As discussed in our 2023 Irish Tax Review article[1], there have been a number of recent Tax Appeal Commission (TAC) determinations that created a lack of clarity regarding the application of section 192A of the Taxes Consolidation Act 1997 (as amended) ("TCA") where, for example, a claim relating to an alleged breach of employment law, which arose during an employment, is settled around the time that the employment is terminated. While section 192A(5) TCA provides that where a payment falls within section 123 TCA, relief under section 192A TCA cannot apply, in our view, certain TAC determinations over the last number of years took an overly restrictive view of the application of section 192A TCA in a termination context. The issues are set out in detail in our previous article, and this update relates to a very recent High Court judgment which addressed some of these issues.
Siddiqui v Revenue Commissioners[2]
This recent High Court decision (arising on an appeal by way of case stated of TAC decision 51TACD2022) provides some welcome clarity on certain of the issues discussed in the previous article, and adopted a practical approach to the application of section 192A TCA in a termination context. In this case, an ex-gratia payment was paid, together with a statutory redundancy payment, pursuant to a compromise agreement. The agreement was entered into while the appellant had a pending claim for racial discrimination before the Equality Tribunal (the "Claim"), and the agreement required the Claim to be withdrawn.
Key arguments in the case
Revenue argued that the ex-gratia payment was a payment connected with the termination of the employment and was therefore taxable. Revenue noted that the payment was referred to as a 'termination payment' in the compromise agreement, and that the appellant had entered into the agreement with the benefit of legal advice.
The appellant argued that the ex-gratia payment was compensation for the settlement of the Claim (and a potential personal injuries claim), and was therefore subject to full relief under section 192A TCA.
Key findings of the High Court
The court noted that, where there is a claim for relief under section 192A(4) TCA, a claim need not actually have been issued to qualify for the relief.[3]
The court acknowledged that the use of the phrase ‘statement of claim’ at various points in section 192A(4) TCA had created some uncertainty and clarified that the meaning of 'statement of claim' in that section "does not mean a ‘statement of claim’ in the sense meant in the Rules of the Superior Courts"[4]. Quinn J referred to section 4 of the relevant Revenue guidance[5] which notes that a statement of claim is not a single document, but can include documentation that discloses the nature of the claim between the parties. In this regard, he referenced certain correspondence from the appellant's former solicitors, which referenced an 'employment dispute' being settled.
The court noted that, while the TAC found[6] that the solicitors' correspondence "cannot override the clear contemporaneous written terms" of the compromise agreement, the TAC had not approached the question of interpretation of the compromise agreement correctly,[7] and it was necessary to carry out an objective analysis of the 'background context".[8] Essentially, the fact that the payment was referred to as a 'termination payment' in the agreement was not conclusive.
Following on from the above, Quinn J noted that redundancy is a wholly lawful basis for terminating an employment and stated that "once statutory redundancy was being paid there should have been a real question as to why an additional sum of approximately €85,000 was being paid."[9] His view was that the statutory redundancy payment was "a complete legal answer to any challenge to the lawfulness of the termination."[10]
Conclusion
Quinn J found that the exemption under section 192A(4) TCA applied to the payment, notwithstanding the wording of the compromise agreement. He noted that "the real question required of the TAC on appeal was to consider the true substance of the ex gratia payment, that is the clear intention of the provisions of section 192A."[11] That said, it remains important in our view to ensure that appropriate care is taken in drafting the wording of the compromise agreement.
One point of caution is that Quinn J placed some emphasis on the fact that this was a redundancy situation and, in our view, where an employment is terminated for other reasons, it may be appropriate to allocate a portion of the overall payment to the 'termination'.
It is also important to note that some of the practical issues arising for employers and tax practitioners in relation to section 192A TCA, and which we discussed in the previous article, continue to exist.
[2]. [2024] IEHC 195.
[3]. [2024] IEHC 195 at para 33.
[4]. [2024] IEHC 195 at para 34.
[6]. 51TACD2022 at para 69.
[7]. Based on the principles of Analog Devices B.V. v Zurich Insurance Company [2005] 1 IR 274 and Law Society v MIBI [2017] IESC 31.
[8]. [2024] IEHC 195 at para 38.
[9]. [2024] IEHC 195 at para 39.
[10]. [2024] IEHC 195 at para 39.
[11]. [2024] IEHC 195 at para 39.