- Skip Navigation |
- Sitemap |
- Text Size: A |
- A |
- A
- About Us
- Make a Complaint
- Accessible Services
- FAQs
- Legislation
- Press Releases
- Speeches
- Publications
- Sample Cases
- Languages Act
- Disability Act 2005
The Office of the Ombudsman is open between 9.15 and 5.30 Monday to Thursday and 9.15 to 5.15 on Friday.
18 Lr. Leeson Street, Dublin 2.
Tel: +353-1-639 5600
Lo-call: 1890 223030
Fax: (01) 639 5674 Email: ombudsman@ombudsman.gov.ie
Redress for Taxpayers (Special Report)
Chapter 5 - The Revenue Commissioners' refusal to compensate the two widows and six other taxpayers for loss in value of tax refunds
Chapter 5
The Revenue Commissioners' refusal to compensate the two widows and six other taxpayers for loss in value of tax refunds
In this chapter, I deal with the question of compensation for loss in value of tax refunds. In this connection, I should point out that an important factor in this element of the investigation is the High Court Judgement of 18 December 1996 in the O'Rourke case which is detailed in chapter 3. What I say there about the application of the O'Rourke judgement to the payment of compensation for loss of purchasing power to Mrs Kelly and Mrs Nolan applies a fortiori to the repayment of tax wrongly exacted from them as a result of the Revenue misconstruing the relevant pension regulations (see Chapter 4 of this report).
The Complainants
This chapter describes my investigation of complaints made by Mrs Kelly, Mrs Nolan and six other complainants:
Mr T. J. Lynch
In Mr Lynch's case, income tax was deducted by the
Land Commission at source on interest paid in July 1979 on an
investment in Land Bonds held by him. As a resident of Cyprus in that
year, Mr Lynch was not liable to the tax deduction by virtue of Section
361 ITA 1967 and the Double Taxation Relief (Taxes on Income) (Cyprus)
Order, S.I. 79 of 1970.
In September 1988, the complainant's accountants sought
repayment of the income tax amounting to �20,198.59 deducted on the
interest paid. Before repayment could be made, numerous internal checks
had to be made by the Revenue to verify that the tax had actually been
paid by Mr Lynch. This process took some time as it involved referring
the case to various tax areas. In November 1989, having established
that the tax had been deducted, the Inspector proceeded to deal with
the payment of the claim. There were further delays in processing the
claim. In December 1990, a query was sent to the Residence Section
within the Revenue regarding the residential status of the claimant. In
October 1991, Mr Lynch was deemed to be resident in Ireland rather than
abroad by Residence Section. This was appealed and the decision
reversed in February 1992. Before making a repayment, the Revenue made
further checks to ensure that Mr Lynch had no additional outstanding
tax liabilities. In March 1994, appeals in respect of outstanding tax
assessments for 1977/78, 1978/79 and 1979/80 were settled by the
Revenue on the basis of a repayment to Mr Lynch of �6,151.14 for these
years. At this stage, the Revenue repaid to Mr Lynch the tax on the
Land Bonds originally paid in July 1979, nearly fifteen years
previously. The repayment was made to him on 8 April 1994. The
complainant sought interest or compensation for loss in value on the
refund for the period during which the tax had been held by the
Revenue. He claimed that the repayment had been due since 7 July 1979.
The Revenue refused the request on the grounds that there was no
statutory provision for the payment of interest or compensation for
loss in value on tax incorrectly deducted in Mr Lynch's circumstances.
Mr Larry Hayes
In Mr Hayes's case, a tax refund of �25,260 was made in respect of
Professional Services Withholding Tax (PSWT), following a decision of
the High Court in Michael Daly v. The Revenue Commissioners [1995]
ITR 185, under which the provisions of Section 26(1) of the Finance
Act, 1990, relating to the payment of such tax, were struck down. He
claimed that he had been denied the use of the amount of the refund for
a period of two years and sought compensation. On 26 October 1995, the
Revenue refused his request saying that there was no provision in
legislation for the payment of interest or compensation for loss in
value of refunds of withholding tax.
Mr Tom Sullivan
Mr Sullivan's complaint also concerns an overpayment
of PSWT in the sum of �22,558.50 and the refusal by the Revenue to pay
interest or compensation for loss in value on the overpayment on the
basis that there was no provision in legislation for the payment of
interest or compensation for loss in value of refunds of withholding
tax.
