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You are here: BAILII >> Databases >> Irish Law Reform Commission Papers and Reports >> A Fiscal Prosecutor and a Revenue Court (Consultation Paper ) (LRC CP 24 - 2003) [2003] IELRC CP24 (July 2003) URL: http://www.bailii.org/ie/other/IELRC/2003/cp24.html Cite as: [2003] IELRC CP24

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__________

CONSULTATION PAPER

ON

A FISCAL PROSECUTOR

AND

A REVENUE COURT

_______

(LRC CP 24 - 2003)

IRELAND

The Law Reform Commission

35-39 Shelbourne Road, Ballsbridge, Dublin 4

ISSN 1393 – 3140

THE LAW REFORM COMMISSION

Background

The Law Reform Commission is an independent statutory body whose main aim is to keep the law under review and to make practical proposals for its reform. It was established on 20 October 1975, pursuant to section 3 of the Law Reform Commission Act 1975.

The Commission’s Second Programme for Law Reform, prepared in consultation with the Attorney General, was approved by the Government and copies were laid before both Houses of the Oireachtas in December 2000. The Commission also works on matters which are referred to it on occasion by the Attorney General under the terms of the Act.

To date the Commission has published sixty nine Reports containing proposals for reform of the law; eleven Working Papers; twenty three Consultation Papers; a number of specialised Papers for limited circulation; An Examination of the Law of Bail; and twenty three Reports in accordance with section 6 of the 1975 Act. A full list of its publications is contained in Appendix D to this Consultation Paper.

Membership

The Law Reform Commission consists of a President, one full-time Commissioner and three part-time Commissioners. The Commissioners at present are:

President The Hon Mr Justice Declan Budd

High Court

Full-time Commissioner Patricia T Rickard-Clarke, Solicitor

Part-time Commissioner Dr Hilary A Delany Barrister-at-Law

Senior Lecturer in Law

Trinity College Dublin

Part-time Commissioner Professor Finbarr McAuley

Jean Monnet Professor of

European Criminal Justice

University College Dublin

Part-time Commissioner Marian Shanley, Solicitor

Secretary John Quirke

Research Staff Deirdre Ahern LLB, LLM (Cantab), Solicitor

Simon Barr LLB (Hons), BSc

Patricia Brazil LLB, Barrister-at-Law

Ronan Flanagan LLB, LLM (Cantab)

Glen Gibbons BA, LLB (NUI), LLM (Cantab)

Claire Hamilton LLB (Ling Franc), Barrister-at-Law

Darren Lehane BCL, LLM (NUI)

Philip Perrins LLB, LLM (Cantab), of the Middle Temple, Barrister

Trevor Redmond LLB, MPhil, LLM (Cantab)

Jennifer Schweppe BCL (Euro)

Administration Staff

Project Manager Pearse Rayel

Legal Information Marina Greer BA, H Dip LIS

Manager

Cataloguer Eithne Boland BA (Hons) H Dip Ed,

H Dip LIS

Higher Clerical Officer Denis McKenna

Private Secretary Liam Dargan

to the President

Clerical Officers Gerry Shiel

Sharon Kineen

Principal Legal Researcher on this Consultation Paper

Claire Morrissey BCL (Int’l), LLM (KU Leuven)

Contact Details

Further information can be obtained from:

The Secretary

The Law Reform Commission

35-39 Shelbourne Road

Ballsbridge

Dublin 4

Telephone (01) 637 7600

Fax No (01) 637 7601

E-mail info@lawreform.ie

Website www.lawreform.ie

ACKNOWLEDGEMENTS

The Commission would like to thank Anthony Aston SC, Frances Cooke Revenue Solicitor, Paddy Donnelly Assistant Secretary Office of the Revenue Commissioners, Raymond Fullam SC, Paddy Hunt SC, Ronan Kelly Appeal Commissioner, Suzanne Kelly BL, Michael Liddy, Office of the Director of Public Prosecution and John O’Callaghan Appeal Commissioner for the many discussions and exchange of views throughout the preparation of this Consultation Paper which we found very helpful.

The Commission would also like to thank people who offered views, advice and assistance. Full responsibility for this publication, however, lies with the Commission. In particular, the Commission would like to thank:

Professor Niamh Brennan, Michael Smurfit Graduate School of Business, UCD

Noel Corcoran, President of the Council of the ITI

Pat Costello, Chief Executive of the ITI

Aileen Donnelly BL

Brian Keegan, Director of Research of the ITI

Ita Mangan BL

Thomas McCann SC,

His Honour Judge Sean O’Leary

Mr Justice Esmond Smyth President of the Circuit Court

The Commission also wishes to express its gratitude for the help and assistance it received from the Marian Bette, Dutch Tax and Customs Administration; Michael Howard, New Zealand Tax Authority and John Middleton UK Serious Fraud Office.

TABLE OF CONTENTS

Introduction

Background to this Paper

1. This Paper has been prepared in response to a reference from the Attorney General, pursuant to section 4(2)(c) of the Law Reform Commission Act 1975. On 18 February 2002, the then Attorney General, Mr Michael McDowell SC, asked the Law Reform Commission to consider the following Reference:

“[t]he current programme of the Law Reform [Commission] includes a study of Tribunals of Inquiry which will cover the issues recommended by the Parliamentary Inquiry into D.I.R.T. The Government has recently requested that the Law Reform [Commission] also consider the issues of a fiscal prosecutor and a revenue court which were also among the recommendations of the Parliamentary Inquiry.”¹

Given the reference in the first sentence of this quotation to the Parliamentary Inquiry into D.I.R.T., we think it appropriate to quote, even at length, what the Parliamentary Inquiry said on this subject. It stated that:

“[t]he argument for a Revenue Court is not clear-cut. Indeed there is not even a single vision of what a Revenue Court might be or represent. Furthermore, we were concerned to explore whether a Revenue Court, whatever shape it might take, was the answer or were there other institutional and working reforms that might deal with the matter?

A Revenue Court might be constituted to have financial and accountancy assessors available to advise the Court. Likewise a fiscal prosecutor might be singularly focused on Revenue offences and have the necessary specialist expertise in the office … A Revenue Court raises some very important issues legally and constitutionally. Among these is the question of prosecution. In short would we accompany a Revenue Court with the establishment of a separate prosecution service – a fiscal prosecutor – for that Court? At present all prosecutions of indictable offences go through the DPP …

Findings of the Sub Committee

The Sub-Committee finds that the case has not been made for the introduction of a Revenue Court and fiscal prosecutor. The Sub-Committee notes the concerns expressed by the DPP and by the Revenue Solicitor in relation to juries and to volume of cases forthcoming and these concerns are recognised in its recommendation ….

The Sub Committee recommends that –

The Department of Finance in conjunction with the Office of the Attorney General undertake a more detailed study of the benefits of

a Revenue Court and

a fiscal prosecutor

And report to the Public Accounts Committee by 31 March 2002.”² (Original emphasis)

2. Part of the inspiration for this Paper was undoubtedly the growing awareness that some members of the higher echelons of Irish society had successfully evaded tax when high taxes had been afflicting Irish society. This raised questions about the design and operation of the tax system. These questions concentrated, in particular, on the operation of the criminal and civil revenue jurisdiction.

3. While we have considered the adoption of the two new institutions proposed in the reference, in order to do a thorough analysis we have also examined the possibility of reforming the existing tribunals and courts: on the civil side, the Appeal Commissioners, Circuit Court and Superior Courts; and, in the criminal field, the present system for preparing and bringing revenue prosecutions and the criminal jurisdiction of the District and Circuit Court. Even interpreting our terms of reference thus broadly, we have stopped short of the extensive administrative system by which the Revenue Commissioners settle the tax affairs of the citizen. While we do sketch this system, in the first two chapters, so as to establish the context against which the civil and criminal revenue jurisdictions operate, we do not consider any reform of this system.

4. Another boundary which we have observed concerns customs and excise. This appears to be a discrete area, separate from general revenue matters. Moreover, the bringing of prosecutions in this sphere follows a well established pattern and the system is generally regarded as operating satisfactorily. Our terms of reference did not direct us to deal specifically with this subject.

5. This Paper starts with three chapters describing the present system. outlines the history of enforcement, from Independence to the present. It describes certain episodes of high profile tax evasion and also emphasises the changes of the last decade or two, in particular the introduction of self assessment and the recent modernisation and reorganisation of the Revenue Commissioners. deals with civil penalties, highlighting the possible impact of the European Convention on Human Rights. The statutory provisions governing the imposition of penalties is set out in Appendix B, being in column one to Schedule 29 Taxes Consolidation Act 1997 (“TCA 1997”). The appeal mechanisms available to challenge tax assessments are outlined in detail in . In addition to outlining the operation of the present system, addresses a number of specific reforms to the civil revenue jurisdiction, which is presently vested in the Appeal Commissioners, the Circuit Court and Superior Courts. considers whether a separate civil revenue court should be created.

6. The remaining chapters deal with the treatment of revenue offences. scrutinises offences, including statistics in respect of prosecutions actually brought. It also deals with prosecution policy in Ireland and in the United Kingdom. (Figures for prosecutions in the UK are in Appendix C). describes the workings of the public prosecution system, and surveys the existing system for bringing revenue prosecutions. It also considers changes, in particular, the possibilities of replacing the Director of Public Prosecutions (in the revenue field) by a separate Director of Fiscal Prosecutions; and secondly raises the question for discussion of merging the prosecution and investigation functions in the one office. sets out the case for various radical changes to the existing criminal trial system including a specialised revenue court.

7. summarises our recommendations and conclusions. Our recommendations are relatively moderate. They should perhaps be seen in the following context. First, this is a time of great flux: the new arrangements sketched in are still bedding down; and other reviews (see paragraph ), including one by the Revenue Powers Group, which is to report to the Minister for Finance by 31 October 2003. Secondly, the core responsibility of the Revenue Commissioners is to enforce compliance with the Tax Acts. Prosecution of tax offences is only one of the many ways of dealing with tax recalcitrance. It is only used, here and in other jurisdictions, in the most serious of cases. The experience in comparable jurisdictions is set out in Appendix A, where we consider the system used for the collection of revenue in two other countries, the Netherlands and New Zealand. Thirdly, we have considered not only the possible ways of improving the prosecution system, but also any points in respect of which the position of the taxpayer requires stronger protection.

8. The Commission invariably publishes in two stages: first, the Consultation Paper and then the Report. The Paper is intended to form the basis for discussion and accordingly the recommendations, conclusions and suggestions contained herein are provisional. The Commission will make its final recommendations on this topic following further consideration of the issues and consultation, including a colloquium attended we hope by a number of interested and expert people (details of the venue and date of which will be announced later). Submissions on the provisional recommendations included in this Consultation Paper are also welcome. Secondly, the Report also gives us an opportunity which is especially welcome with the present subject not only for further thoughts on areas covered in the Paper, but also to treat topics, not yet covered. In order that the Commission’s final Report may be made available as soon as possible, those who wish to make their submissions are requested to do so in writing to the Commission by 31 October 2003.

1. History of Enforcement

   1. The Early Years

1. Following the establishment of the First Dáil Éireann, a new Department was created for the collection of income tax which would otherwise have been payable to the Inland Revenue.³ From April 1920, the IRA carried out raids on Inland Revenue offices, which effectively ended tax collection in southern Ireland until the establishment of the Free State. However, following the ending of the War of Independence and the signing of the Anglo-Irish Treaty,⁴ the Irish and British authorities reached agreement in relation to the collection of taxes. Article 74 of the Constitution of Saorstát Éireann provided that nothing in the Constitution was to affect liability to pay tax in the year 1922-23 or previous years.

2. The Irish Free State Government, recognising that it could not function without revenue, established the Revenue Commissioners, even before the establishment of a general civil service structure. The Office of the Revenue Commissioners was established by the Revenue Commissioners Order 1923.⁵ The Order provided for a single Board of Revenue Commissioners, consisting of three Commissioners. One of the three Revenue Commissioners acts as Chairman and Accounting Officer. The Revenue Commissioners were assigned responsibility for tax assessment and collection. This was previously performed in Ireland by the British Inland Revenue and Customs and Excise authorities.

3. Although the Order provided for ministerial control over the Revenue Commissioners, it was recognised as essential that there should be no room for favouritism, nepotism or discrimination in the process by which the State collects tax from its citizens. Accordingly, from the early days the principle of independent administration was incorporated into the relationship between the Minister and the Revenue Commissioners. The Minister for Finance, Mr WT Cosgrave explained the relationship in the following manner:

“While the Revenue Commissioners will be responsible directly to the Minister for Finance for the administration of Revenue Services, the Commissioners will act independently of Ministerial control in exercising the statutory powers vested in them in regard to the liability of the individual tax payer.”⁶

4. This principle reflects the right of citizens to have their tax liability determined in accordance with statute, “without any political colouration in operations or interpretation.”⁷

5. The Office of the Revenue Commissioners was originally divided into the following departments: Customs and Excise, Income Tax, Estate Duty Office, Revenue Secretariat, Common Services, the Stamping Office and the Revenue Solicitor. Customs & Excise represented the largest part of the Office and was responsible for over 75% of revenues then collected. The assessment and collection of income tax, sur-tax and corporation profits tax was controlled by the Chief Inspector of Taxes. The Estate Duty Office dealt mainly with Death Duties. The Revenue Secretariat was involved in framing Revenue legislation, budget proposals and changes in taxation or duties. It was also required to ensure uniformity of practice throughout the country. The Stamping Branch was responsible for Government security printing. The Revenue Solicitor handled the legal issues involved in the assessment and collection of taxes.

6. Despite the express provision of Article 74 of the 1922 Constitution, referred to in paragraph , tax liabilities accrued prior to the Anglo-Irish Treaty remained in arrears. The right of the Revenue Commissioners to collect tax for years prior to 1922 was challenged but upheld by the Supreme Court in the Reade case.⁸ The Government introduced an amnesty for those making full disclosures made prior to 20 November 1923. However, this failed to result in the payment of tax arrears. The matter was finally resolved by the 1932 Budget. Taxpayers were required to furnish the Revenue Commissioners, by 31 December 1932, with accounts and information needed to compute the underpaid tax. In return for this, the Revenue Commissioners accepted a sum not exceeding seventy-five per cent of the total of all duties underpaid from 1914 as full settlement. There were no further penalties, and no interest was charged. The Budget purported to deal strictly with those who failed to take advantage of these concessions.

7. In 1932 the Minister for Finance, Mr Sean MacEntee, proposed extending the Revenue Commissioners’ powers to making Excess Profits Duty assessments in order to facilitate the bringing to book of taxpayers who refused to take advantage of this concession. He also committed himself to exploring “every method by which the law can be tightened up, so as to secure the punishment, if necessary by imprisonment, of taxpayers who in the future offend in this respect [income tax frauds].”⁹ He regarded “the protection of honest taxpayers from the fraudulent practices of dishonest ones [as] clearly the duty of the legislature”.¹⁰

8. The Revenue Commissioners continued to pursue tax evaders. Following this objective, an Investigation Branch had already been established in Dublin Castle in the 1920s, as “soon as staffing conditions began to permit”.¹¹ The Investigation Branch was staffed by experienced tax inspectors. It was given the task of identifying individuals who concealed all or part of their income and was required to assist those individuals in putting their tax affairs in order.¹²

9. Pursuing a similar theme, the Commission on Income Taxation was established in the 1957-58 to “enquire generally into the [present] system of taxation of profits and income, its scope and structure, including the provision for collection and for the prevention of evasion; its effects on the national economy, and the equity of its incidence…”.¹³ In response to recommendations contained in the Commission’s First Report, the Finance (No 2) Act 1959 introduced the “‘Pay As You Earn’ (PAYE) system for taxing salaries and wages.¹⁴ The Revenue Commissioners reported to the Commission on Income Taxation in January 1958 that there were as many as “80,000 taxpayers who owed tax for one or more years since 1950-51”.¹⁵

10. In response to the recommendations concerning tax evasion contained in that Commission’s Seventh Report, the Revenue Commissioners were granted new powers to tackle evasion by the Finance Act 1963. Section 16 of the 1963 Act required taxpayers to either deliver or produce their business records and gave the Revenue Commissioners the power to take copies. A complete review of the penalties section was also undertaken and as a result Part VIII of the 1963 Act introduced penalties for failing to make returns or for fraudulently or negligently making certain returns (see paragraphs - and - for a discussion on the present law on civil penalties).

11. The Revenue Commissioners continued their campaign against tax evasion in the late 1970s. By then, the burden on the PAYE tax-payer was significant and was the subject of high-profile political complaints. One element of these protests was the belief that the self-employed sector of the community, including farmers, was not paying an equitable share. In response to these complaints, the Commission on Taxation was established in 1980.¹⁶ Special Enquiry units to tackle the black economy were also established. The units identified 10,000 new cases of tax liabilities in 1979, their first year of operation.¹⁷

12. Prior to 1983, various tax acts had specified penalties for certain revenue offences. However, the maximum penalty was six months imprisonment. The “offences related mainly to making or assisting in the making of false statements or false representations for the purpose of obtaining any allowance, reduction, rebate or repayment of tax.”¹⁸ The Finance Act 1983 extended the variety of offences and increased the potential penalties to a maximum fine of IR£1,000 (€1,270) and imprisonment not exceeding 12 months on summary conviction and a maximum fine of IR£10,000 (€12,700) and 5 years imprisonment.¹⁹

2. New Era

13. Self-assessment was introduced in respect of non-PAYE income in 1988, on foot of recommendations contained in the Fifth Report of the Commission on Taxation.²⁰ It was subsequently adopted for corporation tax and capital gains tax. Prior to the introduction of self-assessment, an amnesty was introduced to clear arrears.²¹ The introduction of self-assessment was a watershed. The onus to ensure compliance with tax obligations was shifted from the Revenue Commissioners to the taxpayer. Taxpayers were obliged to submit returns themselves, without receiving an estimated assessment from the Revenue Commissioners. The self-assessment system was intended to lead to the “more prompt collection of tax, more efficient use of revenue resources, concentrating on where there is a genuine need”.²² The philosophy underlying the system was to shift responsibility for submitting correct returns to the taxpayer and thereby create more time for the Revenue Commissioners to audit cases to verify the accuracy of returns (see paragraphs - for a discussion on the functions of audits).

