As Ireland’s independent statutory body, which hears and determines appeals against assessments and decisions of the Revenue Commissioners, the Tax Appeals Commission has an important role to play in the Irish tax landscape. Following on from three previous tax.point articles, this article outlines 30 of the latest decisions from the Tax Appeals Commission (TAC).

Judgment No 21/2017 – Artists exemption

The appellant is the author of a book and had appealed Revenue’s refusal of the benefit of the artists exemption. The book was part fiction and part non fiction. Ultimately, because of the autobiographical nature of the book (and the Commissioner felt a wide view of the word autobiographical was mandated) the appeal was successful.

Judgment No 22/2017 Retirement relief

The Appellant owned c. 89 percent of the shares in a family company he had founded in 1978. In 2009, so as to step back from the business and provide for family succession, he claimed retirement relief on the proceeds of shares bought back by the company and then cancelled. At the time of the share redemption, a large part of the rest of the shares was transferred to the appellant’s children/grandchildren so that the appellant was left with 29 percent of the shares. The redemption/cancellation and transfer was effected by the appellant and others signing a set of minutes of board/shareholders meetings drawn up by advisors (with stickers indicating where to sign etc.). When an audit commenced, the appellant’s accountant informed revenue that the buy back of shares occurred before the share transfer to the appellant’s family i.e. the wrong order for the relief to be effective and, in those circumstances, Revenue raised the assessment. The advisors subsequently informed Revenue that the buy back and transfers took place at the same time i.e. not one after the other – thus equalling the playing pitch for an appeal. In relation to the order of the signing of the documentation, the Commissioner found that on the evidence he could not find that the documents were signed in one order, or the other. Instead the Commissioner found that the share transfer to the family members and the buy-back were part of a “single transaction with two separate elements which occurred simultaneously” and that the appellant had, in those circumstances, sufficiently reduced his shareholding after the buy back and transfers so as to come within the requirement of having substantively reduced his shareholding. The appellant was successful.

Judgment No 23/2017 Income Tax proprietary director

The appellant was a company director and owned 35 percent of the company. As normal, he received a net Schedule E-taxed salary. Not all the tax deducted by the company was remitted to Revenue and, in accordance with section 997A TCA 1997, assessments were raised on the director as if the tax had not been paid by him. The appellant chiefly relied on human rights law and the separation of companies and individuals under company law – all to no avail. The Commissioner found that s 997A was clear and operated to deny a director with a material interest in a company the benefit of tax deducted on his/her behalf by the company where that tax was not then remitted by the company to Revenue.

Judgment No 24/2017 – Corporation Tax

Until 2012, the appellant was in business as a sub-prime residential mortgage lender. It lent monies until 2008 and then, until 2012, it managed its mortgage book. In September 2012, its share capital was sold to an unrelated party. The beneficial title to its loan book (not the legal title) was transferred to an unrelated SPV. The company, after the share and asset transfers, was in the business of providing loan management services to third party loan asset owners. At issue in the appeal was the entitlement to carry forward EUR 129 million of losses in the former trade. Revenue contended that the appeal ought to fail as the former trade had ceased (s. 396 TCA 1997) and/or there had been a change of ownership in the trade accompanied by a substantial change in the nature of the trade (s. 401 TCA 1997). The Commissioner found that there had been a cessation of the trade and/or a substantial change in the nature of the trade because the company, once a lender and manager of its own mortgage book had instead become a service entity providing services to the owners of loan books. The reported case provides a good overview of the case law on losses in the context of a cessation/change in the nature of trade. The appellant was unsuccessful.

Judgment No 25/2017 – VRT transfer of residence

The appellant lived and worked in the UK during 2015–2016. At the end of the period, he returned to Ireland with his car and claimed an exemption from vehicle registration tax on the basis that he was transferring his normal residence. Revenue claimed that, although UK resident, his place of normal residence remained in the State during 2015–2016 because his wife lived here, his family ties remained here and he returned here regularly. The legislative definition of “normal residence” supported Revenue’s view in the circumstances and the appeal accordingly failed.

Judgement No 26/2017 – Income tax s. 865 four year rule

The appellant purchased a house in 2007 and only learned in 2016 that mortgage interest relief had not been applied by the bank because the bank had incorrectly designated, in its own systems, the loan as a rental property rather than an own-residential property. The appellant claimed mortgage interest for the back years but was not granted relief for 2007–2011 because under section 865 TCA 1997, Revenue are precluded from granting repayments for tax periods earlier than 4 years of the date of claim. The Commissioner found, as with 7 previous decisions on the point, that Revenue have no discretion but to refuse repayments in circumstances where same are out of time according to the four year rule. The same conclusion was reached in respect of decisions no 9, 11, 12 and 16/2018.

Judgments No 27 and 28/2017, No 6/2018, No 7/2018, No 10/2018 and No 13/2018 – VRT

These appeals concerned the valuation of imported cars for the purposes of vehicle registration tax. In most cases, the appeal failed. In the second case, the Commissioner granted a reduction of 10 percent in the amount of VRT payable.