Mr Fintan Dunne
Mr Dunne was made redundant in the 1985/86 income tax year. He received
a lump sum redundancy payment and paid tax on the amount of the payment
which exceeded the statutory limits. He subsequently claimed that he
had been made redundant as a result of a disability (epilepsy) and
claimed he was entitled to the exemption in respect of tax paid on his
redundancy payment in accordance with Section 115 of ITA 1967. His
claim was supported by his former employer in a letter dated 22 April
1987 which stated that Mr Dunne had been selected for redundancy on the
basis that he was unsuited for future job requirements 'because of his continuing difficulty with epilepsy'.
The claim was refused and he was advised that there was no appeal
mechanism. The reasons for the refusal are unknown because the Revenue papers dealing with the decision have been destroyed.
In 1987 Mr Dunne became unemployed. By 1996 he was in receipt of
an invalidity pension. In that year a public representative resubmitted
a claim for tax relief on his behalf in which he included medical
evidence which stated that his epilepsy prevented him from continuing
in employment. Revenue sought from Mr Dunne a medical certificate
confirming:
- the nature of his infirmity;
- that the infirmity prevented him from continuing his employment;
- the date from which the infirmity had prevented him from continuing his employment.
Following receipt of this information the Revenue concluded that the
relief available under Section 115 should apply. Mr Dunne received a
refund of tax of �2,343.79 as a result. He then sought interest, or
compensation for loss in value, on the repayment made to him. In
September 1997 this request was refused by the Revenue on the grounds
that there was no statutory basis for making such payment.
Mr Sean O'Reilly
Mr O'Reilly is a writer of school text books and had books published
which attracted an income in the period covered by the tax years
1978/79 to 1994/95. He paid full income tax on all the income received
in respect of the royalties on these books. He made a claim for
exemption, under the Writers and Artists Provisions, Section 2 Finance
Act 1969, on 5 August 1978, and this was refused in October 1981.
According to the Revenue it had been unable to deal with the claim
until then as the matter had been overlooked originally.
Appeal provisions against decisions under Section 2 were
introduced in 1989. These allowed claimants who had been refused
determinations prior to 1989 to appeal provided they did so within 6
months. Mr O'Reilly appealed in June 1989 and was finally given a
determination on 5 January 1996. The delay in finalising the case was
due to the fact that a claim for similar exemption was being dealt with
in the Courts in The Revenue Commissioners v Colm Ó Loinsigh, [1994] ITR 1994.
In the event the High Court, in Ó Loinsigh, upheld a
decision of the Appeal Commissioners in favour of Ó Loinsigh. Mr Ó
Loinsigh had written a series of books known as "Pathways to History"
and applied for relief against taxation in respect of income received
by him from the sale of the books in the tax years 1988/89 and 1989/90.
To qualify for relief the work had to be regarded as "original and
creative". The Appeal Commissioners considered the works to be original
and creative.
Following this determination the Revenue advised Mr O'Reilly in
January 1996 that he was now entitled to claim exemption from income
tax, applicable from 6 April 1981 on the works published. This was
subsequently backdated to 1978, the date he had first applied. He
subsequently received a rebate of the tax paid in the sum of �11,887.80
covering all years from 1978/79 to 1994/95.
Under Section 30 of FA 1976 interest could have been paid if the
refund to Mr O'Reilly had been the result of an appeal against an
assessment to tax. However his appeal was not against an assessment but
against a decision to refuse his claim for exemption under Section 2,
Finance Act 1969. Commenting on this issue in September 1996, a Revenue
official noted;
"It could be argued that the only reason Mr O'Reilly did not
appeal the assessments was that he was told by us that there was no
means of appealing our refusal to issue a determination under Section
2. As such we could be said to have deprived him of his right of appeal
and in equity he should be allowed interest. While the amount involved
in this particular instance is not large any such decision would
obviously have implications for other cases.
In this respect therefore Mr O'Reilly's case is similar to
the Laurence O'Rourke case presently in the High Court and it seems to
me that we should await the outcome of the case before making any
decision in this instance."
Following the decision in O'Rourke, the
Revenue decided that Mr O'Reilly was not affected. Interest was paid on
the repayments for the years 1988/89 to 1994/95 as payments of
preliminary tax were involved. However, his request for interest for
the other years was refused on the grounds that there was no statutory
basis for making such payment.