14. About the same time, the Revenue Commissioners began to focus on voluntary compliance, improving communications and increasing public confidence. In 1989, the Revenue Commissioners first published a Charter of Rights, to inform customers of their rights when conducting business with the Revenue Commissioners. In 1993, the Government introduced another amnesty, collected IR£260 million (€330.13 million) but also encouraged much cynicism about short-term expediency and unfair favouring of the sector culpable of often deliberate long-term tax evasion.²³

15. As we shall see in paragraphs -, in the 1990s, side by side with the self-assessment system, the Revenue Commissioners pursued a stronger prosecution policy²⁴

3. High Profile Tax Evasion

   1. The Tribunals of Inquiry

16. In 1994, a Tribunal of Inquiry into the Beef Processing Industry (the Beef Tribunal) discovered massive tax evasion at Goodman International and its subsidiary companies.²⁵ The company paid employees under the counter, operated a special remuneration scheme for its senior executives and deliberately did not return PAYE and PRSI from many of its employees.²⁶ A total of IR£5.5 million (€6.98 million) of payments were made to employees of the Goodman Group between 1987 and 1990 without the appropriate statutory deductions being made. The Revenue Commissioners did not discover the tax evasion scheme until the evidence was uncovered by the tribunal.

17. The Tribunal of Inquiry (Dunnes Payments), popularly known as the McCracken Tribunal, established that payments were made to and benefits conferred on certain persons who were members of the Houses of the Oireachtas between 1 January, 1986, and 31 December, 1996. The former Taoiseach Mr Charles J Haughey was found to have received over IR£1 million (€1.27 million) from Mr Ben Dunne. Payments to the former Fine Gael Minister Mr Michael Lowry were also uncovered. Both men had evaded paying tax on these gifts. However, the terms of reference of the Tribunal did not extend to investigating these payments.

18. Therefore, a new Tribunal, the Moriarty Tribunal was established in September 1997 to investigate both the payments to Mr Haughey and Mr Lowry. Its terms of reference include the making of recommendations “for the protection of the State’s tax base from fraud or evasion in the establishment and maintenance of offshore accounts, and to recommend whether any changes in the tax laws should be made to achieve this end.”²⁷ The Tribunal was requested to examine the independence of the Revenue Commissioners and whether the Revenue Commissioners “availed fully, properly and in a timely manner in exercising the powers available to them”²⁸ in collecting tax due by Mr Lowry and Mr Haughey. In addition, it is conducting inquiries into Ansbacher deposits to ascertain whether any payments were made to politicians from the deposits, and, if so, from where did the money originally came from.²⁹ Various tax reforms are said to wait on the final report of the Moriarty Tribunal.

1. The Ansbacher Report

19. The McCracken Tribunal was the first to uncover what has become known as the Ansbacher deposits.³⁰ This led to the discovery of evidence suggesting that numerous revenue offences were committed by some leading politicians and business people in the 1970s and 1980s, who were taking advantage of a “system whereby Irish depositors could have their money off-shore, with no record of their deposits in Ireland.”³¹ In the wake of these discoveries, the then Minister for Enterprise, Trade and Employment, Ms Mary Harney, (“the Minister”) appointed an authorised officer in September 1997 to investigate Celtic Helicopters whose debts and a loan had been discharged and supported by Ansbacher deposits.

20. Following receipt of the confidential report of the authorised officer the Minister made an application under section 8 of the Companies Act 1990, to the High Court for the appointment of Inspectors to investigate and report on the affairs of Ansbacher (Cayman) Limited in September 1999. The Inspectors published their Report in July 2002. The Report concluded, inter alia, that the affairs of Ansbacher were conducted with intent to defraud a creditor of some of the bank’s clients, that is the Revenue Commissioners, and that Ansbacher may have committed a number of criminal revenue offences.

21. In addition, a Special Project Team within the Revenue Commissioners began investigating the Ansbacher accounts in October 1999.³² At the end of 2001, the Revenue Commissioners were investigating 191 Ansbacher type cases and other cases involving offshore funds and deposits. €21.86 million had been collected by way of settlement.³³

22. As of June 2003, the Revenue Commissioners were dealing with 289 cases: 62 cases involve “non-residents”, 12 availed of the 1993 amnesty, and the identity of account holders is unknown in four cases, six have been settled and 211 are being actively investigated. So far the Ansbacher investigation has yielded approximately €22 million in lost taxes. The Revenue Commissioners are continuing to pursue the tax lost and will consider prosecutions where there is a realistic chance of prosecuting successfully. The Chairman of the Revenue Commissioners, Mr Frank Daly has, however, noted that such prosecutions would be difficult as the evidence and documentation needed to bring a prosecution are offshore and some of the potential defendants are either offshore or dead.³⁴

1. The DIRT Inquiry

23. Press allegations of widespread tax evasion by Irish depositors through the use of bogus non-resident accounts emerged in 1998. ³⁵ There were various reactions to these revelations. First, the Finance Act 1999 introduced a number of new powers for the Revenue Commissioners. The Act extended the Revenue Commissioners’ powers in relation to: access to information and documents held by financial institutions and other parties with information; access to books, records and information in the possession of the taxpayer; and the verification of the returns made by financial institutions of deposit interest retention tax (“DIRT”).³⁶ The Revenue Commissioners would later use these powers both to establish the extent of DIRT underpayments by financial institutions in its look-back audit and to gain access to certain details relating to the Ansbacher accounts.³⁷

24. Secondly, the Comptroller and Auditor General (“C&AG”)³⁸ and the Committee on Public Accounts (“PAC”) carried out investigations which revealed the extent of the tax fraud and the public administration’s awareness of serious tax evasion.³⁹ The investigation by the Comptroller and Auditor General lead on to the Dáil PAC inquiry into the findings of the Comptroller and Auditor General. A Sub-Committee of the Dáil PAC on Certain Revenue Matters (“DIRT Inquiry”) was established for this purpose.

25. The DIRT Inquiry revealed large-scale tax evasion by both depositors and financial institutions taking deposits. Accounts had been treated by financial institutions as being exempt from deposit interest retention tax on the grounds that nobody ‘ordinarily resident’ in the State was beneficially entitled to interest on the account when, in fact, such a person was ordinarily resident in the State.⁴⁰ According to the Committee of Public Accounts, Sub Committee on Certain Revenue Matters, the Revenue Commissioners were also implicated in the scandal. The inquiry revealed the existence of SIM 263 which was “a general order to inspectors of taxes … instructing inspectors not to use powers of general inspection given to them under the law of declarations of non-residency, thus ensuring that the evasion would persist”.⁴¹

26. The DIRT Inquiry issued three reports. In its First Report in December 1999, the Public Accounts Sub-Committee recommended, among other things, that the Revenue Commissioners undertake a full look-back audit of all the financial institutions from April 1986 to 1998; that modern legislation providing a framework for the Revenue Commissioners be introduced; and that a review of the Revenue Commissioners’ independence, accountability, organisation and structure be undertaken. In response to the last of these recommendations, the Minister for Finance established a Steering Group to oversee an examination of Revenue.⁴²

27. The Steering Group, established by the Minister for Finance, submitted its findings to the Minister in August 2000 in a report commonly known as the “Blue Book”.⁴³ The Group recognised the need to restore public confidence in the Revenue Commissioners. It recommended the introduction of “greater transparency and accountability in the administration of the tax system to demonstrate that there is an objective and even-handed approach to all taxpayers”; ⁴⁴ a radical restructuring of the Revenue Commissioners’ organisation in order to meet the changing needs of taxpayers and continual adaptation of its voluntary compliance and tax evasion strategies. Some of its recommendations are discussed at paragraphs -.

28. The Second Report of the DIRT Inquiry reproduced a report outlining the Revenue Commissioners look-back audit, from April 1986 to 1998 which the Revenue Commissioners completed in 2000.⁴⁵ The Revenue Commissioners recovered a total of €220 million from the financial institutions, comprising DIRT which should have been deducted by the financial institutions, together with interest and penalties thereon. The Revenue Commissioners then sought recovery of the underlying tax liabilities, which related to the funds deposited in the bogus non-resident accounts. Where a holder of a bogus non-resident account availed of the amnesty by making full-disclosure and paying the tax due prior to 15 November 2001, this disclosure was treated as a voluntary disclosure, and the aggregate amount of interest and penalties was limited to a maximum of 100% of the unpaid tax, then the Revenue Commissioners guaranteed not to bring a prosecution against the account holder.⁴⁶ 3,675 account holders availed of the opportunity to disclose voluntarily 8,380 accounts and paid €227 million.⁴⁷ The Revenue Commissioners have stated that they are now pursuing those who failed to make a disclosure or payment, targeting suitable cases with a view to criminal prosecution, recovering settlements with payment of full statutory interest and penalties and publishing the names and liability of defaulters.⁴⁸ Letters were issued in October 2002 and January 2003 to 35,000 accounts. By April 2003, €159 million has been collected as a result of these letters, which were issued after the incentive ceased in November 2001. The DIRT Inquiry has resulted in the collection of €606 million.⁴⁹

29. The DIRT Inquiry issued the final of its three reports in January 2001, in which it recommended a radical restructuring of the Revenue Commissioners. An overhaul of the Board of the Revenue Commissioners was recommended with the setting up of a new Board comprising three executive and three non-executive directors. However, the legislation required to introduce changes to the Board will not be published until after the Moriarty Tribunal has completed its work. It has been decided to await the report of the Tribunal as it may contain suggestions which will influence the content of the legislation since the Tribunal’s terms of reference include consideration of the independence of the Revenue Commissioners in the performance of their functions.⁵⁰ The DIRT Inquiry’s Final Report also recommended that the Department of Finance and the Office of the Attorney General carry out a more detailed consideration of the benefits of a Revenue Court and Fiscal Prosecutor.⁵¹ This recommendation was the basis for the Attorney General’s Reference in relation to the present Paper.

1. The Comptroller and Auditor General’s Examination of Revenue Write Offs

30. The C&AG discovered evidence of deliberate abuse of the tax system, when examining the circumstances in which the Revenue Commissioners wrote off larger tax cases in 2000. The C&AG’s 2001 Annual Report outlined, among other matters, the case of a property developer who availed of the tax amnesty in 1989 and had €442,000 corporation tax written off although he and his family were involved in 35 active property development companies worth more than €125m during the 1990s. The C&AG made the following observations on his findings to the Committee of Public Accounts:

“[A]ll the information available in Revenue was not brought to bear on the decision to write-off tax at the time … Particular risks to tax that arise in property development and the bar trade need to be addressed. Tax clearance certification needs to be applied more stringently. There is clearly a need for better co-ordination of the work of the Revenue Commissioners and the Companies Registration Office... The specific Revenue programme to combat the phoenix company syndrome needed to be broadened to cover all business activities associated with principals who had previously abused limited liability.”⁵²

31. In 2003 the Chairman of the Revenue Commissioners, Mr Frank Daly, stated that many of the shortcomings identified by the C&AG had already been rectified and that pursuit of the type of case highlighted would be radically different today. He outlined the Revenue’s response to the C&AG’s findings to the Committee of Public Accounts.⁵³ The Revenue Commissioners have increased their focus on the directors and principals behind companies. Mr Daly explained that

“[S]ince mid 2002, all limited company write-off cases over €75,000 are subject to a so-called commonality check. This is a check where the case worker examines all the linkages behind the case and, where appropriate, transfers that case to a dedicated pursuit unit now specialising in that type of work.”⁵⁴

32. Legal changes needed to combat deliberate non-payment of tax by companies, particularly in the public house, hotel and property development sectors are being explored. The Revenue Commissioners have had full access to the database of the Companies Registration Office since September 2000. It is anticipated that the “implementation of a new computerised risk analysis system in Revenue together with two data linking tools, links and profiler, already in place, will considerably improve” the availability of information on cases to Revenue staff.⁵⁵ The Revenue Commissioners are also “retrospectively applying the commonality checks in a look back at all business write-off cases in 2001 and early 2002 where tax written off exceeded €100,000.”⁵⁶

4. The Shadow Economy⁵⁷

33. The preceding Part highlighted some instances of high profile tax evasion. More generally, it is difficult to estimate the extent of the shadow economy in Ireland and there is no definitive system for doing so. A number of factors, other than the nature of the phenomenon itself and the complex economic analysis required to measure it, have been identified as contributing to the difficulty of establishing the extent of the shadow economy, including the following:

    1. until recently the political will to investigate these matters did not exist;⁵⁸

    2. the resources available to the Revenue Commissioners and the policies of enforcement operated influence the number of violations unearthed and recorded;⁵⁹

    3. extensive research by academics and other researchers has not been carried out in the area.

34. However, the Report on the Shadow Economy⁶⁰ referred to three studies which contained estimations of the extent of the shadow economy in Ireland. A study carried out in 1993 by economist Gabriel P Fagan, estimated the value of the shadow economy to be somewhere in the range of IR£0.65 billion (€0.83 billion) and IR£1.3 billion (€1.65 billion), which would be between 5% and 10% of GNP. The same economist carried out another study in 1997 which estimated the shadow economy to be between 3% and 11%. A study by another economist concluded that the shadow economy was worth over 17% of GNP for the year 1998-99.⁶¹ The Report on the Shadow Economy stated that “the shadow economy is an international phenomenon (studies suggest that its scale can vary, 20-30% of GDP in Mediterranean countries, 10% of GDP in the US)”.⁶²

35. The C&AG summarised the position in the following manner:

“[t]he damaging effect [of the shadow economy] goes further than the loss of tax revenue as an unfair advantage is given to operators in the black economy over compliant businesses and traders; there is a reduction in public confidence in the administration of tax; and, if a perception persists that the Revenue Commissioners are not effectively tackling non-compliance, the numbers operating in the black economy will grow.” ⁶³

1. The Moral Shift

1. It seems likely, that insofar as such matters may be judged, a moral shift in relation to the attitudes to tax evasion began to occur in the late 1990s. Although there were always compliant taxpayers who strongly resented tax evasion, a culture which failed to discourage tax evasion prevailed during the 1980s and before. However, the introduction of self-assessment, the lowering of tax rates and the introduction of tax clearance certificates which brought more people within the tax net helped to change the public’s attitudes towards tax evasion and tax evaders. For many reasons, those who were traditionally tax-recalcitrant became more eager to come within the system.

2. In the first place, compliance was seen as a good commercial choice. In addition to this, there has been a political shift both within the tax administration and the PAYE sector. Under the 1993 amnesty the taxpayer was obliged to pay 15% of the total of arrears without any interest or penalties applying. This amnesty presented a huge opportunity to all errant taxpayers to become compliant. There was a perception that if defaulters did not take advantage of this amnesty they did not deserve a second chance. The amnesty contributed to informing public opinion and attitudes on tax evasion.

3. The exposé of such high profile tax evasion as disclosed by the Beef, McCracken, Moriarty and Flood tribunals and the Ansbacher report and the absence of high profile tax prosecutions led to public discontent based on the perceived inequality in the application of the law as depending on the social status of the perpetrator and whether the accused was a powerful and influential white-collar criminal or a small time common thief.

4. However, despite the public abhorrence of the high scale of tax evasion, it has been suggested that a culture of tolerance towards the hidden economy still remains. The Grabiner Report into the “Informal Economy” in the UK concluded in early 2000 that “[m]ost people at some point pay cash in hand for household services, or pay cash in exchange for ‘discounts’. Even in the most trivial way, much of this may amount to turning a blind eye to tax evasion.”⁶⁴

5. Confidence in the administration and enforcement of the tax laws has diminished. It must be recognised that an inefficient tax administration encourages further tax evasion as there is no fear of adverse repercussions. The tax code itself will lose its acceptability if it is not being applied fairly and equally. The converse is that now there is a prosecution policy in place, provided this is implemented properly, a shift in culture should be encouraged. (See paragraphs -).

1. The Revenue Commissioners: Modernisation and Restructuring

1. The Revenue Commissioners have modernised and restructured their organisation in a number of ways in recent years. First, the “Revenue On-Line Service” (‘ROS’) was established in September 2000. ROS is an internet facility which enables taxpayers to file returns, pay tax liabilities, have access to their tax details, calculate their tax liability and claim repayments 24 hours a day, 7 days a week. Secondly, over 400 additional staff have been assigned to the Revenue Commissioners during the past two years.⁶⁵

2. Thirdly, the overall structure of the Office of the Revenue Commissioners is currently undergoing change. Under the old structure the administration had two principal divisions: taxes⁶⁶ and customs and excise. The Chief Inspector of Taxes was responsible for the administration of taxes.⁶⁷ On the other side there was the Customs and Excise division. The restructuring of the Revenue Commissioners has two themes. In the first place, it abolishes the division between taxes and customs and excise and will establish a single administration, with refocused divisions. Secondly, it adopts a more regional approach. The Office will be reorganised into the following divisions: an Investigations and Prosecutions Division, a Large Cases Division, two new National Office Divisions, four Legislation Services Divisions and four new Regional Divisions.

3. The Investigations and Prosecutions Division, established on 1 March 2002, was the first division put into operation. Its mandate is to advance tax and duty investigations and prosecutions. The Large Cases Division will be responsible for large businesses and high wealth individuals regardless of geographic location. It is expected that the Large Cases Division will assist the Revenue in its risk assessment and management of large taxpayers. The Division is currently “preparing a comprehensive analysis of the issues relating to large companies and wealthy individuals, in particular those which pose a risk to tax revenues across all the taxes and duties payable to the Exchequer. A computerised risk based selection system is also under development and will be brought into operation” in 2003.⁶⁸ The computerised system will “allow for the screening of all tax returns against sectoral and business profiles and will provide a sophisticated selection basis for cases for audit.”⁶⁹ The two new National Office Divisions are: the Strategic Planning Division, responsible for supporting “the Board in setting and reviewing corporate strategy and performance, including research, risk, security, governance issues and co-ordination of the annual business plans”;⁷⁰ and the Operations Policy Division, which will “co-ordinate the development of operational policy and support and guide the operational area in the identification and dissemination of best practice.”⁷¹ The four Legislation Service Divisions will be: the Direct Taxes Policy and Legislation Division; Direct Taxes Interpretation and International Division; the Indirect Taxes Division; and the Customs Division.