Judgment No 29/2017 – Income tax employee credit

The appellant was denied an employee tax credit because he was a proprietary director. The appellant accepted same was the case and, no other arguments being apparent from the decision of the TAC, the appeal was determined in Revenue’s favour.

Judgment No 30/2017 – Income tax proprietary director

The appellant was a director of a company. From 2006–2013, tax on his salary was deducted by the company but not paid to Revenue. The company was liquidated in 2014. The appellant contended that instead of being a 50 percent shareholder in the company, he was in fact only a 12.5 percent shareholder, by virtue of an agreement made between the shareholders in 2006 which was unevidenced. In contrast, the accounts and CRO filings from 2006 to 2013 showed that the appellant was a proprietary director. The Commissioner was more inclined to accept the latter evidence and the appeal failed.

Judgment No 31/2017 – Income tax proprietary director

The appellant was the sole shareholder of a business which at its height employed 37 people and, on liquidation in 2015, 15 people. It had always paid its PAYE/PRSI obligation except for the final 2 months of trading. Revenue, while acknowledging the difficulties faced by the taxpayer, stated at the appeal that it “was bound by legislation” to raise the assessments. The Commissioner (as with decisions 23 and 30 of 2017) found the legislation to be clear. Section 997A provides that where tax is not remitted by a company on behalf of a proprietary director, said tax deducted cannot form part of the said director’s tax return.

Judgment No 32/2017 – Tax clearance certificate

The appellant, engaged personally in repairing and selling garden equipment, had unsuccessfully applied for a tax clearance certificate on several occasions. The refusal of same was the subject of the appeal. The background was that, in 2012, a company owned by the appellant’s husband (also engaged in repairing and selling gardening equipment, but also the sale of motorbike equipment) was liquidated in circumstances where it owed sums to Revenue. Where a person carries on a business previously carried on by a connected company, and that company is in default of its Revenue obligations then a tax clearance certificate may be refused. By the time of the hearing of the appeal, however, the liquidation process had concluded, the company was dissolved, and Revenue now accepted that the company was no longer in default of its obligations and, therefore, the appellant was entitled to apply for a tax clearance certificate. Nevertheless the appellant required the TAC to adjudicate on the matters originally giving rise to the appeal and a determination was issued in Revenue’s favour.

Judgment No 33/2017 VRT Repayment

Where a car on which VRT has been paid is being exported, a repayment of VRT may be applied for by the exporter. In appeals related to vehicle exports (in contrast to appeals related to imports) the appellant is seeking a higher market value. In this appeal, Revenue calculated the market value to be c. EUR 27k while the taxpayer argued for a value of EUR 73k on a TVR Tuscan Coupe. In the case, the appellant failed to provide sufficient comparator information to justify its own valuation and, in those circumstances, Revenue’s valuation stood.

Judgment No 34/2017 Capital Gains Tax

The appellant gifted a property to his daughter in 2011. The property had been bought by the appellant in mid 2011 in a derelict condition for EUR 170k. By the time of the gift, a significant amount of work had been performed on the house by the appellant – a builder and plasterer by trade. The property was sold by the daughter in March 2012 for the sum of EUR 250k. Following the commencement of a revenue audit, a CGT return was made. The parties differed on the deductibility of the value of work personally done by the appellant, as a builder. The Commissioner found, however, that deductions on a CGT bill must be by way of expenditure and that the provision of services in kind e.g. a builder giving his labour for free, does not qualify as a deductible expense according to the wording of the legislation.

Judgment No 1/2018 Income Tax Help to Buy Scheme

The appellant bought a house for EUR 270,000 partly financed by a mortgage of EUR 195,000. She applied to Revenue for the benefit of the Help to Buy scheme which gives qualifying people a refund of income tax to fund a deposit on a new home. One of the conditions of the scheme is that the mortgage loan to value ratio must be at least 70 percent. In the instant case, the mortgage to value ratio was just 69.89 percent. The Commissioner read the relevant act and concluded that the appellant did not meet the legislative requirements of the scheme and, therefore, could not qualify for it.

Judgment No 2/2018 Corporation Tax foreign withholding tax paid

The appellant is a software company and grants licenses worldwide in return for royalty payments. Certain of the royalty payments suffered foreign withholding tax at source. Where there is a DTT in place a measure of relief is given for foreign tax as against Irish corporation tax paid up to a certain level. There may not be a full relief under Irish law for foreign withholding tax suffered. In this appeal, the appellant sought to claim the balance of the foreign tax paid (unrelieved against Irish tax) as a trading deduction on its Irish books. The appellant considered the foreign withholding tax paid to be an expense while Revenue contended the foreign withholding tax paid is a tax. The Commissioner held with Revenue because even though withholding tax is calculated on gross income, it is still a tax. Interestingly, the unsuccessful appellant asked the TAC to state a case to the High Court on this point and, then, withdrew said request.