Mr Seamus Doyle
Mr Doyle appealed against an assessment to income tax for 1985/86 to
the Appeal Commissioners. This assessment determined that interest paid
on a rental property was not allowable under Section 496 of ITA 1967.
Under this section, where interest was paid on an advance from a bank,
the person by whom the interest was paid was entitled, subject to
fulfilling certain conditions, to repayment of tax on the amount of the
interest. The Appeal Commissioner upheld the assessment. Accordingly
tax was, and continued to be, deducted from Mr Doyle from his salary
under the PAYE system in respect of these years up to 1990/91,
inclusive. Mr Doyle appealed to the Circuit Court which ruled in his
favour. On 23 February 1995, Mr Doyle received a refund of PAYE income tax of �9,306.44 for the years 1985/86 to 1990/91.
Mr Doyle submitted a claim for interest under the provisions of
Section 30 of FA 1976 and/or Section 429 of ITA 1967. This was refused
by the Revenue as it concluded that an interest payment under Section
30 only applied to a final and conclusive determination of the Appeal
Commissioners. It argued that the payment of interest under Section 429
required a direct payment of the disputed tax to have been made. In Mr
Doyle's case no direct payment had been made as tax had been deducted
from him under the PAYE system. His request for interest was refused on
30 December 1997 on the grounds that there was no provision in
legislation for such payment in the circumstances applicable in his
case. He was advised however that the matter would be looked at further
when a decision had been delivered in the O'Rourke case.
After the decision in O'Rourke, Revenue wrote to Mr
Doyle and advised him that his case could be distinguished from
O'Rourke in that the court decided that, as the statutory machinery
under Section 30 was not employed in the O'Rourke case, other avenues
should be explored as the basis for making a payment to him. Referring
to his case the Revenue concluded that:
"In your case therefore, the statutory machinery is Section 429(4) Income Tax Act, 1967 and as has been pointed out above, there is reason to believe that there is no basis for making the payment of interest."
The Preliminary Examination
I conducted a detailed preliminary examination of the complaints
received from Mrs Kelly, Mr Lynch and Mr Hayes. The outcome of these
cases would determine the approach which I would take to the remaining
five complaints which were made to me.
In the course of the examination of these complaints, it
emerged that the issue of compensation in respect of repayments of
income tax had been the subject of a High Court judgement on 18
December 1996 in the O'Rourke case. One of the issues considered in that case was whether the Revenue were
obliged to pay interest on repayments of income tax collected but not
actually due from 80 to 90 Branch Managers of Employment Exchanges of
the Department of Social Welfare. Following this case, interest was
paid to Mr O'Rourke and his colleagues, at the interest rate applicable
at the time under Section 21 of the Courts Act, 1981.
In January 1994, the High Court decided that a marriage
gratuity paid to a female bank official on retirement should be taxed
as a termination payment and that the taxpayer should receive the statutory relief on such repayments -
Sean Ó Síocháin (Inspector of Taxes) v. Thomas Morrissey [4 ITR 407]. The Revenue
accepted the decision and repaid the tax previously levied. The benefit
of the decision was extended to a small group of bank officials who had
similarly appealed or protested. In the light of the O'Rourke judgement, the Revenue decided to pay interest on the tax refunded in the bank officials' cases.
As I mentioned in Chapter 1, I published a Guide to Standards of Best Practice for Public Servants in 1996. These standards were subsequently incorporated into the Revenue's Customer Service Standards Statement,
published in January 1998. One of the standards concerned the issue of
'fairness'. In this context I had stated that, with a view to achieving
the highest standards of administration, public servants should ensure
that citizens are dealt with fairly. I stressed that one of the
underlying principles in dealing fairly with people is that, while
accepting that rules and regulations are important in ensuring
fairness, they should not be applied so rigidly or inflexibly as to
create inequity. In addition, the Revenue, in its Charter of Rights, which was first published in 1988, lists the fostering of the highest degree of public confidence in the Revenue's 'integrity, efficiency and fairness' as a priority objective.
In the light of Revenue's decision -
- to pay interest in the cases involving the Branch Managers of Employment Exchanges and the bank officials,
- its discretionary authority under the care and management provisions of the Income Tax Acts (see chapter 3), and
- the contents of its Charter of Rights and its Customer Service Standards Statement,
The Revenue response
In its response, the Revenue indicated that it was its view that there were no grounds for extending the O'Rourke
judgement to other cases where there is no statutory authority for
paying such interest or compensation for loss in value. It said that
the O'Rourke judgement was implemented only in cases that
were linked to it - i.e., the other Social Welfare Branch Managers and
the bank officials' cases.