4. Four regional units will also be established: Border Midlands West Region; Dublin Region; East South-East Region; and South-West Region. The regional units will have responsibility for customer service, compliance and audit functions for all taxes and duties of customers within their respective geographical areas, with the exception of cases within the remit of the Large Cases Division. The restructuring should be complete by the end of 2003.⁷²

1. The Evolution of an Investigation and Prosecution Division

1. In 1985, the Commission on Taxation had concluded, contrary to popular opinion at the time, that it was “emphatically not the case that the criminal law has no role to play in tax enforcement.”⁷³ It recommended that the Revenue Commissioners and the Garda Síochána investigate the possibility of establishing a special unit within the Garda Fraud Squad to deal with suspected cases of revenue offences referred by the Revenue Commissioners.⁷⁴ During the period 1990-91, the Revenue Commissioners began to explore the possibility of prosecuting serious tax offenders. Their first port of call was the Garda Fraud Squad, as the Revenue Commissioners themselves did not have the power to refer cases for prosecution directly to the Director of Public Prosecutions (“DPP”). The Revenue Commissioners and the Garda Síochána implemented an arrangement for referring cases in 1991. However, after five years in operation, it was apparent that the arrangement was not a success. The Comptroller and Auditor General’s Annual Report for 1995 illustrated the extent to which the operation was defective. It reported that of the 20 cases, relating to tax evasion and fraud, referred to the Gardaí between 1990 and 1994, only one had reached the Courts by 1995.⁷⁵ A lack of understanding, on the part of both the Gardaí and Revenue Commissioners, of what was involved in the investigation of serious tax offences with a view to prosecution has been given as a reason for the arrangement’s lack of success. The “underlying tension between the policies and principles of tax collection and criminal justice” also hindered the success of the co-operation between the Revenue Commissioners and the Garda Síochána.⁷⁶

2. Accordingly, in 1996, the Revenue Commissioners decided to begin investigating cases themselves with a view to prosecution.⁷⁷ An effort to import the investigative prosecution culture, which has always existed on the customs and excise side into the tax side was made. It began to refer cases directly to the DPP.⁷⁸ The prosecution programme was initiated under the Revenue Commissioners’ Statement of Strategy, 1997-1999.⁷⁹ In their Statement of Strategy, the Revenue Commissioners committed themselves to turning their attention to the Black Economy, the prosecution of defaulters and the publication of defaulters’ names. It promised to “vigorously pursue non-compliance, be it for failure to furnish returns, failure to furnish correct returns, failure to comply with statutory obligations or outright evasion”.⁸⁰

3. A special Prosecutions Unit was established, within the Investigation Branch of the Chief Inspector of Taxes Office, to investigate cases involving possible revenue criminal offences. Their brief was to gather evidence with a view to reporting cases to the DPP, via the Revenue Solicitor.⁸¹ Revenue officers received training to develop the skills needed to detect serious tax offences and to meet the evidential requirements of criminal investigation. Since early 1997, an officer of the DPP’s Office, at Assistant Secretary Level, has been available to the Revenue Commissioners for the purposes of case referral and consultation.⁸² This official spends half of the working week in the Revenue Commissioners and meets with officers from what is now the Investigations and Prosecutions Division to discuss individual cases, evidential matters and any other issues which arise.⁸³ A second officer from the office of the DPP also spends half the working week in the Revenue Commissioners, and meets with officers from the Revenue Commissioners’ Investigations and Prosecutions Division to discuss evidential issues and such problems as arise in the course of an investigation.⁸⁴

4. Given the large number of offences which could be prosecuted and the few which actually are prosecuted, the manner of selection is a matter of great importance. Accordingly, at about the same time as the establishment of the Prosecutions Unit, an ad hoc body known as the Admissions Committee was also instituted.⁸⁵ The Admissions Committee was responsible for co-ordinating a nationwide approach to the selection of cases for prosecution. Auditors reported suspicious cases to the Admissions Committee, which performed a gatekeeper function. It examined the evidence and resources available and decided whether the case should proceed with a view to either prosecution or to civil settlement. It assessed whether the criteria for investigation for prosecution, set out in the Code of Practice for Revenue Auditors, were met or not. It remained possible to resume the audit with monetary settlement in mind, if the case was not accepted by the Admissions Committee in Investigation Branch.⁸⁶ The Admissions Committee is to remain after 2002, though in a modified form.

5. The Investigations and Prosecutions Division forms one of the pillars of the reorganised Revenue. Additional staff have been assigned to the new Division “to give it the extra capacity it needs and to ensure that a reasonable number of serious evasion cases are investigated each year with a view to prosecution”.⁸⁷ When a case is identified as appropriate for prosecution by one of the new Regional Divisions,⁸⁸ it will be referred to the new Investigations and Prosecutions Division.

6. Currently, there are fourteen tax personnel in the Investigations and Prosecutions Division. These have been augmented by 25 customs and excise personnel. This number is expected to increase in the coming years.

7. The Revenue Commissioners employ five accountants on a contract basis. These accountants were recruited to work on complex transactions and not specifically with the Investigations and Prosecutions Division. However, they are available to the Investigations and Prosecutions Division if required. A number of other staff with the Revenue Commissioners are also qualified accountants and the staff in general, although not accountants will be familiar with the principles of accounting as accountancy training is provided to staff working on the tax side. The Revenue Commissioners also organise forensic training courses for staff involved in complex audits across the organisation and not just from the Investigations and Prosecutions Division.

8. Although, the only specialist legal expertise within the Revenue Commissioners is provided by the Revenue Solicitor’s Office, the Investigations and Prosecutions Division also employ legally qualified personnel. For example, the head of the Division is a barrister.

9. The Investigations and Prosecutions Division also has information technology expertise available to it from within the general organisation. If the Division needs forensic expertise, it will call on the Gardaí for assistance.

10. The Revenue Commissioners have committed themselves, to establishing the office “as an organisation which has no tolerance of tax evasion”.⁸⁹ It will achieve this through, among other things, the use of prosecutions.⁹⁰ However, it remains worth emphasising that the main drive against tax evasion continues to be conducted through Revenue audit and investigation programmes (see paragraphs - and -).⁹¹ More recently in its Statement of Strategy 2003-2005, the Revenue Commissioners have affirmed their commitment to making “compliance easy while making non-compliance very unattractive”⁹² by pursuing a balanced approach combining “a sharp, uncompromising response to evasion and default while providing high quality services to compliant tax and duty payers.”⁹³ The first goal outlined by the Revenue Commissioners in its Statement of Strategy is to maximise compliance with Tax and Customs legislation. One strategy through which this will be achieved is deterring, detecting and prosecuting tax evasion and smuggling and other breaches of Tax and Customs legislation.⁹⁴

11. One recent development which does not feature in this Paper is the Criminal Assets Bureau (CAB), set up under the Criminal Assets Bureau Act 1996. The CAB adopts an innovative approach to the fight against organised crime. The Garda Síochána, Revenue Commissioners and the Minister for Social and Family Affairs have pooled their expertise, knowledge, resources and statutory powers in order to target the assets of those engaged in crime, and those enjoying the benefits of such assets. The wealth, as distinct from the offender, is the primary target. The powers available to CAB include not only the confiscation of assets, derived or suspected of being derived from criminal activity; but also ensuring that such assets are subjected to tax. Thus the Revenue officers in the Bureau are empowered to charge to tax, profits or gains from an unlawful or unknown source. The reason why we are saying no more in this Paper about the CAB is that, while its statutory remit is characterised broadly as: “criminal activity”, in practice, it has concentrated on activity which is suspected as being the result of organised crime. As indicated above, its armoury includes the powers of the Revenue Commissioners; but it is most unlikely that the CAB would ever take action against a person for revenue offences, unless there was some underlying suspicion of other, general crime.⁹⁵

1. Recent Reviews⁹⁶

1. Recent enquiries include the DIRT Inquiry, the Steering Group and the Revenue Powers Group.⁹⁷ The DIRT Inquiry was established to inquire into evasion of Deposit Interest Retention Tax by both depositors and financial institutions which took and held, and at times encouraged such deposits. (See paragraphs -). The Steering Group was established in response to a recommendation that a review of the Revenue Commissioners’ independence, accountability, organisation and structure be undertaken in the first of the DIRT Inquiry’s three reports. (See paragraph ). The Minister for Finance established the Revenue Powers Group in April 2003 to examine the main statutory powers available to the Revenue Commissioners. The Group is composed of individuals with a broad range of professional and practical experience and has been requested to report by the end of October 2003.

2. Civil Penalties

   1. Introduction

      1. Taxes Acts

1. The Taxes Consolidation Act 1997 (“TCA 1997”) was introduced to consolidate the voluminous legislation on Income Tax, Corporation Tax and Capital Gains Tax.⁹⁸ Gift and Inheritance Tax is governed by the Capital Acquisitions Tax Consolidation Act 2003.⁹⁹ VAT is governed by the Value-Added Tax Act 1972, as amended, and the legislation governing stamp duty was consolidated in the Stamp Duties Consolidation Act 1999. This chapter discusses the penalty provisions of the TCA 1997.

1. “Care and Management”

2. The primary function of the Revenue Commissioners is to enforce compliance with the Taxes Acts through collecting taxes and a key objective of the Revenue Commissioners is to meet the annual budget target set for them by the Department of Finance. To this end the Revenue Commissioners have been assigned responsibility for the “care and management” of all duties and tax.¹⁰⁰ Section 849(2) provides that “[a]ll duties of tax shall be under the care and management of the Revenue Commissioners.” Section 849(3) goes on to provide that:

“the Revenue Commissioners may do all such acts as may be deemed necessary and expedient for raising, collecting, receiving and accounting for tax in the like and in as full and ample a manner as they are authorised to do in relation to any other duties under their care and management…”

1. The Tax legislation provides the Revenue Commissioners with an impressive armoury of powers with which to perform their functions: and the ‘care and management’ provision allows the Revenue Commissioners extensive discretion in relation to the manner in which they perform those functions. The Revenue Commissioners can choose to proceed either by way of a civil claim or a criminal prosecution. ‘Civil’ is used to distinguish civil from criminal sanctions; one could, perhaps, have used the expression ‘non-criminal’ in the place of ‘civil’ since the so-called civil penalties come very close to the borderline between civil and criminal classification as is clear from the case law on the issue (see paragraphs - and -). This Chapter will consider civil breaches of the tax code and the corresponding civil penalties.

1. Self-Assessment

1. It is a fundamental principle of the self-assessment system that returns filed by taxpayers form the basis for the calculation of tax liability. The self-assessment system imposes a legal obligation on all taxpayers to return a signed declaration of tax liability in respect of all non-PAYE income.¹⁰¹ If the Inspector of Taxes accepts the tax liability calculation in the taxpayer’s return, the taxpayer receives a short Notice of Assessment, setting out the sum due. On the other hand if the Inspector does not agree with the taxpayer’s calculation and believes that an ‘underpayment of tax’ arises, the Inspector will issue a detailed Notice of Assessment.

2. The Revenue Commissioners are heavily reliant on the filing of accurate tax returns. Unless taxpayers voluntarily comply with their obligations to file accurate tax returns, the self assessment system could not function as a reliable means of collecting taxes. To encourage voluntary compliance and to verify the accuracy of the returns submitted, the Revenue Commissioners place a large emphasis on audit and investigation programmes. The prominence of the audit function in the enforcement of tax law arises because of the nature of the self-assessment system itself. It would defeat the purpose of self-assessment if the Revenue Commissioners were obliged to check the accuracy of every return. Instead, the Revenue Commissioners select only a percentage of all tax returns filed and check the accuracy of the returns.

1. Audits

1. “A Revenue audit is a crosscheck of the information and figures shown by you in your tax returns against those shown in your business records.”¹⁰² A Revenue audit covers returns for the following taxes: Income Tax, Corporation Tax or Capital Gains Tax, VAT, PAYE/PRSI or Relevant Contracts Tax (“RCT”). The Revenue Commissioners conduct, on average, 17,000 audits per year, in other words, 4 to 5 per cent of the self-assessed tax base.¹⁰³

2. The Revenue Commissioners use three methods to select cases for audit. The first category of cases are selected by screening the tax returns. This “involves examining the returns made by a variety of taxpayers and reviewing their tax compliance history. The figures are then analysed in the light of trends and patterns in the particular business or profession and evaluated against other available information.”¹⁰⁴ The Revenue Commissioners will generally analyse returns which have previously been filed late, inaccurately or not at all. Secondly, the Revenue Commissioners also carry out examinations of particular trades or professions from time to time (under the ‘projects on business sectors’). Thirdly, the Revenue Commissioners select certain cases, at random. Since 2001, 6 per cent of the audits have been selected randomly.¹⁰⁵ Additionally, the Revenue Commissioners are in the process of developing a computerised risk based selection system. A significant point to note is that taxpayers whose main source of income comes within the PAYE sector are generally not selected for audit although PAYE taxpayers are obliged, under the self assessment system to file returns and pay the correct amount of tax in respect of all non-PAYE income.

3. Revenue audits can take a number of different forms, such as desk or field audits¹⁰⁶ and they can range from an audit under a single tax head to a comprehensive audit covering several tax heads.¹⁰⁷ Audits are not defined in the TCA 1997 but the Revenue Commissioners’ capacity to carry out audits derives from its legal capacity to gain access to information and to question the taxpayer and others in order to carry out its statutory functions.

4. The audit programme has a range of functions which include:

• “determining the accuracy of a return, declaration of tax liability or claim to repayment for VAT, PAYE and PRSI;

• identifying additional liabilities or other matters requiring adjustments, if any;

• collecting the tax, interest, and penalties, where appropriate;

• publishing the defaulter’s name under the provisions of Section 1086 Taxes Consolidation Act 1997, where it applies;

• specifying remedial action required to put taxpayers on a compliant footing where errors or irregularities are discovered during the course of the audit;

• considering what procedural or other changes are necessary to facilitate counter-evasion activities;

• where strong indications of serious tax evasion emerge in cases, referring them to Prosecution Division to evaluate suitability for prosecution.”¹⁰⁸

10. If an underpayment of tax is discovered, the auditor and the taxpayer will typically enter negotiations in order to reach a monetary settlement to cover the underpayment of tax, interest and penalties. Settlements are considered a pragmatic and effective way for the Revenue Commissioners to collect unpaid tax while garnering the overall revenue of the State. The total net revenue receipts collected in 2000 were IR£21,420 million (€27,198 million). IR£283.2 million (€359.59 million) of this total was collected as a result of revenue audits.

11. The Code of Practice for Revenue Auditors identifies the limits of an Audit Manager’s authority to approve monetary settlements. An Audit Manager may approve settlement offers which do not exceed €50,000 inclusive of tax, interest and penalties. An Assistant Secretary may approve offers up to €100,000 but acceptance of offers in excess of €100,000 requires the approval of a Revenue Commissioner. Where publication in accordance with Section 1086 TCA 1997 is being considered all offers are also submitted to an Assistant Secretary or Revenue Commissioner for approval. Such offers are accompanied by a report which carries the auditor’s recommendation for acceptance or otherwise.

1. Assessment to Tax

12. Where in the opinion of the auditor, there is an underpayment of tax and where no voluntary disclosure or offer to make good the underpayment of tax is forthcoming, the Revenue auditor will quantify the underpayment, in addition to the interest and penalties, if any, which are due. The taxpayer is obliged to make good the difference between the amount of tax actually paid and the amount payable. After the assessment is raised the taxpayer may agree with the Revenue Commissioners’ assessment and pay the amount due. If the taxpayer disagrees with the assessment, he or she may invoke one of the available appeal mechanisms.

13. In enforcing this obligation, the Revenue Commissioners have a number of options.¹⁰⁹ The main alternatives are either criminal prosecution or civil methods. Civil recovery may result from a monetary settlement reached between the Revenue Commissioners and the taxpayer. When faced with the choice of proceeding via criminal prosecution or civil recovery the Revenue Commissioners have in the past usually opted for civil methods. However, in recent years, (see paragraph -) a greater emphasis has been placed on identifying cases with a view to investigation for prosecution.

2. Civil Sanctions

   1. Introduction

14. The Revenue Commissioners have been granted statutory authority to impose administrative penalties on errant taxpayers in order to encourage compliance with the Tax Acts.¹¹⁰ On the civil side, there are four elements to the amount for which the taxpayer may be liable. First, there is the amount of tax, secondly a civil penalty¹¹¹, thirdly interest and finally a surcharge. Chapters 1 to 3 (section 1052-77) of Part 47 TCA 1997 are principally, concerned with ‘civil penalties’ as opposed to the criminal penalties provided for under the heading ‘Revenue Offences’ in Chapter 4 (sections 1078-79) of the same Part.¹¹²

1. Part 47 Penalties, Revenue Offences, Interest on Overdue Tax and Other Sanctions

15. The following is a list of all the civil penalties contained in Part 47:¹¹³

Chapter 1 Income tax and Corporation tax penalties

• Penalties for failure to make certain returns and other matters (section 1052);

• Penalty for fraudulently or negligently making incorrect returns and other matters (section 1053);

• Increased penalties in the case of a body of persons, for example, companies (section 1054);

• Penalty for assisting in making incorrect returns and other matter (section 1055);

• Fine for obstruction of officers in execution of duties (section 1057);

• Refusal to allow deduction of tax (section 1058);

Chapter 2 Other Corporation Tax Penalties

• Penalties for failure to make certain returns (section 1071);

• Penalties for fraudulently or negligently making incorrect returns and other matters (section 1072);

• Penalties for failure to furnish particulars required to be supplied by new companies (section 1073);

• Penalties for failure to give notice of liability to corporation tax (section 1074);

• Penalties for failure to furnish certain information and for incorrect information (section 1075); and

Chapter 3 Capital Gains tax penalties

• Penalties for failure to make returns and other matters and for fraudulently or negligently making incorrect returns and other matters (section 1077).