Judgment No 3/2018 VAT

The appellant operates pay and display car parks. It charges VAT on the parking tickets sold. From time to time, persons do not pay for their parking and, in those circumstances, their cars are clamped. The clampers normally charged VAT on their clamping release fee service and paid same to Revenue. Having had a change of heart, however, the appellant applied to Revenue for a refund of the VAT charged (perhaps prompted by a UK tax case which seemed favourable) on the basis no such VAT ought to have been charged in the first place. The refusal of the repayment formed the subject matter of the appeal. Essentially, the clampers contended that no service was being provided to the clamped motorists and instead the motorist became liable to the charge because the motorist was a trespasser and the payment for declamping was in the nature of damages for trespassing. The Commissioner agreed with the appellant and a repayment of c. EUR 1.7 million is now due to be made. Revenue requested the TAC to state a case to the High Court on the issues arising in the case. For what it’s worth, this author believes the High Court case will favour Revenue.

Judgment No 4/2018 Artists Exemption

The appeal concerned a refusal to grant the artists exemption in respect of a non fiction book. The object of the book (according to the author) included inspiring readers to eat more vegetables and wholefoods. Despite there being 100 recipes therein, the appellant did not consider the opus to be a cookbook, even though the book had been shortlisted for the “cookbook of the year” prize. The Commissioner held with Revenue on the basis that the book was more culinary than autobiographical.

Judgment No 8/2018 – Income tax deduction for meals

A self employed landscape gardener claimed the cost (at civil service rates) of meals had while working. The amounts were refused as deductions from income because the deductions are not contemplated by section 81 TCA 1997. The appellant had already made the same arguments unsuccessfully on an appeal of earlier assessments. The main argument was that said refusal discriminated as between self employed and employed persons. The Commissioner found for Revenue upon the basis that said deductions for self employed persons’ meals do not fall within section 81 TCA 1997. The Commissioner’s decision was confined, however, to reading the law as it is. The TAC does not have the jurisdiction to decide whether or not a law is unfair.

Judgment No 11/2018 – Income tax employee share plan

This appeal concerns the taxation of an employee share award. In year 1, an employee was allocated shares in the employer which were held in trust pending his remaining with the employer for three years. During the 3 years, he had no entitlement to dividends or to vote using those shares. It was determined that the employee did not get a benefit of the award until the end of year 3 as the shares could not have been turned into a pecuniary amount until then. At the end of year 3, the employee was in receipt of remuneration as per the market value of the shares received which ought to have been returned for tax by the employee. There was no requirement on the employer to deduct schedule E taxation. The employee was a chargeable person and ought to have submitted a return in that year and, because he did not, he cannot avail of the four year rule which, broadly speaking, bars the raising of an assessment after four years. All of the employee’s arguments fell upon stony ground and he remained liable for an amount of taxation contained in an amended 2011 assessment.

Judgment No 14/2018 – CAT subsistence payments from parents

Between 2003 and 2014, the appellant received monthly sums of EUR 2,539.68 from his parents and was duly assessed to CAT. The relevant parental threshold had been used up in 2002 when certain gifts totalling EUR 613k were declared by the appellant. The main ground of appeal was that the monthly payments constituted normal support and maintenance and were exempt from CAT by reason of Section 82 (2) CATCA 2003. The appellant introduced evidence of the wealth of his parents and of his own lifestyle costs being in excess of his income in order to show that the payments might in fact be categorised as normal expenditure of his parents and sufficient to be considered support and maintenance. In fact the child had substantial sums of money on deposit at all times. In those circumstances, the Commissioner felt that the payments did not constitute either support or maintenance payments and were fully taxable. The appellant has requested the TAC to refer the matter to the High Court on appeal. For what it’s worth, while there are arguments to be had concerning Section 82 (2), especially before the recent change in the law, this author believes that the particular facts of the within case are unlikely to commend themselves for the establishment of a general precedent at the High Court stage.

Judgement No 15/2018 – Income tax one parent family allowance

A man had claimed the one parent family tax credit. That is not permitted when the claimant is cohabiting (even when the cohabiting partner is not the other parent of the child). The Commissioner determined that the relief had been validly withdrawn.

Update on High Court decision re Judgment No 10/2017

In the February 2018 article on this topic, a case concerning the CAT dwelling house relief was discussed. The taxpayer had won her case at the TAC (decision No 10/2017) and Revenue requested a case be stated to the High Court. The High Court Judgment delivered by Costello J. on 25 September 2018 upheld the TAC decision. The case concerned a situation whereby the appellant inherited an interest in more than one dwelling house and there was a dispute whether or not same affected the availability of the dwelling house exemption. The decision (in the matter of Deane v. Revenue Commissioners) is available on www.courts.ie and we have discussed this case in further detail under the Case Digest section of this issue of tax.point.

Conclusion

This digest of cases from the TAC shows that there is a significant body of tax law now available on the TAC website www.taxappeals.ie Popular but futile appeals seem to be those concerned with VRT, repayments of tax blocked by the four year rule and directors emoluments where the companies have not paid the relevant tax over to Revenue. The publication of TAC decisions is important – they add to Adam Smith’s goal of tax certainty and constitute a unique chronicle of the more contentious, contemporary (and, at times, humerous) interactions occurring as between taxpayer and tax authority.

Eoin O’Shea FCA BL AITI ADIT is team leader at Vistra Luxembourg.

eoin.oshea@vistra.com