The Revenue referred to the fact that in the O'Rourke judgement, Mr Justice Keane, before making his final decision, referred to Murphy v Attorney General, and the basis on which the Supreme Court decision in that case might apply in O'Rourke. It said that after detailed consideration Mr Justice Keane distinguished the two cases, inter alia, on the basis that the Murphy case involved tens of thousands of married couples and the O'Rourke case was concerned with 80 to 90 social welfare branch managers. It added that in the immediate aftermath of O'Rourke it
discussed with Counsel the significance of the distinction which Mr
Justice Keane had made between the two cases and came to the conclusion
that the decision was undoubtedly affected by the fact that the number
of O'Rourke-type cases were so relatively few and restricted.
The Revenue pointed out that the payment of interest or
compensation for loss in value in these particular complaints would
give rise to a further inequity in respect of all other cases, past and
present, where similar circumstances applied and would have serious
knock-on effects for the Exchequer.
On the issue of the care and management provisions of the
Income Tax Acts, the Revenue said that the payment of interest or
compensation for loss in value in the absence of statutory authority
could be deemed to be an unlawful act not in keeping with the authority
provided for in the care and management provisions.
In conclusion, it said that in the light of the Ombudsman's concerns,
it proposed to initiate a review of the entire question of interest or
compensation for loss in value to see if there was a basis for
proposing statutory change.
In light of the response received from the Revenue,
I decided to commence a formal investigation of the complaints from the
three original complainants and from five others who had subsequently
made similar complaints to my Office. I did not consider that the Revenue's
offer to carry out a review was a satisfactory response. I had referred
to the issue in my Annual Report for 1996 when I had indicated that the
legislation dealing with the payment of interest on tax refunded to
taxpayers needed to be re-examined and in the meantime no significant
change had taken place. A review, while implicitly
acknowledging that there was merit in the arguments advanced by my
Office, might not result in redress for the taxpayers who had
complained to me.
The Investigation
On 22 July 1999, I notified the Revenue of my
intention to carry out an investigation of the complaints under Section
4 of the Ombudsman Act, 1980. The Statement of Complaint which issued
to the Revenue at that time recited the facts established in the
preliminary examination and included details of the other five cases
being joined in the investigation.
The Revenue, in response to the Statement of Complaint,
maintained that in each of the cases there was no statutory provision
which would enable it to pay interest or compensation for loss in value
and that the O'Rourke case had no general application. The
investigation process centred mainly on the examination of the tax
files of the complainants and tax policy files supplied to me by the
Revenue. The investigation also included research into relevant court
decisions, legislation and general practice across the public service
on the issue of the payment of interest or compensation for loss in
value in the case of delayed payments or refunds.
Provisions have been made in legislation for the payment of
interest for tax overpaid in certain instances. Details of these
provisions are set out in chapter 3.
There has also been a number of court cases where the question of whether interest was payable on a tax repayment was considered. These are summarised in chapter 3. The application of the judgement in one of these cases, O'Rourke, is also considered in chapter 3.
Analysis
The case for payment of compensation
The Revenue describes its mission in terms of a desire to serve the
community by fairly and efficiently collecting taxes and duties and
implementing import and export controls. It suggests that quality
customer service involves meeting the tax payer's needs through fair
and efficient administration. This objective is to be achieved,
according to the Revenue's Charter of Rights, in a manner which fosters the highest degree of public confidence in the Commissioners' integrity, efficiency and fairness.
With regard to repayments of overpaid tax, there is
an acknowledgement on the part of the Revenue Commissioners of an
obligation to pay interest to taxpayers in certain circumstances.
Legislative provisions governing the payment of interest referred to
earlier reflect this. It is reasonable to assume that these provisions
came about at the instigation of the Revenue given its input to policy
formulation by:
- providing advice to the Minister for Finance;
- advising the Tax Strategy Group on the likely consequences of policy changes;
- bringing forward its own proposals for change; and
- the drafting of the annual Finance Bill and briefing the Minister at all stages during the legislative process.
