Due Process

May 08, 2018

Sunday Business Post, 6 May 2018
Process is important.  When Michel Barnier was addressing the fourth all-Island Civic Dialogue on Brexit in Dundalk earlier this week, he identified in his written remarks the difficulties arising from disputes about the Border.  These impact on the finalisation of the so-called “transition agreement”, the arrangement whereby the UK will remain in the European Union until the end of December 2020, albeit without much political influence on EU decision-making.  But later in his panel discussion, he remarked upon another, perhaps even more intractable, problem. 

This concern centred around what Barnier described as the “lack of governance”, the fact that neither the EU nor the UK have agreed on who should be the arbitrators in the event of any dispute on the operation of the transition agreement.  The EU wants to stick with its own institutions, primarily the Court of Justice of the European Union.  The UK wants none of that.  Resolving this disagreement should be a priority for the negotiating teams.  Unless there is a proper process to resolve dispute, there will be no Brexit transition agreement.

Dispute Resolution

A process for dispute resolution is fundamental not just to international treaties, but to every aspect of life where there are two parties to a process; parties not bound necessarily by family ties, trust or affection.  We have all been shaken and concerned at the ongoing revelations regarding the failures in cervical cancer screening, not least by the extent and difficulty of the redress process as reported.  Also a recurring business news headline over the last several months has been the tracker mortgage debacle.  These two crises of course cannot be equated, but they do have a common theme.  There was apparently no appropriate method of appeal or arbitration in either situation before recourse to the courts which would have saved the unfortunate people at the heart of the controversies considerable pain and delay.

More mundanely, tax liabilities give rise to obvious grounds for dispute.  Common sense and tax are not often found together in the same sentence, as evidenced by the kind of cases that get presented for serious consideration before the courts.  These range from whether a foodstuff is a cake or a biscuit, to whether or not a banana can be manufactured (as distinct from merely grown and ripened) and to how much potato you actually have to use before a product can be described as a packet of crisps. 

Independent Arbitration

These apparently frivolous issues conceal a real need and ongoing need for a robust form of independent arbitration on issues between the taxpayer and the local tax authority before the paraphernalia of the full court system is called upon.  This is the function of the relatively newly formed Tax Appeal Commission.  In this newspaper last week, the Revenue Chairman Niall Cody suggested that the current tax appeal system in Ireland is in transition and will eventually get to its required destination having eliminated in a backlog of cases.  But there may be space as well for other less formal approaches.

Ireland has operated a general Ombudsman’s office for several decades which examine complaints from people who feel they have been unfairly treated by some public bodies, and the ombudsman can and does become involved in tax cases from time to time.  Other jurisdictions have their own tax ombudsman, an office specifically set up to look at tax issues and provide redress to aggrieved taxpayers.  The tax ombudsman in the United States has become known as the Tax Advocate; a powerful official with a large number of staff to act on behalf of taxpayers.

The US Tax Advocate recognises that there can be two types of tax problem to be solved in the event of a dispute.  The first is what they call the economic burden.  This is where the tax assessment is correct, but the taxpayer simply can't pay.  In those kind of cases the office of the tax advocate helps taxpayers negotiate or put in place instalment arrangements with the US tax authority, the IRS. 

The tax advocate also recognises the existence of what they term the systemic burden – a situation where the IRS has messed up perhaps by not responding to a taxpayer in good time, or simply got the paperwork wrong.  In all these cases, the service steers away from the leading edge interpretation of how the tax law should be applied.  Rather they are sorting out problems for the individual.  Indeed the focus is only on the individual.  They look at cases where hardship is being suffered; the tax advocate does not consider that businesses can experience hardship.


The most compelling proof of the effectiveness of the approach is that apparently some four of every 10 referrals to the tax advocate's office come from the IRS itself.  150,000 cases get resolved every year, but that doesn't necessarily mean that the IRS got 150,000 cases wrong on every occasion.  Rather it is a recognition that any system can become clogged.

There are advantages to an approach which separates hardship issues from system issues and prioritises the concern of the individual over the concern of an organisation.  It may provide pointers towards design of more appropriate mechanisms for dispute resolution beyond just tax disputes.  Clearly it wouldn’t work to dilute international tensions like Brexit, nor might it be suitable for situations as grave as cancer testing errors.  But it does offer an alternative to highly formalised tribunals and investigations which we tend to set up at the drop of a hat in this country. 

In a dispute, most decent people instinctively know the right thing to do.  Sometimes all they need is a process to achieve it.

Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland