In Lee v Revenue Commissioners, the Court of Appeal delivered an important judgment on the jurisdiction of the Tax Appeal Commission (“TAC”) in tax disputes. In a recent follow on costs judgment, the Court once again offered a number of instructive comments on the TAC’s jurisdiction, while noting the potential consequences for taxpayers that fail to choose the correct venue for a tax dispute.
In this recent judgment, the Court held that notwithstanding that Revenue had been successful in Lee, it would not make a costs order against the taxpayer. While there is a presumption that a taxpayer must bear litigation costs following defeat in court, considerations such as the public and systemic importance of the case can operate to rebut this presumption.
Tax Cases of Public and Systemic Importance
As outlined in a recent Matheson update the general rule that litigation costs follow the event can be displaced, in certain circumstances. In Lee, the Court noted that the reasonableness of the taxpayer’s decision to take the proceedings before the TAC, rather than pursue judicial proceedings, was not itself sufficient to displace the general rule on costs.
Instead, the Court focused on a number of cumulative features of the taxpayer’s case, with a particular focus on the respective jurisdiction of the TAC and the courts, to find that a costs order should not be made against the taxpayer, including:
- The the issues involved were central to the powers and functions of the TAC and, as such, were of “systemic importance” due to their ongoing relevance to many citizens.
- There was a distinction between a case where the provision imposing the relevant tax was unclear, which was an unavoidable consequence of the complexity of tax disputes, and cases where the jurisdiction of bodies such as the TAC was unclear.
- The consequences of a lack of clarity on the jurisdiction of bodies such as the TAC for taxpayers was “very significant”. For example, the taxpayer could miss time limits if they mistakenly went to the TAC rather than take court proceedings, or vice-versa. Taxpayers should not be penalised for making a reasonable choice as to the jurisdiction of adjudicative bodies.
- The Minister for Finance was ultimately responsible for the lack of clarity on the jurisdiction of the TAC. However, the Minister for Finance would also be the main beneficiary of the resolution of the case (ie, recovery of the tax due). Similarly Revenue benefited from additional guidance being provided by the Court on the scope of the TAC’s jurisdiction.
- On this basis, in light of the confusion on the interaction of the jurisdiction of the TAC and the courts, it was not unreasonable for the general rule on costs to be disapplied.
The Court’s acceptance that the TAC’s jurisdiction is not clearly defined, and that both Revenue and taxpayers risk misunderstanding the division of functions between the courts and the TAC in tax matters demonstrates the importance of carefully considering the appropriate forum when pursuing a tax dispute. As the TAC continues to deal with increasingly complex tax disputes, the question as to the division of powers between the TAC and the courts, and the correct forum for a tax dispute, will remain a significant point of importance in disputes going forward.