1. Mitigation of Penalties

16. A major feature of the civil settlement system is that the Revenue Commissioners may mitigate any fine or penalty. The power to do this is found in section 1065 TCA 1997 which provides that the Revenue Commissioners or the Minister for Finance may:

“mitigate any fine or penalty, or stay or compound any proceedings for the recovery of any fine or penalty, and may also, after judgement, further mitigate the fine or penalty, and may order any person imprisoned for any offence to be discharged before the term of his or her imprisonment has expired.” ¹¹⁴

17. The element of discretion is somewhat controlled by the Code of Practice, which contains a number of guidelines as to how an auditor should determine the appropriate level of mitigation in specific cases. The first consideration is the type of ‘tax default’ involved, that is whether the default is considered deliberate, or occurred because of gross carelessness or insufficient care. Secondly, the level of co-operation given by the taxpayer is also taken into consideration.¹¹⁵ However, a large amount of discretion remains, for example, the line between gross carelessness and insufficient care can be hard to determine. In addition whether a disclosure is considered to be a “qualifying disclosure” can significantly influence the extent to which mitigation is available. The Code of practice provides that in order to amount to a qualifying disclosure, there must be full disclosure, certain mandatory statements must be included; it must be signed by or on behalf of the taxpayer; and be accompanied by payment. The disclosure can either be prompted or unprompted and finally, certain disclosures are excluded. The following table is an extract from the Code of Practice¹¹⁶ setting out the percentage remaining, after mitigation, in each type of tax default, taking into account the level of co-operation and whether there has been a qualifying disclosure, prompted or unprompted.

Table A: Mitigation of Penalties

1. If the aggregate amount of tax in respect of which penalties are computed is less than €3,000 and the default is exclusively in the “Insufficient Care” category, a penalty will not be imposed.

2. The British Inland Revenue adopt a similar approach to the mitigation of penalties. However, a significant difference between the Irish and British approaches to the mitigation of fines arises in relation to the avenues of appeal open to the taxpayer in Ireland. Under the Irish TCA 1997, the taxpayer can only appeal the Revenue Commissioners’ assessment to tax, not the penalties. The only way in which a taxpayer can challenge the penalties imposed by the Revenue Commissioners would be through the use of judicial review in the High Court or, if the Revenue Commissioners take civil proceedings to enforce the debt, then the taxpayer may seek to argue before the court that the penalty was not actually due. The taxpayer may appeal the penalty through the Revenue Commissioners’ internal appeal mechanisms, outlined at paragraphs -. By contrast, in the UK the taxpayer has a right of appeal from the Inspector’s assessment of tax,¹¹⁷ penalties¹¹⁸ and interest¹¹⁹ to the Tax Appeal Commissioners¹²⁰ and from there to the courts.

1. Surcharge¹²¹

1. The Revenue Commissioners may impose a surcharge, under section 1084(2)(a), where a return is not submitted on time.¹²² The surcharge is based on a percentage increase in the total tax payable for the year for which the return is late and is subject to a gradation of the surcharge by reference to the length of the delay in filing, as well as being subject to an overall cap on the level of the surcharge.¹²³ Where the delay is less than two months, the surcharge will be 5 per cent of that amount of tax, subject to a maximum of €12,695 extra tax for delays in filing of less than two months, and if the delay exceeds two months, the surcharge will amount to 10 per cent of that amount of tax, subject to a maximum of €63,485 extra tax for delays in filing of two months or more.¹²⁴

1. Interest

1. Where the auditor and the taxpayer agree on an audit settlement an assessment will not be made. However, if the auditor is obliged to make an assessment and to refer the tax for enforced collection, statutory interest will arise from the original due dates up to the date of payment.¹²⁵ “In general, Auditors (as distinct from investigators operating in Investigation Branch) will not seek to impose penal interest under Section 1082, Taxes Consolidation Act 1997.”¹²⁶

1. ‘Name and Shame’

1. Section 23 of the Finance Act 1983 introduced the ‘name and shame’ procedure. Section 1086 TCA 1997 re-enacts the provision, which provides that the Revenue Commissioners shall compile a list with a taxpayer’s details (name, address and occupation) in two situations: first, where a fine or other penalty was imposed by a court under the Acts, in relation to tax; or where the person is someone with whom the Revenue Commissioners have agreed not to initiate proceedings and have reached a settlement involving the payment of any tax, interest on that tax, and a fine or other monetary penalty in respect of that tax. The list is divided into two parts, the first containing details of all fines imposed by the court, whether in criminal proceedings for failing to file returns or evasion or in civil proceedings seeking to recover the tax. The second part contains particulars of settlements reached. The list must be published in Iris Oifigiúil.¹²⁷ Once the list is published in Iris Oifigiúil it is a matter of public record.

2. However, significantly, the obligation to publish in Iris Oifigiúil does not apply in the following circumstances:

1. where a taxpayer has made voluntary disclosure;

2. where “section 72 of the Finance Act, 1988 or section 3 of the Waiver of Certain Tax, Interest and Penalties Act, 1993, applied”;¹²⁸

3. the liability does not exceed €12,700 or

4. where the amount of the penalty does not exceed 15% of the tax involved in the settlement.¹²⁹

24. Although, the Revenue Commissioners are obliged to publish any settlement falling within the categories of settlements in section 1086(2) TCA 1997, there are a number of points at which discretion can be exercised to ensure that a settlement falling outside the scope of settlements which must be published under section 1086 is reached. For example, the settlement figure could be calculated so that the aggregate of the underpaid tax, penalties and interest will not exceed €12,700 and thereby publication is avoided. The Code of Practice contains guidelines as to how penalties will be calculated, however due to the number of considerations which arise in determining the extent to which a penalty can be mitigated, discretion can be exercised, for example, in determining what category of tax default is involved or what level of co-operation will be attributed to the taxpayer’s conduct.¹³⁰

25. The Revenue Commissioners also have the power to publish the list “in whole or in part, in such manner as they consider appropriate”, that is in places other than Iris Oifigiúil. Many citizens would undoubtedly be stricken with embarrassment at having their name appear in a list of tax defaulters and such a policy has probably helped to shift public opinion against recalcitrance and tax evasion. The Revenue Commissioners began publishing quarterly lists of defaulters on their website under section 1086 in April 2002. In addition, a copy of Part 2 of the list is provided to the newspapers in electronic form. The newspapers tend to publish Part 2 of the list in full but whether any or all of the names on the actual list is published is a matter for the particular newspaper concerned. The Irish Times, The Irish Independent and The Irish Examiner publish the lists. The figure published is the total amount which includes the tax, interest, and penalties which make up the settlement. The newspapers have freedom to pick the most colourful and not necessarily the most blameworthy of cases and this may detract from the long term effectiveness of the lists. It has been suggested that the impact of naming and shaming has been reduced as the value of the threshold diminishes with inflation. The perceived diminution in the effectiveness of naming and shaming is the basis for the recommendation in paragraph .

26. There are a number of ways in which a taxpayer can avoid publication. For example, if the taxpayer makes a “voluntary disclosure” (see paragraph ), publication will not result. While published Revenue materials contain guidelines as to what is considered to be a voluntary disclosure, there is no statutory or copper-fastened definition upon which a taxpayer can rely. Due to the Revenue Commissioners’ power to accept or reject a disclosure as “voluntary”, they have a large margin of discretion in relation to whether a settlement is published or not. An auditor can also facilitate non-publication if the penalty is computed separately. Auditors are instructed that:

“[g]enerally where the only penalties arising in a case are penalties for failure to lodge returns, the penalties should be computed separately and the taxpayer invited to pay them in full and thereby avoid publication for the year in which the penalty has been paid.”¹³¹

27. The Commission recommends that the Revenue Commissioners be responsible for publishing the lists in full, with a breakdown of the tax, penalties and interest involved, in at least two nationally circulated newspapers.

3. Recourse From Assessment

28. Where the taxpayer disagrees with the Auditor’s assessment, the taxpayer has a number of options, namely, one of the internal review procedures or the statutory appeal mechanism.

1. Internal and Joint Reviews

29. In the first place, the taxpayer may seek an internal review of the Auditor’s assessment of the underpayment of tax, the proposed penalties or publication of the settlement. There are a number of avenues of internal review. The review may be carried out, at local level by the District Inspector or Regional Director. If the taxpayer would prefer a review at a more centralised level, a request may be made that the review be undertaken by the Director of Customer Services (or a designated Principal Inspector of Taxes), either alone or jointly with an External Reviewer.

30. In 1999, due to the increase in the powers of the Revenue Commissioners and stemming from a perception that some taxpayers were reluctant to avail of these internal review procedures because they were undertaken by a Revenue official, the option of an internal review carried out with an external reviewer was introduced. ¹³² The Revenue Commissioners established a panel of individuals with relevant expertise to work as part-time external reviewers.¹³³ The posts were publicly advertised. One of the current external reviewers is an accountant, another is a solicitor and the third external reviewer is a barrister. They are employed under two year contracts, which may be renewed by the Revenue Commissioners.

31. Whilst there is no suggestion of a lack of independence and impartiality, it is inappropriate that responsibility for the appointment of external reviewers should rest with the Revenue Commissioners as they are a party to the appeal. In its submission to the Revenue Powers Group, the Law Society of Ireland has submitted “that the appointment of such [external] reviewers should be a regular and permanent function of a body other than Revenue.”¹³⁴

32. The Commission agrees with the recommendation of the Law Society of Ireland.

33. As a matter of policy within the Revenue Commissioners, decisions of the internal and external reviewers are binding on the Revenue Commissioners. These decisions are not binding on the taxpayer. Decisions of the internal and external reviewers may be further examined by the Ombudsman.

34. Interest will not be charged during the period of the review. Use of the internal mode of review of the Auditor’s assessment does not prejudice the taxpayer’s right to invoke the statutory appeal mechanisms.

Table B: Case Reviews 2001¹³⁵

1. Statutory Complaint and Appeal Mechanisms

35. There is a statutory right of appeal against the assessment of tax considered in the following paragraph but there is no statutory right of appeal against the level of penalties imposed or the extent to which penalties are mitigated by the Revenue Commissioners. The only way in which a taxpayer can challenge the penalties imposed by the Revenue Commissioners is through the use of judicial review or by declining to pay and forcing the Revenue Commissioners to take civil proceedings to enforce the debt under section 1061 TCA 1997 (See paragraph ). At this point, the taxpayer may seek to argue before the court that the penalty was not actually due. To date this has not arisen because the Revenue Commissioners do not take proceedings under section 1061 frequently.

1. The Appeal Commissioners¹³⁶

36. A taxpayer also has of right to appeal to the Office of the Appeal Commissioners. The Appeal Commissioners are independent of the Revenue Commissioners and are appointed by the Minister for Finance under section 850 TCA 1997. The Appeal Commissioners will be discussed in more detail in .

1. The Ombudsman

37. The Ombudsman Act 1980 (‘1980 Act’) provides the Ombudsman with jurisdiction to investigate acts of the Revenue Commissioners where a complaint has been made under the Act or where it appears to him that an investigation would be warranted.¹³⁷ Section 5 of the 1980 Act prohibits the Ombudsman from investigating any matters where the complainant has initiated legal proceedings or where an aggrieved person or entity has a statutory right of appeal to a court or a party other than a Department of State or other person specified in Part I of the First Schedule” to the Act.¹³⁸ The effect of section 5(1)(a)(iii) of the 1980 Act is to exclude from the Ombudsman’s jurisdiction complaints concerning assessments of tax because the aggrieved person or entity can go to the Appeal Commissioners. However, there is an exception to this general exclusion, which empowers the Ombudsman to investigate “if it appears … that special circumstances make it proper to do so.”¹³⁹ There is no appeal against the Revenue Commissioners’ mitigation of statutory penalties and so there is no bar to the Ombudsman hearing complaints in relation to such issues.

38. The Ombudsman has investigated complaints alleging delay on the part of the Revenue Commissioners and has recently issued reports on redress for taxpayers¹⁴⁰ and also on the Revenue Commissioners’ refusal to grant tax relief on vehicles adapted for the transport of passengers with disabilities.¹⁴¹ If the complaint is found to be valid, the Ombudsman may recommend repayment of the money to the taxpayer.¹⁴² The following tables give details of the number and outcome of complaints relating to the Revenue Commissioners made to the Ombudsman from 1998-2001.

Table C: Number and Outcome of Completed Complaints¹⁴³

4. Enforcement

39. If the taxpayer fails to pay either the agreed settlement or the amount as assessed by the auditor, the Revenue Commissioners may seek recovery of monies owed (including interest)¹⁴⁴ in three broad ways. First, where the courts are not involved, a sheriff or county registrar may seize goods, animals or other chattels belonging to the defaulter.¹⁴⁵ Secondly, again without involving the Courts, the Revenue Commissioners also have the power of attachment of amounts due to the tax defaulter from a third party, a similar process to garnishee.¹⁴⁶

40. Thirdly, the Collector-General or other authorised Revenue official may institute proceedings in the District, Circuit or High Court depending on the limits of the court’s jurisdiction for recovery of tax due.¹⁴⁷ In theory, where judgment is given against a taxpayer for non-payment of income tax, the court may order the imprisonment of the taxpayer.¹⁴⁸ These procedures may only be invoked in order to recover tax and interest.¹⁴⁹

41. Separate procedures, involving the courts, are established for the recovery of civil penalties. If a taxpayer refuses to pay a civil penalty, the auditor will report the case to the Revenue Solicitor for approval to initiate civil penalty proceedings. An authorised officer of the Revenue Commissioners may institute civil proceedings in the officer’s own name in the High Court for the recovery of the penalty.¹⁵⁰ This is a separate procedure from the enforcement of the tax and interest due, and for this reason perhaps, the Revenue Commissioners have not instituted many proceedings to recover civil penalties in the past. This trend may be changing. Penalties which were recoverable from a deceased may be recoverable from the estate.¹⁵¹

42. The Revenue Commissioners’ ability to raise an assessment when a taxpayer has failed to make a return, and the Collector-General’s power to issue a certificate to the sheriff to recover the amount due after an assessment has been raised, was challenged as being an administration of justice, which was being discharged by a body other than a court, thereby violating Article 34.1 of the Constitution. However in Kennedy v Hearne¹⁵² and Deighan v Hearne,¹⁵³ the Supreme Court rejected the argument that either the Inspector of Taxes or the Collector-General were involved in an administration of justice.

43. In Kennedy v Hearne, the plaintiff argued that section 7 of the Finance Act 1968, now section 989 TCA 1997, empowered “the Revenue Commissioners and/or the Collector-General to carry out functions which constitute the administration of justice...”¹⁵⁴ Section 7 provided that where the Revenue Commissioners had reason to believe that an employer had not remitted tax due, they could issue an estimated assessment. If the employer continued to fail to remit the tax, the Revenue Commissioners could bring section 485, sub-ss. 1 and 2 of the Income Tax Act 1967 into play. Section 485 empowered the Collector-General to issue a certificate to the sheriff to levy the sum certified as being in default by seizing all or any of the goods, animals and other chattels belonging to the defaulter. The Court rejected the plaintiff’s arguments on the following grounds:

“[t]here was not, at the date of the issue of the certificate to the Sheriff a justiciable controversy about whether any tax had been paid in which the Collector-General decided in favour of one contender against another.

The decision of the Collector-General to issue a certificate did not impose a liability on the taxpayer nor affect any of his rights, those being affected by his default in payment of a levied tax.

The issue of the certificate did not invade or oust any of the functions vested in the judges by Article 34 of the Constitution since even if a certificate were issued to the sheriff, as it was in that case, in error, the courts were empowered to intervene immediately, as they did, to resolve the issue between the taxpayer and the Collector-General.”¹⁵⁵

44. The Supreme Court adopted the same reasoning in Deighan v Hearne.¹⁵⁶ In this case the Collector-General issued a certificate specifying the tax owed by the plaintiff. The sheriff served a notice of seizure on the plaintiff for the sum as assessed by the Revenue Commissioners’ Inspector and certified by the Collector-General. The Supreme Court held that the power of the Inspector of Taxes under section 184 of the Income tax Act 1967, now section 922 TCA 1997, to make an assessment in default of return, and the Collector-General’s power to issue a certificate to a sheriff under section 485 of the 1967 Act, did not involve the administration of justice in breach of Article 34 of the Constitution.¹⁵⁷

45. The constitutionality of the Revenue Commissioners’ power of attachment was challenged in Orange v The Revenue Commissioners.¹⁵⁸ However, Geoghegan J in the High Court saw no merit in the argument that “the attachment procedure, without the intervention of a court order, is some form of executive administration of justice and, therefore, contravenes Article 34 of the Constitution.” The tax involved was an admitted liability and accordingly there was no justiciable controversy. Therefore there was no role for the courts in such a situation. Geoghegan J also rejected arguments alleging that section 73 of the Finance Act 1988¹⁵⁹ was an attack on the plaintiff’s right to earn a livelihood as guaranteed by Article 40 of the Constitution, nor was this an unjust attack on his property rights contrary to Article 43 of the Constitution.

5. Are ‘Civil Penalties’ Criminal in Character?

   1. Introduction

46. The question of whether the penalties that the Revenue Commissioners may impose ought to be properly classified as criminal in character has arisen in a number of cases. The significance of this question concerns the protections available to a taxpayer. If any penalties are properly classified as criminal charges, a taxpayer is entitled to certain minimum due process protections. In the past, this question has been answered by reference to the 1937 Constitution. In the near future, the question will need to be examined under the European Convention on Human Rights, in light of its impending incorporation into domestic law. This Part will discuss relevant Irish constitutional case law, the European Convention on Human Rights Bill 2003 and the potential consequences which its incorporation will have.

47. Article 34.1 provides that “justice shall be administered in courts ….” Article 37.1, however, creates an exception: it allows for this function to be vested outside the courts provided that only “limited functions … in matters other than criminal matters” are involved.¹⁶⁰ The case law on the application of the ‘administration of justice’ concept in the tax administration sphere is a little unclear. However, such case law as we have seems to indicate a judicial attitude against the characterisation of Revenue powers as involving an ‘administration of justice’. An alternative way of addressing the question of Article 34.1 is to ask whether the civil penalties which the Revenue Commissioners may impose are criminal in character: if they are, then there is an administration of justice; if they are not, bearing in mind the level of discretion involved, they will not possess enough characteristics of the conventional administration of justice to be categorised as such. The result is that Article 34.1 does not apply or alternatively the penalty involves a ‘limited function’ under Article 37.1.¹⁶¹ Apart from Article 34.1, as we shall see from the case law rehearsed below, there are other constitutional provisions which might be thought to apply. Notably, Article 38.1 states: “[n]o person shall be tried on any criminal charge save in due course of law”. Here, too, the basic question is whether or not revenue penalties involve a ‘criminal charge’.

