By way of two tax.point articles (in May 2016 and April 2017), we published outlines of the first decisions of the Tax Appeals Commission (“TAC”). In this article, we summarise the first twenty TAC decisions of 2017.

Judgment No 1/2017 – CGT exemption on forestry

The first decision of the TAC for 2017 related to CGT on the grant of rights over forestry land to erect an electricity pylon. The taxpayer claimed a right to forestry relief in respect of part of the payment, on the basis that same constituted a consideration in respect of the disposal of woodlands (Section 564 exemption). Revenue disagreed, claiming the full sum received by the landowner constituted a part-disposal of the underlying lands. The TAC sided with Revenue on the basis that there was no disposal of woodlands involved in the transaction – in order for there to be a disposal of woodlands, there needed to be a disposal of the underlying lands as well, which did not occur in this case.

Judgment No 2/2017 – VAT, refusal of leave to appeal

2017 decision No. 2 involved a situation where the taxpayer was the subject of a High Court judgment for unpaid VAT, and accepted that judgment. In implementing the judgment, Revenue’s systems determined (by way of a simple, understandable, error) that a VAT repayment of EUR 214 (yes, two hundred and fourteen euro, it is not a typo) was due to the taxpayer. This was obviously an error because the parties had already determined, between themselves, the liabilities owing, so a repayment could never conceivably have been due. Nevertheless, the taxpayer claimed the EUR 214 he/she believed was due and, when Revenue refused to pay same, the taxpayer appealed Revenue’s decision (under the system applying pre 2016) whereupon Revenue refused to accept the appeal. The taxpayer then appealed Revenue’s said refusal to accept the appeal, to the TAC. The TAC refused leave to appeal because there was clearly nothing owed to the taxpayer and, in any case, the claim for repayment fell outside the four year rule.

Judgment No 3/2017 – VRT

This case involves a claim for VRT exemption by a mobile nurse who lives in the Republic but works in Northern Ireland. S/he had a hospital car because the work involved going from house to house. Of course, in the mornings and evenings, the nurse travelled home, across the border, in the hospital car. As matters turned out, the nurse’s mileage in the South was greater than his/her mileage in the North and, in those circumstances, Revenue refused the exemption from VRT because the vehicle was not used “principally for business use in Northern Ireland”. Total business mileage in the North was c. 4,000 as against Southern mileage of c. 27,000 and the TAC held with Revenue on this point.

Judgment No 4/2017 – VRT quantum

Case No 4 involved an appeal of quantum of a VRT assessment on a motor car. The taxpayer was partially successful.

Judgment No 5/2017 – Income tax, date of separation of marriage

At issue was the entitlement of an assessable spouse to the other spouse’s tax credits in circumstances of a marriage breakup. The Commissioner had to decide whether or not the parties “are in fact separated in such circumstances that the separation is likely to be permanent.” and, if so, to choose a date as from when said circumstances occurred. The assessable party claimed 2015 was the date of separation whereas the date of physical separation was 2011. The taxpayer wanted the latest date possible so as to claim the increased marriage allowances for as many years as possible. The TAC determined the point of no return of the marriage to be the date another boy/girlfriend moved into the vacated half of the taxpayer’s house, being some time in 2014. The taxpayer gained a partial victory.

Judgment No 6/2017 – Income tax, add-back for private use of a motor vehicle

The self-employed taxpayer argued for a 10% addback to his claim for motor expenses, whereas Revenue contended the addback ought to be 33%. On the facts of the case, the TAC found for the taxpayer. It was also held in this case that the TAC does not deal with the issue of civil penalties.

