In the May 2016 edition of tax.point, we discussed the first eight published judgments of the, then, new Tax Appeals Commission (TAC). The body has since continued its valuable work in making its judgments available to the public on its website www.taxappeals.ie. At the time of writing, there are now 26 published judgments. The aim of this article is to summarise the 18 judgments published since our last article and to draw practitioners’ attention to some of the more important principles emerging from them.

Judgment No. 9 – Dirt repayment claim by a sports club

In this case, the appellant was an unincorporated sports club. Arising from section 235 Taxes Consolidation Act 1997 (TCA 97) the club was not liable to income tax. However, pursuant to the DIRT provisions of the TCA 97, tax was withheld by its bank on interest payable. The subject of the appeal was the club’s application for a repayment of the DIRT withheld. The issue was decided by the TAC on the basis that the TCA 97 gave primacy to the DIRT machinery (at section 261 TCA 97) over the general exemption from tax (at section 235 TCA 97) and that, therefore, the legislation had decided, effectively, that DIRT was validly deducted in the circumstances.

The TCA 97 had said two different things in two different places but, in this case, the Oireachtas had made clear which provision prevailed. Interestingly, the taxpayer asked the TAC for a forward, non-binding ruling (in the event of success on the main issue) on future DIRT deductions but the TAC considered that the legislation does not allow such rulings to be given i.e. the TAC is confined to dealing only with the appeals actually before them and cannot give directions as to future Revenue actions.

Judgment No. 10 – Income Tax – Whether a transfer of shareholders rights can be treated as a distribution for income tax purposes

A husband and wife were sole shareholders of a company. A NewCo was established and a detailed share reconstruction was carried out whereby shareholders’ rights were exchanged between different classes of shares in the different companies. After the liquidation of NewCo (which occurred shortly after the reconstruction), Revenue sought to treat the said exchange of rights as a distribution (Schedule F) in the hands of the husband and wife.

Arguments were exchanged at the hearing as to whether the shareholders rights transferred actually constituted an asset or, if assets so moved, whether the said movement was actually a transfer – points involving the interpretation of section 130 TCA 97. The TAC held that intangible rights inherent in owning a share (such as the right to a distribution) were, in fact, assets – the asset is not only the share itself but, in addition, each right attaching to the share is also an asset. It was also held that, indeed, there was a “transfer” on the basis that something did in fact move from A to B. “The best-laid schemes o’ mice an’ men, gang aft agley”, as Scots poet Robert Burns once put it.

Judgment No. 11 – VAT input credits

The appellant was a self-employed courier and, as normal, charged VAT on his services. The appellant used sub-contractors and at issue in the appeal was the right to deduct input credits on invoices supplied by these sub-contractors in circumstances where Revenue contended the sub-contractors were actually employees and, in addition, the invoices received did not actually comply with the strict VAT invoice requirements as to detail.

The TAC found for the taxpayer, citing the ECJ decision of Pannon, Case C-368/09 which is an authority for the proposition that minor issues related to invoices received ought not affect the deductibility of input VAT. In relation to Revenue’s claim that the sub-contractors were actually employees, the TAC found, inter alia,: “While there is no doubt that the Appellant bears the onus of proof in tax cases, the paucity of evidence in support of the Respondent’s submission that the drivers were employees renders me unable to accept this submission.”

Judgment No. 12 – Capital acquisitions tax – Valuation of Property

The appellant, a beneficiary of a will, disputed an assessment to capital acquisitions tax (CAT). The first issue was that Revenue assessed the beneficiary on all of the proceeds of a life insurance policy in circumstances where the beneficiary actually only received a quarter of the money. This first issue was conceded by Revenue but not prior to the hearing. On that point, the TAC said: “It is not clear why the Respondent took the view, shortly before the hearing, that this matter remained in dispute and then accepted at hearing the following day, that it was not in contention.”

The second issue in the appeal arose in circumstances where the taxpayer’s original estimates of property values were sought to be revised on appeal. Revenue’s objection centred on an argument that the taxpayer could not appeal the taxpayer’s own figures. The TAC found Revenue’s argument to be inapplicable to CAT appeals (based on the text of the CAT Act) and concluded that the taxpayer was indeed entitled to continue her appeal.