1. Constitutional Case-law

48. The issue of whether a sanction is a criminal or civil penalty has arisen in a number of different contexts. In Melling v O’Mathghamhna¹⁶² the issue was whether the charge was criminal for the purpose of engaging Article 38.5 of the Constitution (the right to jury trial). The accused sought a declaration to the effect that section 186 created a crime and that such was not a minor crime which could be tried summarily, without a jury. He was charged with 15 counts of smuggling butter contrary to section 186 of the Customs Consolidation Act 1876. Section 186 provided that:

“[e]very person who shall … be in any way knowingly concerned in carrying, removing … concealing, or in any manner dealing with goods with intent … to evade any prohibition or restriction of or applicable to such goods … shall for each offence forfeit either treble the value of the goods, including the duty payable thereon, or one hundred pounds, at the election of the Commissioners of Customs: and the offender may either be detained or proceeded against by summons.”¹⁶³

49. In considering what is a crime, Kingsmill Moore J set out the following as indicia of crimes:

    1. It is an offence against the community at large and not against an individual;

    2. The sanction is punitive, and not merely a matter of fiscal reparation; and

    3. Mens rea is an element of an offence.

50. O’Dalaigh CJ. noted that:

“The vocabulary of section 186 of the Act of 1876 is the vocabulary of the criminal law; the preliminary detention in jail unless bail is found (s. 197) and the right to enter, search and seize goods in a defendant’s house or premises (ss. 204 and 205) are, as yet, unfamiliar features of civil litigation. In their initiation, conclusion and consequences proceedings under s.186 have all the features of a criminal prosecution.”¹⁶⁴

51. The Supreme Court held that an offence under section 186 of the Customs Consolidation Act was a criminal offence.

52. However, it was argued in McLoughlin and Tuite v Revenue Commissioners,¹⁶⁵ which also concerned the right to jury trial, that section 500 of the Income Tax Act 1967 (now section 1052 TCA 1997), concerned a criminal offence. Carroll J rejected this argument. The plaintiff had been issued with a summons for the payment of a penalty to the Minister for Finance for failing to file tax returns for a number of years. The plaintiff challenged the recovery of the penalties as a liquidated sum in the civil courts, alleging that the penalties were criminal in character. Carroll J held that while the penalty prescribed by section 500 for failing to make income tax returns, has penal consequences, it lacked other essential indicia of a crime. The penalty was recoverable in civil proceedings and the section did not use criminal ‘vocabulary’. The issue also arose in Downes v DPP ¹⁶⁶ and more recently in DDP v Boyle.¹⁶⁷

53. In Downes v DPP,¹⁶⁸ Barr J was asked to consider whether the recovery of a penalty under section 128 of the Income Tax Act 1967 as amended, was a “criminal proceeding within the meaning of the Prosecution of Offences Act 1974”¹⁶⁹ so that the Director of Public Prosecutions was competent to prosecute. Section 128 of the Income Tax Act 1967 provided for the imposition of a “penalty of £800 together with, in the case of a continuing non-compliance, a penalty of the like amount for every day on which the non-compliance is continued.” Barr J held that the issue in Downes was essentially the same as that decided by Carroll J in McLoughlin. He concurred with the reasoning in that case and concluded that section 128 created “a form of civil liability and not criminal responsibility”.¹⁷⁰ The purpose of section 128 was coercive and not punitive. It differed fundamentally from the provisions creating revenue offences. Section 128 did not contain vocabulary or provisions which were commonly found in the criminal law. Barr J also noted that a penalty imposed under section 128 devolves onto the estate of a deceased, which in Barr J’s opinion was “strongly indicative of a non-criminal liability.”¹⁷¹

54. In DPP v Boyle,¹⁷² the defendant was prosecuted for failing to pay excise duty on bets as required by sections 24 and 25 of the Finance Act 1926. Section 24(4) of the Finance Act 1926 provided that any person who failed to pay the duty would “be guilty of an offence…and shall be liable on summary conviction thereof to an excise penalty of £500.” In the District Court, the defendant argued, as in Downes, that the sections did not create criminal offences and therefore the Director of Public Prosecutions (‘DPP’) was not competent to prosecute under the sections. In determining the issue, Murphy J considered whether the penalty equated “more closely with the Customs Acts which were considered by the Supreme Court in Melling v O’Mathghamhna [1962] IR 1 or the Income Tax Acts which were considered by Miss Justice Carroll in McLoughlin v Tuite [1986] ILRM 304 and Mr Justice Barr in Downes v The Director of Public Prosecutions [1987] ILRM 665.”¹⁷³ In concluding that sections 24 and 25 concerned criminal matters, Murphy J held that “[t]he crucial factors in the present case are the presence of the words “an offence” and “summary conviction”.

55. In the DPP v Redmond,¹⁷⁴ the DPP applied for a review of a sentence on the basis it was unduly lenient. The defence argued that the sentence was not too lenient by virtue of the fact that a civil revenue penalty already paid by the accused ought to be taken into account. In appraising this, Hardiman J, writing for the Supreme Court, made a number of discursive comments on the civil penalty, which are of relevance. He described the legal nature of a revenue penalty as “a penalty, which is civilly recoverable i.e. it is a punitive consequence to the offender.”¹⁷⁵ He outlined the characteristics of a “revenue penalty”. He stated obiter that:

“The revenue penalties may vary, in particular with whether default in compliance is negligently, or fraudulently caused. Such penalties in certain circumstances can exceed three times the difference between the tax paid and the tax actually payable. As Mr Kieran Corrigan remarks in his Revenue Law (Dublin, 2000), these are penalties which will be imposed on top of the primary obligation of every tax payer to pay the correct amount of tax. Similarly, a penal rate of interest may be applied where income tax has not been paid as a result of a fraud or neglect of the tax payer. This, too, is in the nature of a penalty.”¹⁷⁶

56. Although there is a distinction between a “revenue penalty chargeable without prosecution and a fine or sentence for a ‘revenue offence’”, a person may be subject to both prosecution for a revenue offence and a revenue penalty chargeable without prosecution for the same default. Hardiman J held that the fact that a revenue fine or sentence under section 1078 may be imposed “‘without prejudice to any other penalty to which the person may be liable’ … does not mandate a court to exclude from its consideration the fact of the payment of a revenue penalty in assessing the criminal penalty.”¹⁷⁷

57. In an important passage, Hardiman J stated:¹⁷⁸

“[A] fine imposed by a criminal court differs from a revenue financial penalty. Unless there is a specific provision to the contrary (and it has not been submitted that there is any relevant provision here) a court must indeed proportion the fine to the means of the offender. A revenue penalty, however, is generally of fixed amount (whether provided by statute or arrived at as a result of computation) and is payable in that sum without regard to the means of the offender subject only to such statutory mitigation as may be possible. For example, a court would rarely impose a fine which would have the consequence that the defendant would have to sell his or her house because to do so might be regarded as an extraordinary punitive measure. A revenue penalty, on the contrary, arises in a specified amount without regard to the means of the offender or what steps he will have to take to pay it. And there is generally only a limited amount of mitigation available, and that is at the discretion of the Revenue Commissioners.”

58. In Murphy v GM,¹⁷⁹ a non-revenue case though from an analogous field, the appellants argued that provisions of the Proceeds of Crime Act 1996 allowing for the forfeiture of property were criminal in nature. The Supreme Court reviewed a number of authorities, including Attorney-General v Casey,¹⁸⁰ Attorney General v Southern Industrial Trust Ltd¹⁸¹ and McLoughlin v Tuite,¹⁸² and held that “in rem proceedings for the forfeiture of property, even where accompanied by parallel procedures for the prosecution of criminal offences arising out of the same events, are civil in character”.¹⁸³

59. Apart from Redmond,¹⁸⁴ these cases do not deal directly with civil revenue penalties; but with varieties of penalties imposed by the courts. However, in Redmond Hardiman J does address what he calls a “revenue penalty chargeable without prosecution” and characterises it as being distinct from a “sentence for a ‘revenue offence’” (as quoted in paragraph ). The other judgments in Redmond are concerned with various penalties imposed by the courts and, apart from Melling,¹⁸⁵ these were characterised as non-criminal penalties. Extrapolating from these we can say that if the penalties imposed by the court are not criminal, then for reasons given by Hardiman J, it is even less likely that penalties imposed by the Revenue Commissioners should be characterised as criminal. Significantly, this probably means that the current arrangement is constitutional because either there is no “administration of justice” so that Article 34.1 is not attracted; or, if there is an administration of justice, since this is not a criminal area and is “limited”, the Article 37.1 exception would apply.¹⁸⁶

6. The European Convention on Human Rights

   1. Introduction

60. Ireland is a party to the European Convention on Human Rights (“ECHR”). Although the ECHR forms part of the State’s Public International Law obligations, it has not yet, as of July 2003, been incorporated into domestic law. However, while it cannot be relied upon, as binding the State, in Irish Courts,¹⁸⁷ it is anticipated that the European Convention on Human Rights Bill 2001, incorporating the provisions of the ECHR into domestic law, will be enacted by the end of 2003. The incorporation of the ECHR will have a number of consequences for Irish public bodies and the courts.¹⁸⁸ First, section 3 of the Bill requires “every organ of the State”, which presumably includes the Revenue Commissioners, to act in accordance with the ECHR. Secondly, section 2 of the Bill provides that “[i]n interpreting and applying any statutory provision or rule of law, a court shall, in so far as possible, subject to the rules of law relating to such interpretation and application, do so in a manner compatible with the State’s obligations under the Convention provisions.” Section 4 of the Bill requires judicial notice to be taken of: the Convention provisions, any declaration, decision, advisory opinion or judgment of the European Court of Human Rights (“ECtHR”), a decision or opinion of the European Commission of Human Rights and any decision of the Committee of Ministers on matters falling within their respective jurisdiction and principles laid down therein.¹⁸⁹

61. Article 6 guarantees the right to a fair and public hearing in the determination of an individual’s civil rights and obligations or any criminal charge. Article 6(1) applies to both civil and criminal cases but Article 6 (2) and (3) only applies when an individual is charged with a “criminal offence”.¹⁹⁰ As we shall see in following paragraphs, due to the European Court’s interpretation of the concept of a criminal charge, outlined below, penalties levied by the Revenue Commissioners may fall within the ambit of the ECHR.

1. “Civil rights and obligations”

62. Article 6 of the ECHR guarantees the right of access to the courts and the right to a fair trial where there is a determination of an individual’s ‘civil rights and obligations’. The Court has not provided a definition of what will be considered to fall within one’s ‘civil rights and obligations’ but it has held that the concept has a specific meaning under the Convention, which is not determined solely by reference to the particular domestic law.¹⁹¹ The Court has distinguished between private and public law for the purpose of bringing rights arising from private law within the scope of the ‘civil rights and obligations’ referred to in Article 6(1).¹⁹²

63. In X v France,¹⁹³ the Commission on Human Rights held that “Article 6.1 does not apply to proceedings relating to tax assessments”. The ECtHR approved the Commission’s reasoning in Schouten and Meldrum v The Netherlands^.194 The ECtHR considered the issue even more recently in Ferrazzini v Italy¹⁹⁵ and Vastberga Taxi Aktiebolag and another v Sweden¹⁹⁶ and confirmed its previous case law. In Ferrazzini, the applicant applied for a reduction in particular tax rates and paid its tax in accordance with the reduced tax rate. The tax authority disagreed and issued the applicant with supplementary assessments and penalties. The applicant sought to have the assessments and penalties set aside in separate proceedings. One set of proceedings lasted more than ten years for a single level of jurisdiction (determination by the District Tax Commission) and the other proceedings, which involved two levels of jurisdiction (determination by the District Tax Commission and appeal lodged with the Regional Tax Commission), began in January 1988 and were still ongoing 12 years and nine months later. The applicant argued that there had been a violation of Article 6(1) because of the length of time taken by the three sets of tax proceedings to which he was a party.

64. The Court cited Schouten and Meldrum with approval but went on to consider whether, in the light of the passage of time since the Convention was passed, Article 6(1) should “be extended to cover disputes between citizens and public authorities as to the lawfulness under domestic law of the tax authorities' decisions.”¹⁹⁷ However, the Court concluded that “tax matters still form part of the hard core of public-authority prerogatives, with the public nature of the relationship between the taxpayer and the tax authority remaining predominant … tax disputes fall outside the scope of civil rights and obligations, despite the pecuniary effects which they necessarily produce for the taxpayer.”¹⁹⁸

1. ‘Criminal charge’

65. Thus, it is not open to a taxpayer to argue that his or her ‘civil rights and obligations’ are being determined when the Revenue Commissioners impose a civil penalty. However, protection may be available on the basis that the Revenue Commissioners’ ‘civil’ penalty is actually a criminal penalty. A significant problem here is that although the penalties imposed by the Revenue Commissioners are classified as “civil” for the purposes of Irish domestic law,¹⁹⁹ they may amount to a “criminal charge” for the purposes of the Convention and thus, entitle a taxpayer to the protections specified in Article 6.²⁰⁰ The Court held in the Adolf Case that ‘criminal charge’ is to be “interpreted as having an ‘autonomous’ meaning in the context of the Convention and not on the basis of their meaning in domestic law.”²⁰¹ In the Engel Case,²⁰² the court laid down three criteria which it would use to determine whether a penalty amounted to a criminal penalty for the purposes of the Convention. The Court will consider:

    1. the domestic classification,

    2. the nature of the offence, and

    3. the nature and severity of the penalty.²⁰³

1. French, Swiss and Dutch Authorities

66. In Bendenoun v France,²⁰⁴ AP, MP and TP v Switzerland²⁰⁵ and JJ v The Netherlands.²⁰⁶ the Court addressed the issue of whether certain national tax and customs civil and administrative penalties amounted to a ‘criminal charge’. In all three cases, the Court held that a ‘criminal charge’ was involved and therefore the taxpayer was entitled to the Article 6 protections.

67. In Bendenoun v France, the applicant was convicted of customs and exchange control offences in criminal proceedings. The tax authorities also issued supplementary tax assessments, which included penalties.²⁰⁷ The applicant unsuccessfully appealed against the assessments and penalties within the domestic legal system and then challenged the imposition of the penalties before the European Court on the basis that he had been denied the right to a fair trial under Article 6(1). The first issue the Court had to determine was whether the proceedings concerned a 'criminal charge' within the meaning of Article 6(1).

68. The provisions of the General Tax Code, applicable at the material time, permitted the imposition of a tax surcharge of 200% where the tax debtor was guilty of deception. The Court acknowledged that a system which empowers the Revenue authorities to prosecute and punish tax offences with large penalties “is not incompatible with Article 6 … so long as the taxpayer can bring any such decision affecting him before a court that affords the safeguards of that provision.”²⁰⁸ However, the Court held that cumulatively the predominantly criminal characteristics of the offence and penalty made the charge criminal within the meaning of Article 6 (1).²⁰⁹

69. In AM, MP and TP v Switzerland, the tax authorities investigated the affairs of a deceased individual and concluded that the deceased was guilty of tax evasion. The tax authorities instituted proceedings against the applicants, as heirs of the deceased,²¹⁰ for the recovery of the unpaid taxes and imposed fines on the applicants for the tax evasion. The applicants challenged the imposition of the penalties. They claimed that the presumption of innocence enshrined in Article 6(2) was breached as “irrespective of any personal guilt, they had been convicted of an offence allegedly committed by someone else …”. The applicants also claimed that they were entitled to a public hearing under Article 6(1) and protection of the rights of the defence guaranteed by Article 6(3).

70. In determining whether Article 6 was applicable, the Court repeated its earlier case law concerning the autonomous nature of the concept of a “criminal charge” within the meaning of Article 6 and the three criteria to be taken into account when it is being decided whether a person was “charged with a criminal offence” for the purposes of Article 6 (see paragraph ). The Court held that the fines were not inconsiderable and that the penalties were punitive and deterrent in nature. The Court attached weight to the national court’s description of the fine as ‘penal’, in concluding that Article 6 was “applicable under its criminal head.”²¹¹

71. The Court held that “[i]t is a fundamental rule of criminal law that criminal liability does not survive the person who has committed the criminal act” and because the presumption of innocence guaranteed by Article 6(2) requires compliance with this rule, Article 6(2) had been violated.²¹²

72. In JJ v Netherlands,²¹³ Article 6(1) was held to be applicable because “[t]he effect of the decision of the Supreme Court was to ratify the imposition of the fiscal penalty on the applicant. It was thus decisive for the determination of the "criminal charge" leading to the imposition on him of the penalty.”²¹⁴ The fact that the appeal to the Supreme Court was limited to points of law and that the Supreme Court’s decision was merely concerned with a preliminary question of a procedural nature was not sufficient to render Article 6(1) inapplicable.

1. British Authorities

73. In two recent British cases,²¹⁵ it was held, after applying the Engel criteria, that ‘civil penalties’ imposed by the Customs and Excise Commissioners and the Inland Revenue were ‘criminal charges’ for the purposes of the ECHR.

74. In King v Walden (HM Inspector of Taxes),²¹⁶ the appellant challenged the imposition of penalties under section 95 of the Taxes Management Act 1970 for fraudulently or negligently making incorrect tax returns. In the High Court, Jacob J was asked to decide, whether penalties under section 95 are a criminal offence for the purposes of Article 6 of the Convention. If the Court found that Article 6 applied, it was then asked to determine whether there was a breach of the presumption of innocence; and whether there was a hearing within a reasonable time.