Judgment No 7/2017 – CAT, dwelling house

The taxpayer received a gift of a dwelling house and claimed the dwelling house exemption. Under section 86 CATCA, the dwelling house exemption is not available where a donee already owns another dwelling house. The taxpayer’s trouble was that the taxpayer did so own another dwelling house and the apparent solution was to transfer dwelling house 1 away from the taxpayer just before dwelling house no. 2 was gifted. The taxpayer, however, made the mistake of transferring house no 1 and no 2 in reverse order. The taxpayer tried to rectify the mistake by way of a deed attempting to change the date on the original transfers but, according to the TAC, to no avail. Because the relevant transfers of properties were done in the wrong order, the taxpayer legally owned two houses at once and, therefore, lost the benefit of the exemption.

Judgment No 8/2017 and Judgment No 11/2017 – Income tax, four year repayment rule

The taxpayer in this case was entitled to the married PAYE allowance but had only received a single person’s allowance. By the time the schedule E taxpayer applied for a repayment of tax, the four year rule under section 865 TCA had passed and Revenue declined to provide the relevant repayment. The TAC, as it had on five previous occasions, ruled that section 865 provides that Revenue have no jurisdiction to make repayments of tax where the relevant four year period has passed. The same issue arose in case no 11 of 2017. By way of an aside, the author predicts that, at some stage, an aggrieved taxpayer will take the step of challenging the constitutionality of section 865 TCA 1997 based on a possible disproportionate interference in a taxpayer’s property rights. Section 865 cases are among the most popular appeals taken by taxpayers, and among the most futile.

Judgment No 9/2017 – Income tax, VAT

In this case, a self-employed contractor manually issued invoices from a pre-printed, pre-numbered sales book. During an audit, the tax inspector noticed a number of invoices were missing from the book. The inspector concluded that the taxpayer was guilty of suppression of sales and, accordingly, raised an assessment. As the taxpayer was unable to prove the income assessed was not actually received, the TAC concluded the taxpayer had not discharged the burden of proof applying in tax appeals and, consequently, the assessments stood good.

Judgment No 10/2017 – CAT, dwelling house exemption

The taxpayer in this case inherited a house on the death of his/her father. By the same will, the taxpayer inherited another property which was contained in the residue of the estate. Section 86 CATCA provides that in order to be entitled to the exemption, a taxpayer must not be beneficially entitled to an interest in another property “at the date” of the inheritance of the family home. On this point, the TAC found that “at the date” means the whole period of 24 hours of the date of death and that, therefore, where someone inherits two houses (including the family home) on the date of death in the same will, the benefit of the exemption on the family home is lost. However, because the second house was contained in the residue of the will, it was held that the taxpayer did not have an interest in the residue until the residue was established (e.g. finding out what the estate’s expenses/liabilities are). The taxpayer prevailed on this, second, point. This case is being appealed by Revenue to the High Court and the matter will be heard in June 2018.

Judgment No 12/2017 – CGT, valuation of shares in a company

This case concerned the valuation of shares for CGT purposes. The companies in question held land and the shares in the companies were extracted from a family trust in 1997. The base cost of the shares in 1997 was at issue in the appeal. The shares were extracted from the trust at the same time, in four equal units of 25% each. Revenue contended the base cost of the shares should be discounted to reflect the minority status of the shareholding, thus producing a lower base cost and, consequently, a higher CGT due on the eventual sale of the shares in 2003. The taxpayers contended that no discount ought to be applied, or that a lesser discount should be applied, to the base costs of the shares. The case is a very good study on how to value minority interests in companies. Ultimately, the TAC decided that a 35% discount was appropriate, having regard to what was decided as being the better expert testimony offered on behalf of Revenue.

Judgment No 13/2017 – CAT, allocation of gift element in property transactions

A husband and wife received a house valued at EUR 350,000 from the wife’s parents and paid EUR 275,000 for it, leaving a gift at EUR 75,000 or, divided by two, EUR 37,500. The husband ended up being liable for c. EUR 5,000 in CAT. All the parties to the transaction introduced various reasons why the CAT should not be payable e.g. that the wife’s parents intended to gift all the EUR 75,000 to their daughter, that they all intended the transaction to be done in a tax efficient manner, and the ownership of the property was subsequently reregistered as 39%/61% in favour of the wife. The TAC held, however, that the contract for sale between the parents and the couple provided for an equal split and, therefore, equal gifts. The assessment stands.