In its comments on a draft of my investigation report, the
Revenue disputed the view that compensation for loss in value is a
necessary element in fair administration of the tax system. It referred
to the legislative history of the various provisions for payment of
interest:
"In our view this historical context is important in that it
indicates that equality of treatment between the State and the taxpayer
(as regards compensation for loss of value) was not the guiding force
in the development of tax law relating to interest; rather it was the
improvement of tax compliance. The limited circumstances in which
interest is allowed to be paid - and which mainly relate to situations
where taxpayers have to make a payment on account, such as preliminary
tax, in advance of knowing the correct liability - are not, as seems to
be suggested in ... the [draft] report, a pointer that, in general,
taxpayers are entitled to compensation for tax overpaid."
However it went on to concede:
"It is clear from the historical background set out above
that, for policy reasons at the time, statute law as regards payment of
interest is not entirely consistent as between the various taxes and
within taxes (for example, self-assessment vs. PAYE cases). It is clear
also that there is inconsistency between the rapidly developing common
law of restitution and statute law in relation to overpayments of tax
(and the question of paying interest)."
The lack of equality between the State and taxpayer
which the Revenue accept exists is underlined by the provision in
Section 550 of ITA 1967 which provides:
"any tax charged by any assessment to income tax or to
sur-tax shall carry interest at the rate of one half per cent for each
month or part of a month from the date when the tax becomes due and
payable until payment."
The O'Rourke decision established a right to
compensation in the form of an interest payment to the taxpayer based
on the doctrine of unjust enrichment in a case where no specific
statutory authority under the Tax Acts exists. The view of the Revenue
is that that decision was limited and could not be extended to other
cases. It quoted Mr Justice Keane from his judgement in O'Rourke in support of this view when he said "... in the circumstances of this case, the defendants were unjustly enriched ..."
However the decision was extended by the Revenue to cover the bank
officials' cases where equally there was no statutory authority for
paying such interest or compensation for loss in value.
The Revenue in its comments on the first draft of my investigation report pointed out that:
"The O'Rourke decision was based on a combination of the
power of Courts to order payment of interest in accordance with section
22 of the Courts Act, 1981 and the common law principle of restitution.
This latter is an area of the law which has been evolving incrementally
over the past 25 years or so. The judicial rationale for this body of
common law is to reverse 'unjust enrichment'. However, there is still -
notwithstanding the radical development of this law in the 1993
Woolwich case and its subsequent adoption into Irish law in O'Rourke -
no general right of restitution based simply on proof of an unjust
enrichment. This is an important point as the [draft] report appears to
conclude from an analysis of O'Rourke that: (a) there is such a general
right, and (b) Revenue should put in place administrative procedures to
vindicate such rights where persons have overpaid tax and there is no
statutory right of redress.
As Judge Keane acknowledged in O'Rourke, the law of
restitution "has been developed incrementally on a case by case basis,
so as to ensure that a vague and uncharted area of the law in which
'palm-tree' justice flourishes is not judicially encouraged". It is
necessary for a person claiming rights under this common law principle
to come within one of the recognised grounds for restitution,
whether it be mistake, duress, lack of consideration or some aspect of the newly-developed Woolwich doctrine
(my emphasis).
And it is important to recognise that the common law allows a number of
defences to a claim for restitution of overpaid taxes (or consequential
interest), such as estoppel, change of position or restrictions on
locus standi.
There is also the question of a defence based on the
economic necessity of preventing excessive disruption of the public
finances. This particular defence was successful in the case of Murphy
v Attorney General, but unsuccessful in the case of O'Rourke, because
only 80 or 90 persons were involved. But it is not clear from O'Rourke
where the boundaries of that defence may lie.
Furthermore, there may be a legitimate defence based on the
extinction of restitutionary actions beyond limitation periods. These
limitation periods will presumably depend on whether an action could be
taken by judicial review or founded on simple contract or through some
other civil law process."
The Revenue conclusion was as follows:
"While we would like to see a review of the tax statute law
in relation to interest and 'restitution' completed as soon as
possible, any decision to change the statute law in this area is of
course a matter for the Minister for Finance, the Government and the
Oireachtas.
In the meantime, pending any legislative change in this
area, we feel it is unreasonable to criticise Revenue for failing to
apply a general principle of 'unjust enrichment' across the board in
its administration of the tax system. To adopt such an approach could
give rise to the type of 'palm tree' justice referred to by Judge Keane
in O'Rourke."
