in the context of a scheme of leasing as between closely related companies. The Revenue Commissioner did not accept that the transactions carried a VAT exemption.

The taxpayer claimed that the tax inspector who assessed that VAT was due, had no “reason to believe” that an amount of tax was payable by them. As taxpayers, they proposed to call the tax inspector in evidence on the appeal before the Appeal Commissioners and to cross-examine him as to his state of mind five years previously when he had raised the assessment. The Revenue Commissioners refused to allow the tax inspector to be called for the purpose of cross-examination as they believed that there was no jurisdiction and, in any event, no issue requiring him to be heard arose. The Appeal Commissioners ruled in favour of the Revenue Commissioners.

The matter was brought before the High Court with the intention of requiring the Revenue Commissioners to allow the taxpayer to cross-examine the tax inspector. The taxpayer contended that an Appeal Commissioner would have authority to call an inspector or require the Revenue Commissioners to make him available for cross-examination. Further, the wording of the legislation, in referring to the power of the Appeal Commissioners “to reduce or abate” the liability of a taxpayer indicates wide-ranging powers including the power to strike down a tax assessment.

The Court in reaching its decision considered the scope of the legislation and focused on the Revenue Commissioners' argument that the Appeal Commissioners had no jurisdiction to call the inspector of taxes.

Section 933 of the Taxes Consolidation Act (TCA) 1997 provides for appeals of income tax or corporation tax. Section 934 provides that appeals in relation to those taxes are to be heard and determined by the Appeal Commissioners and that their determination on any such appeal shall be final and conclusive, barring an appeal by way of a rehearing to the Circuit Court or a case stated for the opinion of the High Court. An appeal in respect of an assessment for VAT is also provided for; but only on the grounds that “the amount due is excessive”. The Court referred to the VAT Act 1972 which provides that the burden of proof that “the amount due is excessive” rests on the taxpayer. 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. Therefore the powers of the Appeal Commissioners indicate that the amount due may go up or down or remain the same.

The Court also considered the meaning of section 23(1) VAT Act 1972, and held that there was an appropriate remedy under this section for a person who claims that he is being assessed to VAT in circum-stances where he claims that the tax inspector had no “reason to believe that an amount of tax is due and payable”.

Considering the taxpayers claim to a right to cross-examine the tax inspector, the Court found that the Appeal Commissioner was correct in its ruling refusing such a claim. The Appeal Commissioner did not have jurisdiction to enquire into the validity of the assessment, instead the Appeal Commissioners only concern was with the amount of the assessment. The taxpayer's claim to the right to cross-examine the tax inspector was not accepted. An application to cross-examine a tax inspector would be considered only if it was inescapable in order to fairly decide a point. This was not the situation in this case.

The full text of the case is available from The Courts Service of Ireland website http://www.courts.ie.