Judgment No 14/2017 – CAT, interaction between CGT and CAT

The taxpayer sold a portion of agricultural lands in 2015 for the sum of EUR 7 million, having inherited same from an uncle in 2011, at a value of EUR 2 million. The CAT bill in 2011 was significantly reduced by the use of agricultural relief, clawed back in 2015 as the agri lands were not, at the time of sale, held for the requisite 6 year period. The taxpayer claimed the CGT payable on the uplifted price between 2011 and 2015 as a deduction against the clawback of CAT saved by the initial use of agricultural relief. The case turned on whether the CAT was payable on the same event as gave rise to the CGT liability, given that the underlying CAT arose first in 2011 and not at the same time as the CGT liability. The TAC held with Revenue.

Judgment No 15/2017 – Rent a room relief and 4 year rule for assessments

Assessments were raised on a taxpayer. The taxpayer claimed the assessments were out of time and that, in any case, rental income received by the taxpayer was covered by the rent a room relief. It turned out, however, that the returns for the earlier periods were delivered late, meaning that the assessments were raised within 4 years of the returns being delivered, and so the assessments were in time. In respect of two of the years, the rental income was in excess of the limits, therefore all the rent was taxable. The lease agreement in respect of other years was for the rent of the entire house and not a room, therefore the relief did not apply. The assessments stand.

Judgment No 16/2017 – Local property tax, accountable person

A property was sold on 30 October 2013. The liability date for local property tax was 1 November 2013. Revenue determined that the vendor was the person liable at 1 November 2013 because the sale transaction did not close until 4^th November 2013 and, legally, the taxpayer was the chargeable person. Therefore, pursuant to the Local Property Tax Act 2012, the taxpayer was the chargeable person.

Judgment No 17/2017 – Income tax credit

An assessable spouse applied for an employee tax credit in respect of his wife’s increased State old age pension. Arising from a change in the law in 2007, entitlements to increased state pensions became vested in the qualifying spouse. The taxpayer won his case. The qualifying spouse was entitled to an employee tax credit, allocated to the assessable spouse pursuant to joint assessment. Revenue have asked the TAC to state a case on this issue for appeal to the High Court.

Judgment No 18/2017 – Income tax credit/increased standard rate band

In facts similar to that outlined in Judgment No 17/2017, an assessable spouse was held to be entitled to an employee tax credit and a standard rate band adjustment in respect of the non-assessable spouse’s separately awarded increased State pension. Revenue have asked the TAC to state a case on this issue for appeal to the High Court.

Judgment No 19/2017 – VRT

The taxpayer appealed a decision on the quantum of VRT for a specific imported vehicle. The TAC agreed with Revenue’s valuation.

Judgment No 20/2017 – Artists exemption

The taxpayers had written a book in 2013 and claimed the artists’ exemption. Revenue classed the book as pop psychology/self help guide to living life and not a work of artistic merit as delineated in the TCA or the guidelines governing availability of the exemption. The taxpayers were refused the exemption.

Conclusion

The publication of tax appeals decisions has been a very welcome development since the TAC was founded in early 2016. In the first 20 cases of 2017, the TAC has had to undertake a number of diverse roles such as valuing cars, deciding whether a book has cultural merit and deciding on what date a couple’s separation reached the ‘no turning back’ point – all part of the joys of tax practitioners will be familiar with. The TAC also decided important tax issues affecting the man and woman in the street in significant numbers e.g. the pensioner in case no. 17 who was awarded an extra tax credit by the TAC – these issues might never have seen the light of day if it were not for the presence, and work, of the TAC. The decisions of the TAC form a very important body of tax law in Ireland.

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

Email: eoshea@lawlibrary.ie