The reference to 'palm tree' justice in the Revenue response
will be familiar to most Ombudsmen and, indeed, it often arises in
discussion at Ombudsman conferences when the question of equity is
being considered. 'Palm tree' justice is usually seen as justice
summarily administered with little regard for legal principle or
precedent. In his book "Equity and the Law of Trusts in the Republic of Ireland", the then Judge Keane sounded an appropriate warning note:
"Justice is the ideal to which all legal systems aspire, but
in cases which come before our courts it must be justice according to
law, whether it be the law declared by the Constitution itself, or to
be found in legislation or the body of common law and equity which also
forms part of that law. Individual judges are not free to depart from
the law to meet what may seem to be a just result in a particular case.
The very nature of the equitable jurisdiction gives a certain allure to
the belief that there is some standard of 'fairness', of 'equity'
indeed, which renders precedent superfluous. But it is the application
of settled principles largely contained in precedent which gives the
law of equity the virtues of certainty and consistency. It is as true
today as in centuries past that hard cases make bad law and that the
arbitrary abandonment of principle and precedent to meet what may seem
to be the demands of justice in a particular context leads only to
uncertainty, inconsistency and, in the end, injustice at a more
profound level."
Against this background, the first point I would make is that
payment of interest or compensation for loss in value in these cases
would not conflict with existing law. The Revenue argument in all cases
is that it has no statutory basis for making such payments. I deal with
this question later in the context of the "care and management"
responsibilities of the Revenue. The second point I would make is that
I note the concern of the Revenue that my draft report would
effectively apply a general principle of "unjust enrichment" across the
board in the administration of the tax system. It said:
"The circumstances of the eight complainants in this
instance vary widely involving, for example, the treatment of pension
income, professional services withholding tax, the treatment of
redundancy payment, artist's exemption, Land Bonds and double taxation
relief. There is no common thread except that it could be argued in
each case that the State has been 'unjustly enriched' by having the
use, for a period of time, of tax revenues to which they were not
entitled, notwithstanding that there is no statutory basis in these
instances for the payment of compensation for the time value of the
money withheld.
But if that argument holds good in these widely disparate
cases, it must, in all logic, apply across the board in the whole
sphere of tax administration. This appears to be the conclusion of the
[draft] report since it criticises Revenue for not making provision for
a 'general scheme'."
In reply, I pointed out that my recommendations, (which, in
accordance with normal practice, are not included in my draft
investigation reports) are primarily concerned with the eight cases
which were all income tax cases and were all cases where mistakes were
made by the Revenue. However, I added that to the extent that I
recommend compensation in those cases, it clearly would also have to
apply to other cases which are on "all fours" with these cases. I
already have a number of such cases on hands. It seemed to me that in
those circumstances (and to avoid a situation where only persons making
complaints to my Office would benefit) it would be wrong for the
Revenue not to consider a general scheme. Indeed, given the Revenue's
stated commitment to fairness, and its acknowledgement of the
inequality which exists between State and taxpayer, it is open to
criticism for its failure to do anything despite the O'Rourke
judgement and the Revenue's extension of the benefits of that judgement
to bank officials, the very selective introduction of statutory
provisions for payment of interest and my specific reference to the
unsatisfactory situation six years ago in my Annual Report for 1996.
The merits of the eight complainants' cases
I now turn to the eight cases before me. In the cases of Mrs Kelly and
Mrs Nolan, the position seems to me to be clear cut. The Revenue had
clearly misconstrued the relevant pension regulations as a result of
which extra tax had been wrongly exacted by it. I see no reason why the
O'Rourke decision should not apply in these two cases and other similar pension cases and a fortiori to
the question of their being refunded all the tax wrongly exacted
subject to the restriction in Section 498 of ITA 1967. I do not see
this as involving any excessive disruption of the public finances.
In the case of Mr Hayes and Mr Sullivan, the tax refunds made
to them in respect of Professional Services Withholding Tax (PSWT)
followed a decision of the High Court which struck down a provision in
the Finance Act, 1990. There can be little doubt that the principles
laid down in the O'Rourke judgement cover these two cases.
Furthermore, the lack of a provision for payment of interest in the
case of PSWT contrasts with the provision for such payments in the case
of Preliminary Tax.