75. Jacob J held that the penalties system for fraudulent or negligent delivery of incorrect returns or statements is "criminal" for the purposes of Article 6(2). In determining whether the penalty in question amounted to a criminal charge for the purposes of Article 6(2), Jacob J relied on the European Court of Human Rights (ECtHR) decisions in Georgiou v UK; Bendenoun v France; AP, MP and TP v Switzerland and the VAT Tribunal decision in Han & Yau.²¹⁷ In Georgiou, the ECtHR held that penalties for the fraudulent evasion of VAT were criminal for the purposes of Article 6. In AP, MP and TP v Switzerland, the Court considered whether fines imposed on heirs of a deceased were criminal in nature. Jacob J applied the Engel criteria. He held that the purpose of the penalty system was both punitive and deterrent; the penalties were substantial (STG£58,000)²¹⁸and were not related to any administrative costs. Additionally, the amount of the fine depended on the culpability of the taxpayer and the availability of mitigation. Finally, Jacob J observed that on appeal the burden of proof to show that the penalties were correct rested on the Crown, whereas in appeals against assessments the burden of proof lay on the taxpayer.

76. Although Jacob J found that Article 6 was applicable, he did not find any breach of the applicant’s Article 6 rights. The appellant argued that reliance on the facts as found in an earlier appeal and the presumption created by section 101 of the Taxes Management Act 1970²¹⁹ shifted the burden of proof contrary to Article 6(2) and breached the presumption of innocence.²²⁰ Jacob J rejected this argument. He held that the burden of proof lay at all times with the Revenue. In the alternative, the presumptions were “well within the reasonable limits for such presumptions as are permitted by Article 6(2)”.²²¹ Jacob J concluded that there was a hearing within a reasonable time, although it was very close to being unreasonable, for the purposes of Article 6(1). He took into account the complexity of the case, the nature of the potential punishment and the extent to which the accused contributed to the delay.²²²

77. The Inland Revenue issued the following statement, in response to King v Walden:

“Mr King (King v Walden TCL 3643) was refused leave to appeal to the Court of Appeal. Thus we have been unable to challenge those aspects of the High Court judgement with which we disagreed. Those were that:

• tax-geared penalties under Section 95 TMA are criminal for the purposes of Article 6 of the ECHR, and

• the proceedings were instituted by the Revenue by the issuing of the penalty determinations rather than by Mr King when he appealed against those determinations. As a result, by virtue of Section 22(4) of the HRA, the taxpayer was entitled to rely on the Act in his appeal even though the proceedings commenced before the Act came into force.

We hope to find another case where these points can be further considered by the Court of Appeal. But in any event and even if any of these penalties are “criminal”, our current understanding is that our procedures are consistent with a taxpayer’s Article 6 rights. Further guidance on what to say to customers about those rights is at EM1362. We do not see any immediate reason to make any other changes to our procedures in the light of the King case.

Except in cases where Section 100A TMA EM1375 is in point, you should continue to take Section 95 penalties in appropriate cases, whether by including them in a contract settlement at the conclusion of an enquiry or by making formal penalty determinations having received the necessary authority EM5200.”²²³

78. In the second British case, Han & Yau; Martins & Martins; Morris v Customs and Excise Commissioners,²²⁴ the Customs and Excise Commissioners appealed against a VAT and Duties Tribunal decision that civil penalties for the alleged dishonest evasion of VAT and excise duty involved criminal charges for the purposes of Article 6(1).²²⁵ The English Court of Appeal, by a 2:1 majority (Lord Justice Potter and Lord Justice Mance LJ; Sir Martin Nouse dissenting), upheld the decision of the VAT and Duties Tribunal.²²⁶ The consequence of this is discussed at paragraph . In reaching their decisions Potter LJ and Mance LJ relied on the ECtHR decisions in Ozturk v Germany;²²⁷ Bendenoun v France;²²⁸ AP, MP and TP v Switzerland²²⁹ and Georgiou (trading as Marios Chippery) v United Kingdom.²³⁰ The national classification of the penalties was merely a starting point; the nature of the proceedings were concerned with fraud/dishonesty; the Customs and Excise Commissioners enjoyed a discretion as to whether to apply a civil penalty or prosecute and finally the penalty, whose purpose was both punitive and deterrent, was substantial.²³¹

79. Potter LJ distinguished the High Court decision in King v Walden, which was concerned with imposition of penalties for fraudulent or negligent delivery of incorrect tax returns or statements and confined his decision to penalties imposed in respect of dishonesty.²³²

1. Irish Civil Penalties

80. The central question is what impact a decision that civil revenue penalties are, for the purposes of the ECHR, criminal in character, would have on the civil penalties imposed by the Revenue Commissioners and the manner in which they are imposed. Section 1053(1) provides that where a taxpayer fraudulently or negligently²³³ makes incorrect returns, specified in column 1 of Schedule 29,²³⁴ a taxpayer will be liable to a fine of €125 and the difference between the amount paid and the correct amount payable. Where fraud is involved, the penalty is €125 plus twice the difference between the amount paid and the amount payable.²³⁵ Penalties can also be imposed for the negligent or fraudulent failure to deliver returns under section 1053(1A).²³⁶

81. If one considers the penalties provided for in section 1053, it is probable that they too would be considered ‘criminal charges’ for the purposes of the ECHR. Although domestically they are not classified as criminal charges, the classification for the purposes of the Convention is independent of the domestic view. The tax penalties seem to fall into the same categories as those laid out in Bendenoun²³⁷. These provisions:

    1. cover all citizens in their capacity as taxpayers, and not a given group with a particular status. It lays down certain requirements, to which it attaches penalties in the event of non-compliance;

    2. the tax surcharges are intended not as pecuniary compensation for damage but essentially as a punishment to deter re-offending;

    3. they are imposed under a general rule, whose purpose is both deterrent and punitive”;

    4. the penalties are very substantial and in the event of non-payment a tax recalcitrant could be liable to be committed to prison.²³⁸

82. The question arises whether the procedure for the imposition of civil penalties is compatible with Article 6 of the ECHR. In Han & Yau, the Court of Appeal held that the consequences of classifying a case as criminal under the Convention will have to be worked out on a case by case basis.²³⁹ Equally the impact of a similar development in this jurisdiction would have to be worked out on a case by case basis. However if Irish tax ‘civil penalties’ were held to be criminal charges for the purposes of the Convention, certain basic protections, in addition to the minimum rights outlined in Article 6(3),²⁴⁰ would have to be afforded such as access to an independent and impartial tribunal, the right to a fair, public trial,²⁴¹ (but subject to the very significant point in the tax field, that an individual can waive this right), adversarial proceedings and public pronouncement of a reasoned judgment, within a reasonable time, which are all guaranteed by Article 6(1). We shall elaborate on two of these aspects.

1. Right to an independent and impartial tribunal²⁴²

83. Article 6(1) guarantees the right to an independent and impartial tribunal as “a constituent element of the right to a fair trial.”²⁴³ However significantly, the determination of criminal charges by administrative bodies, such as the Revenue Commissioners, will not violate Article 6 provided there is a full appeal to “a judicial body that has full jurisdiction, including the power to quash in all respects, on questions of fact and law, the challenged decision”.²⁴⁴

84. The issue thus becomes whether a taxpayer’s right of access is guaranteed under the current appeal mechanisms in place. There are a number of avenues open to a taxpayer wishing to challenge penalties imposed by the Revenue Commissioners, namely: an internal Revenue review; review by a Board of External Reviewers; recourse to the Ombudsman; and a judicial review action challenging the legality of the penalties imposed in the event of enforcement proceedings by the Revenue.²⁴⁵ Both the internal and joint reviews offered by the Revenue Commissioners would not fall within the meaning of a tribunal referred to in Article 6 since they are part of the administrative body itself. The Ombudsman could not satisfy the requirements of Article 6(1) as the Office does not have the power to issue binding decisions which are not subject to alteration by a non-judicial body.²⁴⁶

85. Nor would judicial review actions suffice either because where a body imposing penalties which amount to a criminal charge does not satisfy the requirements of Article 6, the reviewing tribunal would have to have the power to quash the decision of the body below, on both questions of law and fact.²⁴⁷ Another possible recourse is section 1061, which provides that officers of the Revenue Commissioners may sue in their own name by civil proceedings for the recovery of the penalty in the High Court.²⁴⁸ But, again, it is doubtful whether access to this judicial process guarantees a taxpayer faced with a criminal charge sufficient protection for the purposes of Article 6 of the Convention. The final, theoretical possibility would be an action under section 1061 TCA 1997, which is an action for a liquidated sum and will be for the full amount of the penalty, which can amount to 200% of the underpaid tax where the Revenue Commissioners consider that fraud or negligence was involved. However the use of this provision depends upon the Revenue Commissioners invoking it and the Revenue Commissioners have not taken actions to enforce the payment of penalties in recent years. However, it is anticipated that section 1061 TCA 1997 will be invoked more frequently in the future.

86. The conclusion, which seems to the Commission to follow is that the European Convention probably requires that there be an appeal from the Revenue Commissioners to an independent and impartial tribunal, such as the Appeal Commissioners, in respect of penalties. Apart from the requirements of the Convention there are some policy arguments, discussed at paragraph , which would support this recommendation.

87. A further question in relation to appeals arises. Should there, in addition to the appeal to the Appeal Commissioners, be a further appeal from the Appeal Commissioners to the Circuit Court. Article 6(1) does not require an appeal from a tribunal or court which satisfies the requirements of Article 6 although if an appeal is provided for, it must comply with the requirements of Article 6(1).²⁴⁹ However we have also to consider Article 2 of the Seventh Protocol to the ECHR, which will also be incorporated into Irish law when the ECHR Bill, 2001 becomes law. Article 2 provides that:

1. “Everyone convicted of a criminal offence by a tribunal shall have the right to have conviction or sentence reviewed by a higher tribunal. The exercise of this right, including the grounds on which it may be exercised, shall be governed by law.

2. This right may be subject to exceptions in regard to offences of a minor character, as prescribed by law, or in cases in which the person concerned was tried in the first instance by the highest tribunal or was convicted following an appeal against acquittal.”

88. Article 2(2) might apply to exclude the obligation to provide a right of appeal if the tax-geared penalties were considered minor for the purposes of Article 2(2).²⁵⁰ The Explanatory Memorandum to the Seventh Protocol suggests that whether an offence is punishable by imprisonment is an important criterion in determining whether a charge is minor or not for the purposes of Article 2(2).²⁵¹

89. But the question remains whether, if the Appeal Commissioners are given jurisdiction to hear appeals against the imposition of penalties by the Revenue Commissioners, the ECHR mandates the provision of an appeal from the Appeal Commissioners to the Circuit Court. However, as discussed at paragraph the right of appeal to the Circuit Court provides a safeguard against erroneous decisions of the Appeal Commissioners. If we are recommending an appeal in respect of penalties to the Appeal Commissioners then, even on policy grounds alone, there is no reason why appeals against penalties should not fall within the jurisdiction of the Circuit Court, in the same manner as appeals against assessments. Should there be a further appeal to the High (and presumably Supreme) Court, as there is for an assessment? The relevant consideration here is that the appeal to the Superior Courts would be confined to a point of law and not on the full merits. But what is involved in the imposition of civil penalties is the exercise of a discretionary power, conditioned by a set of administrative rules, outlined in paragraphs -. It seems, therefore that there would be little purpose in an appeal confined to a point of law.

90. Accordingly, the Commission recommends that a fresh right of appeal on the issue of penalties should lie from the Appeal Commissioners to the Circuit Court but not to the High Court and Supreme Court.

91. There is no need to consider these proposed arrangements in the light of the requirements of Article 34.1²⁵². For, as explained in paragraphs -, a civil penalty is not considered to be an ‘administration of justice’ for the purposes of Article 34.1. Thus the Article is not engaged, in the first place. There is therefore no need to consider whether the proposed arrangements would satisfy it.

1. Freedom from self-incrimination

92. Although, the right to silence and the right not to incriminate oneself are not specifically mentioned in Article 6, the Court has held that they lie “at the heart of the notion of a fair procedure.”²⁵³ Thus, if a taxpayer is facing civil penalties, which constitute “criminal charges” for the purposes of the ECHR, the taxpayer will be entitled to rely on the privilege against self-incrimination.²⁵⁴ It is unclear what effect, if any, this would have on the procedures used by the Revenue Commissioners for determining penalties.

93. The issue has been addressed in the UK in the context of the Human Rights Act 1998. The Inland Revenue’s Hansard policy²⁵⁵ was challenged in R v Allen²⁵⁶ on the basis that it violated the appellant’s Article 6 rights. The version of the Hansard Policy challenged in Allen dated from 18 October 1990. It provided that:

“The Board may accept a money settlement instead of instituting criminal proceedings in respect of fraud alleged to have been committed by a taxpayer.

They can give no undertaking that they will accept a money settlement and refrain from instituting criminal proceedings even if the case is one in which the taxpayer has made a full confession and has given full facilities for investigation of the facts. They reserve to themselves full discretion in all cases as to the course they pursue (emphasis added)

But in considering whether to accept a money settlement or to institute criminal proceedings, it is their practice to be influenced by the fact that the taxpayer has made a full confession and has given full facilities for investigation into his affairs and for examination of such books, papers, documents or information as the Board may consider necessary.”²⁵⁷

94. The appellant appealed to the House of Lords against his conviction for the common law offence of cheating the public revenue. He argued that he was denied a fair trial under Article 6, as his privilege against self incrimination was violated by the Revenue’s request for information under section 20(1) of the Taxes Management Act 1970 and the Hansard procedure, which he alleged both threatened him and induced him to produce a schedule of assets. Although the House of Lords held that the Human Rights Act 1998 was not retrospectively effective and therefore the appellant could not rely on Article 6, the House of Lords addressed the arguments based on Article 6. They held, first that the Crown had the right to require citizens to declare their income and could enforce sanctions for failure to do so for the purpose of tax collection and thus rejected the argument alleging that section 20(1) of the Taxes Management Act 1970 breached the privilege against self incrimination.

95. There was a second point in Allen, namely that the Hansard Statement (in the portion italicised above at paragraph ) left open the possibility that a tax recalcitrant might make a confession and shall be prosecuted. On the facts, the House of Lords rejected the argument that the Hansard Statement breached Article 6. Lord Hutton rejected the appellant’s argument in the following terms:

“To the extent that there was an inducement contained in the Hansard statement, the inducement was to give true and accurate information to the Revenue, but the accused in both cases did not respond to that inducement and instead of giving true and accurate information gave false information. Therefore, in my opinion, the appellant's argument in this case that he was induced by hope of non-institution of criminal proceedings held out by the Revenue to provide the schedule and that its provision was therefore involuntary is invalid. If, in response to the Hansard statement, the appellant had given true and accurate information which disclosed that he had earlier cheated the revenue and had then been prosecuted for that earlier dishonesty, he would have had a strong argument that the criminal proceedings were unfair and an even stronger argument that the Crown should not rely on evidence of his admission, but that is the reverse of what actually occurred.”

96. However, in the context of the inducement procedure used by the UK Customs and Excise Commissioners, Lord Justice Potter in Han & Yau,²⁵⁸ stated that it was unlikely that the argument that the offending paragraph (italicised at paragraph ) violated Article 6.1 would be upheld as the requirements of Article 6(1) “are of a general nature and are not prescriptive of the precise means or procedural rules by which domestic law recognises and protects such rights.”²⁵⁹ Nonetheless, in response to the House of Lords decision in R v Allen²⁶⁰ the Inland Revenue has revised its policy and Hansard Statement. The Hansard Statement now provides:

“The Board will accept a money settlement and will not pursue a criminal prosecution, if the taxpayer, in response to being given a copy of this Statement by an authorised officer, makes a full and complete confession of all tax irregularities”.²⁶¹

1. The analogous statement in the Irish Code of Practice for Revenue Auditors provides an unqualified assurance that the Revenue Commissioners will not initiate an investigation with a view to prosecution where a qualifying disclosure, for the purposes of mitigation of penalties, is made by a taxpayer who does not fall within certain specified categories.²⁶² It therefore goes a good deal of the way to meet any possible difficulties of the type disclosed in the British cases of Han & Yan and Allen.

2. The Commission does not recommend any changes with regard to self incrimination as it is unclear whether the incorporation of the European Convention will require any modifications of the practices currently employed by the Revenue Commissioners. The Commission invites submissions on the impact of the domestic application of the ECHR in relation to a taxpayers’ right to silence and freedom from self incrimination.

3. Appeals

   1. Introduction

1. In this chapter, the Commission outlines the present arrangements for the exercise of civil jurisdiction in the revenue field, and considers whether they can be improved. The Commission considers each of the levels of appeal, namely the Appeal Commissioners, the Circuit Court, the High Court and the Supreme Court.²⁶³ To summarise the present system: the taxpayer has a right of appeal from an assessment of the Revenue Commissioners to the Appeal Commissioners. The taxpayer, but usually not the Revenue Commissioners, has the right to have the case reheard by a judge of the Circuit Court.²⁶⁴ Alternatively, either the taxpayer or the Revenue Commissioners have the right to have a case stated to the High Court, on a point of law from the Appeal Commissioners. In addition, either side may bring an appeal on a point of law from the Circuit Court to the High Court and from there to the Supreme Court.

2. The Appeal Commissioners:²⁶⁵ The Present System

   1. History of the Office of the Appeal Commissioners

2. The Appeal Commissioners have a similar origin to the Special Commissioners in the UK. The first piece of the machinery to be established was the General Commissioners of Income Tax, who were appointed to implement the UK Income Tax Act 1799.²⁶⁶ The forerunners of the Appeal Commissioners were the Special Commissioners of Income Tax who were instituted under Pitt’s Act 1805 to act as an alternative to the General Commissioners, and their powers were considerably enlarged in 1842.²⁶⁷ Upon Independence, the Provisional Government (Transfer of Functions) Order 1922 provided that all functions carried out by existing Government Departments were to be exercisable by the appropriate Provisional Government Departments. Accordingly, the Order assigned responsibility to the Provisional Government’s Ministry of Finance for the “financial business of the government ‘including functions hitherto performed by the following existing Government departments and officers’: … the Commissioners of the Inland Revenue and Special Commissioners of Income Tax, the Commissioners of Customs and Excise.”²⁶⁸ As can be seen from the 1922 Order just quoted, there has never been any equivalent of the General Commissioners in post-independence Ireland, and there does not seem to have been an equivalent in pre-independence Ireland. Finally, the Special Commissioners were renamed the Appeal Commissioners by the Finance (Miscellaneous Provisions) Act 1968.²⁶⁹

3. The Appeal Commissioners are a classical example of an entity which textbook writers have called a tribunal,²⁷⁰ and which have been defined as follows: “a body, independent of the Government or any other entity but at the same time not a court, which takes decisions affecting individual rights, according to some fairly precise (and usually legal) guidelines and by following a regular and fairly formal procedure.”²⁷¹ It should be stressed that the hallmarks of a tribunal are: ease of access, relative inexpensiveness, and specialisation and, by comparison with a court, a fairly informal procedure.

