Influencing the decision-makers in Revenue appeals

Technical knowledge and professional competency are key elements to achieving a favourable outcome in any tax dispute. Conor Kennedy outlines his advice on the dos and don’ts of preparing for a hearing

Recent decisions by the Tax Appeals Commission (TAC) confirm that the main reason for tax disputes to proceed to hearing can be traced back to a breakdown in communication or a failure to provide the necessary facts, documents or explanations to the Revenue Commissioners. 

Excluding the tax repayment type of appeal, whereby a claim must be made within four years, the majority of cases that end up before the TAC deal with issues of evidence. 

In 80 percent of the cases resolved in 2022, there was either a failure to provide evidence or the wrong kind of evidence was provided. This resulted in the inability of the Appeal Commissioner to overturn the Revenue assessment leading to a finalisation of the taxes due. 

In some instances, Revenue may have lacked confidence in the taxpayer or its agent’s technical knowledge or professional competency. 

Once at litigation stage, Revenue will invariably engage a barrister. The appointment of a barrister can provide an independent, objective view of the law and factual background, resulting in the possible resolution of the matter before it gets to court. 

The professional or legal fees incurred in taking an appeal to the TAC, or indeed the courts, may far exceed the actual amount of tax in dispute. Furthermore, any costs associated with disputes before the TAC are not recoverable from Revenue. 

The importance of making a good initial impression and maintaining professionalism and competency throughout the dispute process cannot be overstated. 

Here is my advice for practitioners on how to prepare for hearings to increase the likelihood of a favourable outcome for clients.

Perception: honesty, integrity and competency

Revenue’s perception of the integrity, honesty and competency of a taxpayer should not be an issue if the taxpayer is known to Revenue and has had previously good relations with the agency. 

A good relationship with Revenue overcomes many hurdles in seeking to resolve a tax dispute at an early stage. Any previous indiscretions involving under-declaration of taxes undermine credibility, unless they can be explained as human error as opposed to something more sinister.

As already noted, if a tax dispute proceeds to litigation, considerable professional fees could be racked up, experts may have to be called, and historic documents may need to be retrieved. 

Another issue is the time lost to preparing the case, for both managers and staff, not to mention the stress of giving evidence to the TAC. While a settlement represents an additional cost, it can sometimes be considered as an exercise in damage limitation.

Familiarity with the facts

Facts are the foundation stone of any case. In focusing the mind on the story to be told, it is prudent for any custodians of fact to draft a written document recording all the relevant factual information and documents supporting the argument. 

The benefit of such a document is that it can address all essential facts requiring proof and reduce the risk of failing to disclose relevant evidence.

In presenting a case before Revenue, the TAC or a court, the presentation of facts or the telling of the story in a logical and sequential manner can play a significant part in giving a decision-maker confidence in the practitioner’s ability and competency. 

Many barristers presenting cases before courts and tribunals prepare the advice on proofs – the roadmap identifying all the facts to be proven, and the way in which they must be proven with reference to the rules of evidence. 

This involves establishing the relevant facts and the approach to be taken, either by direct evidence provided by the person concerned or, indeed, documents not in contention or dispute. 

Where these documents are disputed, it will be necessary to provide direct evidence supporting their veracity and integrity.

Business expenses

The issue of determining entitlement to deduct a business expense comes consistently before the courts and tax tribunals. 

To prove that an expense was incurred wholly and exclusively for the purpose of a trade, it must be established that the expense was incurred for a genuine business purpose related to the trade and had no other purpose or benefit. 

To prove the direct link between the expense and the operation of the trade, supporting invoices, receipts, contracts and any other relevant documentation will be required. 

Personal expenses should be clearly identified and separated from business expenses. The taxpayer should give direct evidence to support the purpose of the expenditure, to authenticate and legitimise the documents and to confirm the rationale for incurring the business expense in question.

Proof of occupation

Proof of occupation of a principal private residence in seeking relief from capital gains tax on the disposal of the property requires documentary evidence of occupation such as correspondence, bills, photographs, and third-party witnesses, such as neighbours, who can independently verify the occupation of the property during the time under dispute. 

Non-residency in the State

Similarly, in a claim for non-residency in the State, there is a requirement to demonstrate the location of the individual’s foreign residence, proof the accommodation was available for their use, reasons for the non-residency, utility bills, and bank and credit card statements reflecting consistent transactions in the country of residence supported by oral evidence.

Specialised areas of law

Share and property valuations, transfer pricing disputes and specialised areas of law, such as aviation and foreign law, usually require expert evidence as Appeal Commissioners or judges tend to have limited if any experience in such matters. 

As observed by Noonan J. in Duffy v McGee T/A McGee Insulation and GMS Insulations Limited [2022] IECA 254, expert evidence can play a decisive role in determining the outcome of a hearing.

The selection of the appropriate expert is therefore crucial as in many cases, this is the difference between winning and losing an appeal.

Hearsay documents

Care is also needed in the case of hearsay documents. Hearsay is an out-of-court statement that is offered for the truth of what has been asserted. To overcome this difficulty, any third-party documents provided should be verified by the originator of that document. 

In other words, a witness should be available to give evidence that they produced or created the document, thereby standing over its authenticity and legitimacy.

On many occasions, there will be facts that undermine the client’s position, and it is best to address these facts head on and thereafter attempt to ameliorate their effect. Doing so enhances credibility, honesty and integrity and reduces the potency of unfavourable evidence.

Knowledge of the law

Taking time to research the legislation and supporting case law governing the transaction, relief or any other impugned Revenue decision is a prerequisite to ensuring that the best account is presented, thereby giving the client a better opportunity to make a Revenue official, Appeal Commissioner or judge comfortable with ruling in their favour. 

The more capable the presentation, the greater the confidence that will be instilled in the decision-maker.

As with certain factual anomalies, there could be legislation or case law that undermines a taxpayer’s case. In such a situation, the adverse law should be addressed and ideally distinguished for the purposes of reducing its potency.

When presenting cases to the TAC or courts, some practitioners use arguments that possess little legal merit and undermine their good arguments.

This can cause a Revenue official, Appeal Commissioner or judge to question the practitioner’s professional competency and technical ability. It can also influence the decision-maker to rule against the taxpayer as the safe option is to rely on a submission or argument whose provenance is more reliable.

Burden of proof

The general principle of “he who asserts must prove” places the burden of proof on the claimant in the dispute. 

The burden of proof determines the viability of a claim based on the factual evidence. The failure to satisfy the burden of proof is the consistent mantra of the TAC because it is the reason for the failure of many taxpayers to have assessments to tax overturned or reduced.

Evidence is essential in the validation of a legal argument. It establishes the facts of a case and provides information and documentation that support the assertions made by the parties involved. Without evidence, legal arguments would be based solely on speculation and assumption. 

The presentation of compelling evidence convinces the TAC and Revenue of the validity of the arguments put forward. It increases the chances of a favourable outcome rather than the disappointing finding that the burden of proof has not been satisfied.  

In advance of a hearing, practitioners should prepare well, identify and be able to present all of the evidence. Well-balanced and logical legal arguments will enhance credibility and competency.  

Making a good initial impression and maintaining professionalism and competency throughout the dispute process will greatly increase the chances of a favourable outcome.