Judgment No. 13 – Income tax – Deductibility of wages paid to school going relative

In this case, the appellant was a practitioner of some sort who employed his school going sister as an assistant/receptionist. At issue was whether the sums allegedly paid to the sister by the practitioner (€18,200 in one year and €39,125 in the next year) were sums laid out “wholly and exclusively…for the purposes” of the practice.

The TAC, having heard evidence from the sister as to the work done by her, cut the hourly rate claimable to €9 (from €19.50 in one year) and the number of hours to 600 per year (from 1,682 hours in the year the sister did her Leaving Cert). The taxpayer had a partial result in this case by being allowed to claim €10,530 as a deduction against income tax liability as against the €57,325 originally claimed by the taxpayer.

Judgment No. 14 – Corporation Tax – Trading post Examinership

A group of companies successfully exited High Court examinership and had a portion of their due taxes written off arising from the examinership process. At issue in the appeal was whether the VAT and PAYE written off constituted a trading receipt. The TAC found that, just like other expenses written down in the examinership process, the VAT/PAYE write down constituted a taxable receipt for corporation tax purposes. The judgment includes a useful summary of the law on whether a receipt/payment is either capital/current in nature.

Judgments Nos. 15, 17 & 20 – Artists Exemption

A number of recent judgments have dealt with the issue of the artists exemption from income tax provided for at section 195 TCA 97.

Judgment 15 involved a book being a collection of quotations about a particular place and its habitués and extracts from literature. The TAC found that the book did not meet the originality test because, basically, the book was predominantly a collection of quotations and extracts.

Judgment 17 involved a book described as a “humorous commentary and observation… on Irish traditions… and culture”. The taxpayer was successful.

Judgment 20 involved a book described as “a concise summary of Irish history” which contained a mixture of fact and humorous commentary. Again, the taxpayer was successful. Interestingly (in judgments 17 and 20), where there was doubt as to compliance with one particular limb of the test, the TAC applied the legal principle “de minimis non curat lex” to the benefit of the taxpayer i.e. that the law does not concern itself with mere trifles or relatively minor infringements of the law.

Judgment No. 16 – Income Tax – Appeal of Revenue’s refusal to accept appeal

In 2015, Revenue assessed the appellant to relevant contracts tax (RCT) on the basis that payments were made to subcontractors without deduction of the relevant tax. The taxpayer accepted that the sums assessed were due and owing but believed it should not pay the tax in case Revenue refused the sub-contractors an appropriate consequential credit for the tax paid.

Revenue (and this was under the old system) refused the taxpayer’s appeal on the basis that the taxpayer had no stateable ground for an appeal and the TAC agreed with Revenue’s decision.

Judgments Nos. 18, 19, 21 & 26 – Income Tax – Application for repayment and the 4 year rule

Judgment No. 18 involved an 85 year old pensioner from whom PAYE tax was wrongly deducted because of a mistake made, over many years, by Revenue in the calculation of his tax credits. The mistake was identified by the taxpayer in 2015 and Revenue corrected the matter and made a repayment in respect of years 2011–2014 as well. At issue was whether the taxpayer could claim in respect of years prior to 2011.

The TAC found that the provisions of section 865 TCA 97 (which provides for a four year limitation period for the granting of tax repayment claims) meant that the TAC had no jurisdiction to make a repayment order for years prior to 2011. It is obvious from the judgment that the TAC did not relish having to give this decision in circumstances where the taxpayer was not at fault.

Judgments nos. 19, 21 (involving unclaimed incapacitated child credits) and Judgement 26 again involved a section 865 issue and those appeals also fell upon stony ground.

Judgments Nos. 22, 23, 24 & 25 – Vehicle Registration Tax – Appeals of valuations

In all of these cases, the taxpayer was aggrieved at the market value ascribed to their imported vehicles and appealed (after having already appealed the matter internally within Revenue) to the TAC. All of these appeals were not upheld.

Conclusion

The decisions of the TAC are a very important addition to the volume of Irish tax law. Each of the judgments carefully record the views of both the appellant and Revenue, and contain a logical analysis of the law on the issue.

Eoin O’Shea FCA is a practising barrister, specialising in commercial and tax law.

Email: eoshea@lawlibrary.ie