In the case of Mr O'Reilly, repayments of tax were made for all
years from 1978/79 to 1994/95. Interest was paid on repayments for the
years 1988/89 to 1994/95 as these were repayments of Preliminary Tax
but not on the repayments made for the previous years. Revenue
acknowledge that Mr O'Reilly could have appealed the assessments for
these years and, if he had done so, the assessments would have been
affected by the subsequent decision in respect of the determination
under Section 2. This would have resulted in an entitlement to an
interest payment under Section 30 Finance Act, 1976.
In the case of Mr Lynch, it is clear that he was never liable
for the tax deducted from him at source because of the Double Taxation
Agreement. While it is also evident that a claim for a refund of income
tax was not made until 1988 in respect of a payment made in July 1979,
it took a further six years to refund the overpayment to Mr Lynch. The
primary cause of this delay can be attributed to failures in internal
communications within the Revenue and, on this basis, interest is due
to him in respect of the period 1988 - 1994.
In Mr Dunne's case - although the papers are missing - it is
evident that the decision to refuse his original claim under Section
115 ITA 1967 was wrong. In 1996 the Revenue decided to allow his claim
on receipt of evidence which could easily have been provided at the
time of his redundancy had he been requested to do so by the Revenue.
This is acknowledged by a Revenue official in a note dated 4 June 1997
which said that:
"the fact that we have now conceded
the point, suggests (whether accurately or not) that his case had
merit. For this reason I would be inclined to give him the benefit of
the doubt and pay interest."
In Mr Doyle's case, the
Circuit Court decision indicated that the original interpretation of
the Inspector of Taxes was wrong and as a consequence resulted in a
refund of PAYE income tax. While it can be argued there are good
grounds to conclude that the Circuit Court decision should have
automatically triggered a statutory interest payment on the tax
refunded, the case would also merit an interest payment on the same
basis as O'Rourke by virtue of a mistaken application of the law.
The Care and Management Provisions of the Tax Acts
In Chapter 1, I referred to the discretionary powers of the Revenue
under the care and management provisions of the Tax Acts and the
observations of the Revenue Commissioners and the Institute of Taxation
on these provisions. In light of these observations, it appears to me
that the legislative provisions encompassing the care and management
role of the Revenue provide them with the administrative discretion to
accede to concessional treatment, where it is considered that
circumstances suggest it is proper to do so, notwithstanding the fact
that such treatment may not be explicitly provided for in legislation.
The argument that the Commissioners are prohibited from paying interest
on the grounds that there is no statutory provision enabling them to do
so is, therefore, not sustainable. It is clear to me that the validity
and reasonableness of the case in favour of a compensatory payment in
the cases covered by my investigation have been established.
Furthermore, I am satisfied that the discretionary authority to make
such a payment is provided for in the care and management provisions.
In its comments on a draft of my investigation report, the Revenue said:
"Given the potential significance of what would be involved
in such a general non-statutory scheme, and the public finance and
public policy implications of any such scheme, we feel it a matter
which is far beyond the scope of care and management and any such
scheme should have a clear legislative basis."
It is interesting that the Revenue confined its argument to the suggestion that a general scheme of compensation be introduced. It has not said that the discretion it has under the care and management provisions could not be exercised in each particular case under investigation by me by reference to the merits of each case. It is clear from a reading of the final report of the Committee of Public Accounts Sub-Committee on certain Revenue Matters (Parliamentary Enquiry into DIRT) that even the Revenue officials considered their care and management provisions a somewhat grey area. There was general agreement, for example, that the provisions gave discretion in choosing between the prosecution route and the collection route and in relation to write-offs and mitigation in individual cases. On the other hand, there were differing views on the correctness of using the provisions to issue a general instruction (SIM 263) ordering that no inspections should take place of declarations in the case of non-resident accounts. The Sub-Committee expressed its strong view that there should never be a question of using the care and management provisions in a broad brush policy manner. On 2 May 2001, the Revenue, purporting to act in accordance with the care and management provisions, issued a statement of practice in relation to owners of bogus non-resident accounts. Without in any way expressing an opinion on the merits of this decision, it demonstrates that the care and management provisions have been and can be used in a very pragmatic way by the Revenue with a view to collecting the maximum amount of money in the shortest possible time. [As an aside, could I express a serious concern that the amount of discretion enjoyed by the Revenue in this area leaves it vulnerable to pressure to apply its discretion in an arbitrary and discriminatory manner without reference to objective criteria or principles]. Given the stated commitment of the Revenue to treating taxpayers fairly, I can see no reason at all why the same provisions cannot be used to the benefit of the cases where I find that individual taxpayers have been treated unfairly by reference to the criteria in the Ombudsman Act, 1980. After all, to the extent that taxpayers perceive the tax system as fair, it assists the Revenue in raising, collecting and receiving tax due. Furthermore, the payment of interest in the case of the bank officials demonstrates that it is possible to use these provisions for that purpose.