4. The following paragraphs will show how far the Appeal Commissioners possess these characteristics.

1. Appointment and Qualifications

5. There is no statutory limit on the number of Appeal Commissioners who may be appointed. ²⁷² From 1978 until 1993, three Appeal Commissioners were appointed, but, since 1993, there have been only two Appeal Commissioners. The reason for the reduction in the number of Appeal Commissioners is the reduction in the number of appeals since the introduction of self-assessment. Prior to the introduction of self-assessment, the volume of cases dealt with by the Appeal Commissioners was much greater, because taxpayers were aggrieved at the assessments made by the Revenue. The introduction of self-assessment meant that the issues before the Appeal Commissioners changed from mostly pro forma matters to a smaller number of appeals, including a greater proportion of appeals on points of law. There were almost 60,000 cases on hand on 31 December 1986. By the end of 2001, the equivalent figure was estimated at 350.

6. The Appeal Commissioners are appointed by the Minister for Finance in accordance with section 850 TCA 1997.²⁷³ The Act does not require the Minister for Finance to follow any particular selection process. The TCA 1997 merely provides that the Minister for Finance must lay the appointments of Appeal Commissioners and the amount of their salaries before the Houses of the Oireachtas. See paragraphs - for a discussion of reform of the appointment process.

7. Nor does the Act specify any particular qualifications which are necessary for appointment to the post of Appeal Commissioner. It used to be the case, by convention, that one Commissioner was selected from within the Revenue Commissioners, one from the tax profession and one from the Bar.²⁷⁴ However, since 1993, both of the current Appeal Commissioners are qualified accountants from private practice.

1. Independence

8. The Appeal Commissioners are an independent body. However, the independence of the Office has been questioned in the past for two reasons. First, there appeared inevitably to be a level of familiarity between the Appeal Commissioners and the Revenue Commissioners, due to the fact that the Revenue Commissioners are a party to all tax appeals.²⁷⁵ Secondly, there was an element of institutional overlap. For instance, until the 2002-03 Budget, the Chairman of the Revenue Commissioners was the Accounting Officer for the Office of the Appeal Commissioners, and the Office was financed from the Revenue Commissioners’ Vote in the Book of Estimates.²⁷⁶ But in the 2003 Book of Estimates, the Appeal Commissioners were given their own Vote.²⁷⁷ The Appeal Commissioners will agree amongst themselves which one of them should act as Accounting Officer. Other examples of the overlap between the Appeal Commissioners and the Revenue Commissioners are given at paragraphs -.

1. Functions

9. The Appeal Commissioners hear appeals concerning: Income Tax; Corporation Tax; Capital Gains Tax; Stamp Duty; Capital Acquisitions Tax (which covers both Gift and Inheritance Tax and Discretionary Trust Tax); Residential Property Tax; Customs Classification Cases; Excise Duty; Vehicle Registration Tax and VAT.²⁷⁸ They also hear appeals of decisions of the Revenue Commissioners refusing an application, for example, of a sub-contractor's certificate²⁷⁹ or an artistic exemption.²⁸⁰

10. The Appeal Commissioners normally categorize appeals as either quantum²⁸¹ or technical. Quantum appeals generally involve questions of fact only and are resolved quickly. Technical appeals, on the other hand, are more complex and time-consuming, as they involve questions of law concerning the interpretation and application of tax legislation and precedents.²⁸² “A technical appeal may also be a test case brought by the Revenue to seek clarification on a particular point of law. In such cases, the Revenue lists just one case, which may be representative of a significant number of similar appeals. The Appeal Commissioners’ decision is then applied to all such similar cases.”²⁸³ In addition, appeals involving mixed questions of fact and law naturally arise.

11. Approximately 10% of the cases listed with the Appeal Commissioners actually go to hearing, as an agreement may be reached between the taxpayer and the Inspector at any time. Section 933(3) of the TCA 1997 provides that an appeal to the Appeal Commissioners may be withdrawn where the Inspector and the taxpayer reach agreement on the assessment. The Appeal Commissioners currently hear about 300 cases annually.²⁸⁴

1. Preconditions for a Valid Appeal and Listing

12. First, the taxpayer must give written notice of his or her intention to appeal, including the grounds of the appeal²⁸⁵ to the Appeal Commissioners within 30 days of the Notice of Assessment.²⁸⁶ Any tax indicated as due on the taxpayer’s return which is not in dispute must be paid before a taxpayer is entitled to appeal.²⁸⁷

13. The Inspector’s permission is needed for an appeal, but refusal of this permission may be appealed to the Appeal Commissioners.²⁸⁸ If an Inspector refuses an application to appeal, the Inspector must specify the reasons for the refusal.²⁸⁹ The Appeal Commissioners hear approximately six to ten appeals from refusals annually. If an Inspector does not refuse, but rather delays in listing an appeal before the Appeal Commissioners, the taxpayer can appeal directly to the Appeal Commissioners to have the case listed. The Appeal Commissioners only hear two to three of these cases per year. There is no statutory guidance on when an Inspector will be considered to have delayed to the extent that a taxpayer is entitled to apply directly to the Appeal Commissioners. Proposals for reform in this area are discussed at paragraphs -.

14. The process of appealing is initiated by a Notice of Appeal signed by the taxpayer, which is given to the Inspector. Receipt of a notice of appeal is acknowledged as a matter of course. An Inspector of Taxes will then send a form, known as Form AH1 (this is an acronym for Appeal Hearing 1) to the Appeal Commissioners.²⁹⁰ The AH1 form was introduced by the Revenue Commissioners in order to standardise the procedure for seeking a date on which the Appeal Commissioners will hear an appeal.²⁹¹ On receipt of the notice of appeal, the Inspector will stop collection of the tax in dispute, and it is for this reason that notice is sent to the Inspector of Taxes rather than to the Appeal Commissioners directly.

15. Once the Revenue Commissioners have checked that the taxpayer has complied with the requirements necessary for the making of a valid appeal, the appeal is referred to the Appeal Commissioners. The Inspector sends the Appeal Commissioners a brief and neutral statement of the case in the Form AH1. It is a submission on the points at issue and the relevant legislation. A completed copy of the Form AH1 and a blank AH1 are sent to the taxpayer. If the taxpayer disagrees with the Form AH1, they may fill out the blank AH1 and forward it to the Inspector.

16. Once the Appeal Commissioners have received the AH1, they will write to the Inspector of Taxes, informing the Inspector what is required from the taxpayer in order for the appeal to be listed. The Inspector will then inform the taxpayer. The Appeal Commissioners will communicate with the taxpayer by way of the Inspector of Taxes.

17. Formerly the Appeal Commissioners published a list of times for each district, but the system did not work satisfactorily as a district might be assigned half a day, while at least two days would be required to hear a case.²⁹² Under the system currently in place, an Inspector will notify the Appeal Commissioners that a case will need (say) three days to be heard, and the Appeal Commissioners will assign the appropriate time to that case.

18. A practice has developed whereby the Appeal Commissioners require the parties to an appeal to submit written submissions at least two weeks prior to the hearing of a case. The Appeal Commissioners will usually refuse to hear a case, if the parties do not submit the written submissions. Section 957(4) of the TCA 1997 now provides a legal basis for the Appeal Commissioners’ practice, as it requires the appellant to specify, in detail, the grounds with which they are aggrieved in the notice of appeal.²⁹³

1. Hearings²⁹⁴

19. Appeals are reasonably informal and hearings are held in camera. Section 857 requires the Appeal Commissioners to make a statutory declaration upon taking up office to preserve the confidentiality of the taxpayer's affairs.²⁹⁵ Section 856 provides that Appeal Commissioners cannot hear cases in which they have a personal interest. The two Appeal Commissioners sit together only in very large or complex cases.²⁹⁶ In such cases, the Commissioners agree in advance who is to be the Chairman. The Chairman will have a casting vote in the event of a disagreement, which we have been told occurs seldom, if ever.²⁹⁷

20. The hearing usually begins with the submission of the taxpayer, followed by the Revenue Commissioners’ submission. The taxpayer is typically allowed to respond to the Revenue Commissioners’ submission. Either side may call witnesses. Taxpayers may represent themselves at an appeal hearing or may choose to be represented by a barrister, solicitor, accountant, member of the Irish Taxation Institute or any other person the Appeal Commissioners permit. In fact, taxpayers will only represent themselves about 3% of the time. Significantly, the taxpayer will only have legal representation in 5-10% of the cases before an Appeal Commissioner.²⁹⁸ In almost all the remaining cases, accountants or tax advisors act as the advocate for the taxpayer. The Inspector of Taxes presents his or her own side of the case.

21. The Appeal Commissioners have the power to administer an oath, but only do so rarely, where there is a particular reason. The Appeal Commissioners may issue precepts²⁹⁹ to the appellant, and have the power to summon, and examine on oath, any person whom they think would have relevant information in respect of an assessment made on another person. An individual, who fails to appear, refuses to take the oath or answer lawful questions before the Appeal Commissioners is liable to a fixed €950 penalty.³⁰⁰

22. The Appeal Commissioners hear ‘lawful evidence’.³⁰¹ This is taken to mean that the Appeal Commissioners should follow the rules of evidence as applied by the courts. However, the Appeal Commissioners apply the rules in a more relaxed way than would a court. Section 934(3) TCA 1997 places the burden of proof on the taxpayer. It provides that:

“[w]here on an appeal it appears to the Appeal Commissioners by whom the appeal is heard … by examination of the appellant on oath or affirmation or by other lawful evidence that the appellant is overcharged by any assessment, the Appeal Commissioners shall abate or reduce the assessment accordingly, but otherwise the Appeal Commissioners shall determine the appeal by ordering that the assessment shall stand.”³⁰²

23. The Appeal Commissioners may also increase or reduce the amount of an assessment.³⁰³ Section 934(7) of the TCA 1997 requires the Appeal Commissioners to record every determination of an appeal and transmit the record to the Inspector or other officer within 10 days of the determination. The determinations are recorded on a form provided by the Revenue Commissioners, known as the Form AS1, ‘Appeal Sheets’.³⁰⁴ Generally, determinations involve either upholding the appeal or the confirmation of the amount of taxable income. The facts found in each case and the reasoning for such determinations are given orally at the hearings at which the determinations are made, but are not recorded on the relevant Form AS1, as part of the determination.³⁰⁵

1. Interest

24. Both pending and during the appeal, interest will continue to accrue on the amount of tax unpaid. Section 1080(1)(b) (as amended) provides that:

“any tax charged by any assessment to income tax shall, notwithstanding any appeal against such assessment, carry interest at the rate 0.0322 per cent for each day or part of a day from the date when, if there were no appeal against the assessment, the tax would become due and payable under section 960 until payment.”³⁰⁶

25. In the event of a determination against a taxpayer, the taxpayer will be obliged to pay the difference between the tax indicated as due on the return and the Revenue Commissioners’ assessment, plus the interest on the sum from the date it originally became due and payable. Thus, in those circumstances, the longer the appeal process takes, the more the taxpayer will owe.

26. Section 958(9) of the TCA 1997 provides an exception to this general rule. Where a taxpayer has made a true and accurate return for the relevant year and the tax paid by the taxpayer prior to the appeal amounts to at least 90% of the tax held to be payable on the determination of the appeal, the additional tax will be deemed due and payable within one month of the date of the determination of the appeal.

27. Another way in which a taxpayer can avoid the payment of interest on the underpayment of tax, from the date when the original payment of tax became due and payable is if an expression of “doubt” under section 955(4) TCA 1997 is made. This provides:

“(a) Where a chargeable person is in doubt as to the application of law to or the treatment for tax purposes of any matter to be contained in a return to be delivered by the chargeable person, that person may deliver the return to the best of that person's belief as to the application of law to or the treatment for tax purposes of that matter but that person shall draw the Inspector's attention to the matter in question in the return by specifying the doubt and, if that person does so, that person shall be treated as making a full and true disclosure with regard to that matter.” (Emphasis added).

28. There is provision for the payment of interest where a taxpayer has overpaid their tax. Section 865A (3) of the TCA 1997 as inserted by section 17 of the Finance Act 2003 provides that the interest payable “shall be simple interest payable at the rate of 0.011 per cent per day or part of a day.”³⁰⁷ This rate amounts to 4.015 per cent annually. Interest will not be repayable if it amounts to less than €10.

1. Costs

29. The Appeal Commissioners do not have the power to award costs. The UK VAT and Duties Tribunal has unlimited power to award costs. However, Customs and Excise do not generally seek costs from the taxpayer. The UK Special Commissioners can award costs against any party to the proceedings if they are of the opinion that the party has acted wholly unreasonably in connection with the hearing in question.³⁰⁸

3. Previous Reviews of the Appeal Commissioners

30. The Office of the Appeal Commissioners has recently been examined by both the Steering Group and the DIRT Inquiry.³⁰⁹ The reviews concluded that, while certain improvements could be made, broadly speaking, the current appeal system works well.

1. The Steering Group

31. The Steering Group was composed of high-level officials from the Department of Finance, the Revenue Commissioners, the UK Institute of Directors and a consultancy firm, Prospectus Strategy Consultants. It was established by the Minister for Finance in response to a recommendation in the first of the DIRT Inquiry’s three reports. The First Report of the DIRT Inquiry recommended that a review of the Revenue Commissioners’ independence, accountability, organisation and structure be undertaken. The Steering Group’s Report was commented on by the DIRT Inquiry in its Final Report. The Steering Group held discussions with the Appeal Commissioners, the Revenue Commissioners, the Consultative Committee of Accountancy Bodies in Ireland and the Irish Taxation Institute to gauge satisfaction with appeal procedures.³¹⁰ It made the following recommendations:

    1. the publication of an Annual Report;

    2. the Appeal Commissioners should comment on areas of tax law in the Annual Report based on their experience of interpreting the legislation;

    3. a separate Vote of Funds and Accounting Officer for the Office be considered; and

    4. a review of the adequacy of the Office’s resources.³¹¹

32. The recommendation empowering the Appeal Commissioners to comment on tax legislation has not met with approval, since this comes close to asking the Appeal Commissioners to prejudge the issue. As to the remaining recommendations, provision has been made for the Appeal Commissioners to have a separate Vote and Accounting Officer and the resources of the Office have been increased in the 2003 Book of Estimates.

1. The DIRT Inquiry³¹²

33. The DIRT Inquiry concluded that the “Office of the Appeal Commissioners is currently a small and under-resourced but nonetheless vital part of the Irish tax administration system.”³¹³ It recommended that any new statutory footing for the Revenue Commissioners should also extend to the Appeal Commissioners and also that the following changes be considered as part of any new Bill: transparency in the appointment of Appeal Commissioners should be increased by publicly advertising future vacancies; specifying minimum qualifications and introducing a revised selection procedure; any future selection process should take into account the need for expertise in accountancy, taxation (including Customs and Excise), public administration and law to reside in the Commissioners collectively, and a mechanism for the removal of Appeal Commissioners should be introduced. The Report also recommended the appointment of a third Appeal Commissioner, with one of the three Commissioners acting as the Chairperson and Head of the Office; and an increase in resources to facilitate the preparation of an annual report, publication of determinations, and the establishment of a website.³¹⁴

34. While the Minister for Finance has not yet given effect to these proposals he did established a Revenue Powers Group in April 2003 to examine the main statutory powers available to the Revenue Commissioners. The Group is composed of individuals with a broad range of professional and practical experience and is due to report by the end of October 2003. Consequently, as yet, no new statutory footing has been provided for the Appeal Commissioners, and the DIRT Inquiry’s recommendations regarding the future selection process and appointment of Appeal Commissioners have not been implemented.

35. The Department of Finance has requested that interested parties make submissions commenting on the recommendations made in the Final Report of the DIRT Inquiry on the Office of the Appeal Commissioners.³¹⁵ In response to this, the Irish Taxation Institute made recommendations on the independence of the Appeal Commissioners and the conduct of appeals generally.³¹⁶ It agreed with many of the DIRT Inquiry’s recommendations, and concluded that the “appeals system is generally regarded as effective and accessible to the public. The informal nature of appeal hearings is a vitally important option for any taxpayer who has neither the resources nor the tax bill to justify major legal representation.”³¹⁷ It recommended a change of name for the Appeal Commissioners and suggested “Tax Court” as an alternative. The Institute made the following recommendations in relation to the conduct of appeal hearing:

    1. the introduction of a guide to the appeals system aimed at the layperson;

    2. the standardisation of the time-limits for lodging an appeal in order to avoid confusion;

    3. the introduction of a maximum time-frame within which an appeal is heard, determined and publicised;

    4. a statutory obligation on the Revenue Commissioners to state the reasons for the assessment it raised;

    5. the extension of the subject-matter of appeals to include interest, penalties and fines;

    6. the recognition of Revenue concessions and/or statements of practice by the Appeal Commissioners when hearing an appeal; and

    7. the use of the oath for all persons appearing before the Appeal Commissioners in order to avoid a perception of unevenness of treatment.³¹⁸

36. In its submission to the Department of Finance, the Institute of Chartered Accountants in Ireland recommended that a body like the Top Level Appointments Committee (“TLAC”) should be responsible for appointing Appeal Commissioners. It also suggested that each Commissioner should have expertise in accountancy and taxation when appointed, and that ongoing training in areas the Appeal Commissioners consider appropriate should be available to the Appeal Commissioners.³¹⁹

4. Law Reform Commission’s Recommendations for Reform

37. The recent studies, just noted, have expressed the view that the Office of the Appeal Commissioners operates efficiently. Accordingly, the Commission thinks that a useful course here is to examine certain intermediate-level proposals for reform, some of which have been made in other reports, but which are considered here in greater detail.

