This appeal before the Tax Appeals Commission (TAC) concerned Revenue’s refusal to grant a tax clearance certificate. The main issue was if the taxpayer was carrying on a business that was previously, wholly or partly, carried on by a company and if the taxpayer was connected to that company. The TAC’s analysis focused on the requirements for tax clearance per subsection 3 of section 1095 of the Taxes Consolidation Act 1997 (TCA 1997).

Background

The taxpayer carries on the business of the repair, servicing and sales of garden equipment. Applications for tax clearance made in February 2013, March 2013, June 2014, August 2014 and February 2015 were refused by Revenue. Per section 1095(5) TCA 1997 the grounds for refusal put forward by Revenue were:

“a person who applies for a tax clearance certificate can be refused a tax clearance certificate in circumstances where the taxpayer carried on a business or part of a business which was previously carried on by a company, where the company is a connected person and where that connected person was not in compliance with their obligations under the Taxes Acts in relation to the payment or remittance of taxes, interest and penalties and the delivery of returns.”

The taxpayer’s spouse was the principal shareholder in a company, which, in 2012, due to financial difficulties was unable to pay its tax liabilities. A liquidator was appointed to the company in October 2012. The company carried on the trade of the retail, sale and servicing of grass maintenance equipment and parts together with the sale of motorbike accessories and parts.

The taxpayer commenced trading in late 2012/early 2013 carrying on the business of the repair/servicing and sales of quad lawnmowers and garden equipment.

Submission

The taxpayer accepted that she and the company of which her spouse was the principal shareholder were connected persons, but she did not accept that she was carrying on the same business as the company or part of the business previously carried on by the company.

The taxpayer complained of ‘continual refusal’ by Revenue in relation to her applications for tax clearance. The taxpayer appealed Revenue’s refusal in March 2015 of her tax clearance application (submitted in February 2015).

Analysis

The TAC analysed three questions under section 1095(5) TCA 1997:

1. Was the taxpayer carrying on a business or part of a business which was previously carried on by the company; and
2. Was the taxpayer connected to the company; and
3. At the time of application for tax clearance, was the company in compliance with the obligations under section 1095(3) in relation to;
   1. … the payment or remittance of any taxes, interest or penalties required to be paid or remitted under the Acts, and
   2. the delivery of any returns to be made under the Acts,..

In answer to question 1, the taxpayer was determined to be “carrying on a business or part of a business which was previously carried on by the company.” The TAC determined that both companies carried on the repair, servicing and sales of quad lawnmowers and garden equipment with the company generating more of its turnover from sales than servicing/repairs and with the additional aspect of sales of motorbike accessories and parts.

The taxpayer had accepted that she and the company were connected persons in accordance with section 10 TCA 1997 so question 2 was answered.

At the time the taxpayer applied for tax clearance in February 2015 the company was in default of its tax obligations and was in liquidation. By the time the appeal was heard in 2016, the company had exited the liquidation process and was dissolved.

After the appeal hearing both the taxpayer and Revenue filed further submissions, at the request of the TAC for more information, citing the relevance of the fact that the company was dissolved in August 2015, subsequent to the refusal of tax clearance in March 2015. According to Revenue “Where a company’s tax affairs are not in compliance with section 1095(3) TCA 1997 tax clearance is not granted. Such a position obtains until the company completes the liquidation process and is dissolved. Revenue have carried out a further review of the instant case and has established that the connected company was dissolved on 9 August 2015.”

Revenue suggested that the taxpayer was entitled to apply for clearance without regard to section 1095(3) TCA 1997, in relation to the affairs of the company, “the second-mentioned person” referred to in section 1095(5) TCA 1997.

Determination

The TAC contacted Revenue and the taxpayer to inquire if the appeal had been resolved between them. Revenue’s response was that the taxpayer was entitled to apply again for a tax clearance certificate without regard to section 1095(3) TCA 1997 as the company was dissolved in August 2015.

The taxpayer responded that the matter was not resolved and that a determination was required on the matter of the refusal of tax clearance in March 2015.

As a result, the determination in this appeal relates specifically to the refusal in March 2015.

The TAC determined that on the date of application for tax clearance, the company was not in compliance with the payment or remittance of taxes in accordance with section 1095(3) TCA 1997. The taxpayer was therefore unable to satisfy the requirements of section 1095 TCA 1997. There was no option for Revenue but to refuse the taxpayer’s application for clearance.

The TAC noted that prevention for tax clearance for non-compliance by the company is no longer an issue. The taxpayer is now free to submit a new application for clearance which should be granted if all the conditions of section 1095 TCA 1997 are satisfied.

You can read the full TAC determinations on the Tax Appeals website www.taxappeals.ie

Go to here of this issue of tax.point to read Eoin O’Shea’s summaries of previous TAC determinations issued during 2017.