A general scheme of compensation
Whether or not a general scheme is possible under the care and
management provisions is clearly open to argument. My general approach
as Ombudsman has been to favour statutory underpinning of areas where
Ministers or Departments exercise discretion (e.g., the school
transport system) so that the objective criteria for decision making is
known. However, I am conscious that sometimes the making of a statutory
provision can be used as a delaying tactic and that justice delayed is
justice denied. Responding to my restructured draft investigation
report, the Revenue suggested that my comment that whether or not a
more general scheme is possible under the care and management
provisions is open to argument, indicated a change of position on my
part. This is not the case. The Revenue attitude has always been that
it did not have the authority under the care and management provisions
to pay compensation for tax refunded. As I mentioned earlier, I can see
no reason why individual taxpayers who have been unfairly treated by
reference to the criteria in the Ombudsman Act, 1980, should not
receive appropriate redress under the care and management provisions.
My view is that the Revenue has such authority and that furthermore the
Revenue has been able to undertake other actions which were not
specifically authorised in legislation using the care and management
provisions as the basis for doing so. It was in this context I
suggested that the strongly held view of the Revenue that it did not
have authority to introduce an appropriate general scheme was open to
argument. Clearly, it would be better to have a scheme of which the
public would be aware of rather than leaving it to individuals to make
complaints to my Office.
In other areas of the public service steps have been taken,
often at the instigation of my Office, to provide for payments to
compensate for loss of purchasing power where payments made to
individuals are delayed. Some examples of where such payments have been
made include the following:
- (i) For the last 16 years, the Department of Social and Family
Affairs has operated a scheme to pay compensation to clients who are at
a disadvantage because the Department itself was solely or
significantly responsible for delays in making payments to them. This
can happen where, for example, a person was given wrong information by
the Department when enquiring about entitlements. The Department has
made regulations giving this scheme legislative status (S.I. 160 of
2000) but it had operated previously under delegated sanction from the
Department of Finance. The background to the introduction of the scheme
(and the Department of Finance's agreement to it) is set out in my
predecessor's Annual Report for 1986.
- (ii) The Department of Education and Science pays compensation
in respect of loss of purchasing power in cases where payment of higher
education grants has been delayed.
- (iii) The health boards have also agreed to the introduction of
a national compensation scheme covering loss of purchasing power. The
scheme is currently being examined by the Department of Health and
Children.
- (iv) Following an investigation carried out by my Office into
the level of unrefunded overpayments on borrowers' loan accounts, local
authorities accepted my recommendation that they pay the borrowers
compensation for loss of purchasing power on the amounts in question.
I am not saying that these schemes would be on "all fours" with
a Revenue scheme but the principle involved would be the same, viz.
compensation for loss of purchasing power in the case of payments which
were delayed because of an error or mistake on the part of a public
body. What these other schemes also demonstrate is that where there is
a will there is a way.
I have noted with interest the First Report of the Joint
Oireachtas Committee on the Strategic Management Initiative on Quality
Customer Service in the Office of the Revenue Commissioners, published
in December 2001. When my officials appeared before the Committee on 23
May 2000, and in a subsequent written submission, the point was made
that one area where improvement was desirable from the Office of the
Revenue Commissioners was in the area of the provision of redress. The
Revenue's information leaflet on "How to Complain to Revenue"
was silent on what action might be taken to remedy any adverse effect
arising out of an incorrect decision or action by the Revenue
Commissioners. I remain strongly of the view that the parameters for
redress should be made explicit in the Revenue's customer service
standards document. I also drew the Joint Oireachtas Committee's
attention to the fact that I had initiated an investigation of
Revenue's refusal to pay interest or compensation for loss in value to
certain taxpayers. I welcome the Committee's recommendation that the
Revenue should bring forward proposals to compensate individuals and
companies where Revenue make mistakes that cost taxpayers money.