1. Appointment Process

38. The Commission agrees with the recommendations of the DIRT Inquiry concerning the need for a more transparent appointment process for Appeal Commissioners. Broadly speaking, modern systems for selection have as their main theme, a division of authority between some impartial expert group and the Government. This is achieved by the expert group nominating a qualified person or persons, from which the Government selects one. This system ensures that the selection and appointment process is transparent, in contrast to the present system (see paragraph ). In considering what form an improved appointment process for Appeal Commissioners should take, it is worth considering, as models, both the Top Level Appointments Committee (“TLAC”) and An Bord Pleanála models. Care should be taken to avoid such a process being subverted into a fig leaf for nepotism. For example, if the nominating body has to name a long list of candidates, then the real selection is by the Minister or Government and is open to the perception of party partisanship. On the other hand it is arguable that the final say in such appointments should rest in the Government acting responsibly.

1. Models

39. The TLAC is an independent non-statutory advisory body which was established in 1984. It is responsible for selecting appointees for senior Civil Service posts subject to certain exceptions.³²⁰ TLAC is composed of the Secretary General, Public Service Management and Development, Department of Finance; Secretary General to the Government; two Secretary Generals of Departments and a person drawn from the private sector; each chosen by the Taoiseach after consultation with the Minister for Finance; and, in the case of the appointment of a Secretary, the outgoing incumbent.³²¹ The TLAC has been credited with improving the quality and mobility of top management in the Irish Civil Service.³²² Its advice has been accepted by the Government in all the cases of which we know. The TLAC will short-list candidates and usually meets them before making a recommendation to the Government. Generally, the TLAC recommends only one person, but in the case of Secretaries General, TLAC makes three recommendations, listed in alphabetical order, from which the Government makes its selection.

40. The other system which could be taken as a model is that used for appointment of the Chairperson of An Bord Pleanála.³²³ The Government selects from a list of (usually three) candidates drawn up by an independent statutory committee. The committee is composed of the President of the High Court; the Cathaoirleach of the General Council of County Councils; the Secretary-General of the Department of the Environment and Local Government; the Chairperson of the Council of An Taisce – the National Trust for Ireland; the President of the Construction Industry Federation; the President of the Executive Council of the Irish Congress of Trade Unions; and the Chairperson of the National Women’s Council of Ireland.³²⁴ Section 105(7)(a) requires the committee to select three candidates,³²⁵ and inform the Minister of the reasons why the committee believes they are suitable for the appointment.

1. Proposed Reform

41. Appeal Commissioners should be appointed for a fixed seven year term, which is renewable.³²⁶ On the one hand a fixed term of seven years, even renewable, might seem to diminish an Appeal Commissioner’s independence. On the other hand, this does give an opportunity not to reappoint an unsatisfactory Commissioner. The balance is plainly a difficult one. However, we are persuaded by other modern precedents that making the office renewable at seven yearly intervals is a preferable model than a term of office, which runs until retirement age regardless of the quality of the Commissioner’s work.

42. We are of the view that a Committee, modelled on the Committee used for the appointment of the Chairperson of An Bord Pleanála, with particular knowledge in the tax field should be established for future appointments of Appeal Commissioners. There would be no need for an elaborate procedure since the various groups affected by tax could be drawn together in one Committee. The Commission believes that an ad hoc expert Committee would be more advantageous than the TLAC itself, as it would allow for representation of a greater variety of interests. There is no need to set out precisely the expert bodies in the tax field, but examples of interested bodies would be the Department of Finance, the Revenue Commissioners, the Appeal Commissioners, the Irish Taxation Institute, the Institute of Chartered Accountants in Ireland, IMPACT, the Law Society of Ireland and the Bar Council of Ireland.

43. Common to both the TLAC and An Bord Pleanála models is the Government’s entitlement to choose from among a number of candidates. The Commission believes that this discretion should be retained and replicated in any new process used for the appointment of future Appeal Commissioners. The Minister for Finance must choose a candidate from among this group. An Appeal Commissioner should only be reappointed by the Minister for Finance following a recommendation of the expert group that reappointment is appropriate.

44. It would seem desirable not to establish an entirely separate selection machinery. This selection system would not require a new administrative unit but simply a consultation process, which would be co-ordinated by a senior official in the Department of Finance. It is unlikely that questions could reasonably be raised concerning the impartiality of a senior official responsible for co-ordinating the nomination process, difficulties have not arisen as a result of an official within the Department of the Environment and Local Government co-ordinating the nominations of the prescribed organisations under the Bord Pleanála model. The remaining question is how many candidates the Committee should recommend to the Minister for Finance. The expert group should recommend a maximum of three candidates in order not to undermine too far the influence of the expert groups.

45. The Commission recommends the establishment of an open and formal selection and appointment process for future Appeal Commissioners. An Appeal Commissioner should be appointed for a seven year fixed term, which is renewable. The proposed system would be that a group of experts from the fields of accountancy, law and taxation be used to short-list three possible candidates for appointment to the Office of Appeal Commissioner or else if none are eligible for security or other good reasons, the Minister should request the expert group to reconvene and engage again in the process of nomination. The Minister for Finance would then choose the Appeal Commissioner from among this further shortlist. The expert group should recommend whether or not the Minister for Finance should reappoint an Appeal Commissioner.

1. Qualifications

46. In conjunction with the establishment of a more transparent selection process for future Appeal Commissioners, minimum qualifications should be specified. It seems obvious that these qualifications should be in at least one of the following relevant fields: taxation, accounting or legal practice. The Commission has considered the further question of whether it might be appropriate to require all future appointees to have some form of legal qualification³²⁷ due to the increasing number of tax appeals, which require the Appeal Commissioners to interpret legislation. For example, in the UK, a ten year-qualification as a lawyer is required for appointment as a Special Commissioner. Seven years’ legal qualification is required for appointment to the VAT and Duties Tribunal.³²⁸ District Court judges or experienced lawyers normally make up the membership of New Zealand’s Taxation Review Authority.³²⁹ As against this, the current Appeal Commissioners do not have legal qualifications, and no complaints have been made in relation to their interpretation of the various pieces of legislation before them.

47. The Commission believes that it suffices if an Appeal Commissioner has a professional qualification for a specified period in any of the fields of: legal practice, accountancy or taxation and is otherwise well qualified.

48. Another issue concerns the recommendation in the Final Report of the DIRT Inquiry (discussed at paragraph ) that any future selection process should take into account the need for expertise in accountancy, taxation (including Customs and Excise), public administration³³⁰ and law “to reside in the Commissioners collectively.”³³¹ This would seem to mean that each of the Appeal Commissioners would possess qualifications or experience in the different areas specified so that collectively they would cover all or most of the fields mentioned. While the advantage of such a requirement would be that the Appeal Commissioners would have a pool of varied and complementary knowledge, experience and expertise at their disposal, the advantage would be very limited because the Appeal Commissioners very rarely sit together. To put it simply: it would be of no advantage to a taxpayer what qualification was possessed by the Appeal Commissioner who does not hear that taxpayer’s appeal. Moreover, it could result in a system whereby a taxpayer would seek to appear before one Commissioner as opposed to the other, because one Commissioner coming from one profession might take a different approach from the other Commissioner from another profession. This is something which may happen anyway, but we should not wish to build it into the system. Accordingly, the Commission’s conclusion is that an attempt should not be made to ensure that each Commissioner comes from a different professional background.

49. When a vacancy appears, the Commission recommends that the qualifications for the new appointee should be specified as minimum qualifications in tax, accounting or law, irrespective of the profession of the remaining Commissioner.

1. Removal of Appeal Commissioners

50. In the past three or so decades, the requirement of independence for significant quasi-judicial and other public positions has gained prominence. An important safeguard of independence is security of tenure. This is the notion which has underpinned the judiciary since (in Ireland) the Act of Settlement 1701.³³² The more recent examples include: the Ombudsman (Ombudsman Act 1980, section 2);³³³ the DPP (Prosecution of Offences Act 1974, section 2);³³⁴ members of An Bord Pleanála (Planning and Development Act 2000, section 105 (Chairperson) and 106 (ordinary members));³³⁵ or the RTÉ Authority (Broadcasting Authority (Amendment) Act 1976, section 2).³³⁶

51. Common to these provisions is the guarantee that the members hold office, subject to good behaviour and health, and sometimes the avoidance of bankruptcy, as determined by a resolution of each of the Houses of the Oireachtas.

52. Modelled on the similar and unexceptional provisions quoted in the previous footnotes, the Commission recommends that any new legislation ought to give the Office of the Appeal Commissioners the same sort of security as given to the bodies discussed in paragraph . We recommend that the appointment of the Appeal Commissioners be put on a statutory footing, utilising the following draft statutory provision

A person appointed to be an Appeal Commissioner—

(a) shall hold office for a term of 7 years and may be re-appointed to the office on the recommendation of the expert committee for a second or subsequent term,

(b) may at his or her own request be relieved of office by the Minister for Finance,

(c) may be removed from office by the Minister but shall not be removed from office except for stated misbehaviour, incapacity or bankruptcy and then only upon resolutions passed by Dáil Éireann and by Seanad Éireann calling for his or her removal.

1. Listing

53. Currently the taxpayer communicates with the Appeal Commissioners via the Revenue Commissioners. One practical reason for this is that the appeal process is closely connected with the collection process. When a Revenue Inspector receives a Notice of Appeal, the Inspector will send notice to the Collector-General’s Office to stop collection of the tax. Another benefit of placing responsibility for the listing of appeals with the Inspector is the Inspector’s familiarity with the case. Typically, the Inspector will not have to spend a lot of time or resources checking to see if the conditions for appeal (see paragraphs -) have been complied with, as the Inspector will already be familiar with the case.

54. A number of disadvantages of the current system have been identified. The Revenue’s responsibility for the listing systems adds to the perception that the Appeal Commissioners are an arm of the Revenue Commissioners. In addition, although a taxpayer can apply to the Appeal Commissioners to have an appeal listed if an Inspector delays or refuses to list a case, the Inspector’s control over the listing system³³⁷ is open to abuse, though it should be emphasised that the Commission knows of no evidence of abuse. For example, if there are a number of cases which would turn on a similar point, an Inspector could, theoretically, choose to list the case most likely to fail. Another problem with maintaining responsibility for listing in the hands of the Revenue Commissioners arises in relation to delay in listing a case and the interest on the tax due which a taxpayer may be obliged to pay in the event their appeal is unsuccessful (see paragraphs -). If the Appeal Commissioners ultimately uphold the Revenue Commissioners’ assessment, and there was an underpayment of tax, interest will accrue on the underpayment from the date it originally became due and payable until the date it is actually paid, subject to cases where prior to the appeal, the taxpayer has paid 90% of the tax held to be payable on the determination of the appeal or has included an expression of doubt (explained at paragraph ) with their return. Thus, in those circumstances, the longer a taxpayer is waiting for an appeal to be listed and ultimately heard, the more the taxpayer will owe the Revenue Commissioners, the party responsible for contacting the Appeal Commissioners and arranging the time and date for the hearing of the taxpayer’s appeal.

55. The Appeal Commissioners believe that an improvement could be effected without the upheaval of removing the administration from the Revenue Commissioners. This could be achieved if the existing mechanisms were strengthened to increase the supervision by the Appeal Commissioners, of the discretion exercised by Inspectors when listing cases. In order to assess how this may be achieved, the current statutory protections need to be examined in more detail.

56. Section 933(1)(b) deals with cases where permission to appeal is refused because the Inspector thinks that the taxpayer has not complied with the preconditions for appealing.³³⁸ A taxpayer is entitled to appeal this refusal to the Appeal Commissioners by notice in writing within 15 days of the issue of the refusal. Accordingly, where there is a definite refusal of an appeal, the present law is satisfactory.

57. Section 933(2)(b)(ii) empowers an Inspector to refrain from notifying the taxpayer of the time and place for the hearing of an appeal, where it appears to the Inspector that the appeal may be settled by agreement. However, a problem arises where an Inspector fails to respond one way or another. Section 933(2)(c)³³⁹ may afford a taxpayer protection in these circumstances. It allows taxpayers to apply directly to the Appeal Commissioners where they have given notice of appeal to an Inspector and the appeal has not been listed.³⁴⁰ Although this appears to work satisfactorily in practice, the system is open to abuse. While receipt of a notice of appeal will be acknowledged as a matter of course, there is no obligation on an Inspector of Taxes to act on the notice of appeal within any particular time since an Inspector of Taxes is not obliged to submit the AH1 to the Appeal Commissioners within any particular time-limit. A way in which the protection provided by section 933(2)(c) could be strengthened would be to require the Inspector of Taxes to issue the taxpayer with a formal notice within a specified time, indicating either that the time and place of the appeal or the reasons why the appeal has not been listed. This would increase the accountability of the Inspector and make it easier for the taxpayer to invoke the protections available.

58. We suggest that three months would be an appropriate period as it would afford an Inspector a reasonable amount of time to assess the case.

59. The question is whether a more radical approach should be adopted, namely removing the listing of appeals from the Revenue Commissioners and placing it in the hands of the Office of the Appeal Commissioners. An independent registrar could be employed by the Appeal Commissioners for this purpose. The taxpayer could notify the registrar of the intention to appeal. The registrar could then communicate with the Revenue Commissioners to determine whether the taxpayer has satisfied the pre-conditions for making a valid appeal. If satisfied that the taxpayer has met these preconditions, the registrar could then list the case before the Appeal Commissioners, and communicate the time and place to both the Inspector and the taxpayer. An independent registrar within the Appeal Commissioners would solve any real or perceived problems which exist with the current arrangements for listing appeals. The argument against this proposal is that the present system is working at the moment, and can be improved by the fairly minor proposal made in paragraph . There would, if that were done, be no need for the more radical proposal.

60. This is very much a practical question. The Commission would welcome views of the informed public as to whether responsibility for listing appeals before the Appeal Commissioners should be removed from the Revenue Commissioners as considered in paragraph , or whether, as discussed in paragraph , the introduction of a three month time-limit within which an Inspector must respond in relation to listing an appeal would be sufficient.

1. Administration of the Oath

61. The Appeal Commissioners have the power to administer an oath, but they only perceive a need to do so in a small number of cases. Generally, only the taxpayer will be requested to take the oath: that is to say, an Inspector will rarely be asked to take an oath. This arises simply because the evidence of the Inspector depends on written documentation. However, this may create a perception of inequality between the taxpayer and the Inspector. Accordingly, as a matter of principle, the Commission thinks it important to stress that, in appropriate circumstances, even if they are exceptional, the Inspector of Taxes may be required to take the oath. Such an exceptional case might arise if the Inspector were asked to give evidence of what they have claimed to have seen on visiting the taxpayer’s residence or business.

62. The Commission recommends that the Appeal Commissioners should specify, (perhaps in their procedures manual/explanatory guide - see paragraph ) that, in appropriate and defined circumstances, the oath may be administered to the taxpayer or the Inspector of Taxes or both.

1. Recording of determinations

63. The Appeal Commissioners are currently required to record every determination of an appeal (see paragraph ). Determinations are recorded on a Form AS1, a form which is essentially within the control of the Revenue Commissioners. The practice originated because the Revenue had large clerical resources and was involved in all cases. But the practice that one side in the case should have the decision recorded on ‘its’ form, is unjustifiable. It contributes incidentally to the impression that the Appeal Commissioners are not independent. Moreover today, with the ready availability of information technology and the proposed increase in staffing at the Appeal Commissioners, there seems to be no reason why the natural position – that is to say, that the Appeal Commissioners should control their own records and should make them freely available to each side – should not prevail. It is also arguable that the current reduced workload of the Appeal Commissioners, an average of 350 cases per year divided among two Commissioners, would mean that the Office of the Appeal Commissioners has time to maintain its own records.

64. The Commission recommends therefore that the Appeal Commissioners should control the record of their own decisions and make them available to both parties as of right.

65. While the facts found in each case and the reasoning for such determinations are given orally at the hearings by the Appeal Commissioners, they are not recorded in writing. (See paragraph ). Throughout public administration or the administration of justice, it has become increasingly accepted that where decisions are taken which significantly affect an individual’s rights, the reasons for such decisions should be given in writing. In its recent Report on Penalties for Minor Offences, the Commission recommended that District Court judges should be required to give concise written reasons for any decision to impose a prison sentence rather than a non-custodial sentence.³⁴¹ As noted in the Report, one of the classical arguments in favour of written reasoned decisions is that “a decision is apt to be better if the reasons for it have to be set out in writing because the reasons are then more likely to have been properly thought out.”³⁴² Additionally, the requirement to give reasons is an aspect of the general constitutional and human rights obligation to give reasons for a decision:

“[P]rior to the entry into force of the Freedom of Information Act 1997, a wide doctrine requiring administrative bodies to give reasons for their decisions had been deduced from the notion of constitutional justice. Decisions such as The State (Creedon) v Criminal Injuries Compensation Tribunal³⁴³ and International Fishing Vessels Ltd v Minister for the Marine³⁴⁴ had brought Irish jurisprudence to a level whereby nearly all tribunals or public bodies could be asked to provide at least some kind of explanation for their decisions, at any rate where judicial review proceedings were in prospect.”³⁴⁵

66. By now, under the Freedom of Information Act 1997, this is a statutory obligation, in respect of the public bodies specified in the Act to give reasons for their decisions. While the specified public bodies do not include the Appeal Commissioners, the general obligation, from constitutional justice just quoted would seem to apply. There is no reason why the Appeal Commissioners should be an exception to the principle. However, in the interests of greater certainty, it would be better if this obligation were expressed in statute.

67. Comparisons with the appeal system in the UK support the Commission’s recommendation. The Special Commissioners in the UK issue and circulate written determinations in all cases. The Special Commissioners (Jurisdiction and Procedure) Regulations 1994 provide that the Tribunal may give its final determination orally at the end of the hearing or may reserve it. In either event,³⁴⁶ the determination is recorded in a document which contains a statement of the facts found by the Tribunal and the reasons for the determination, and is signed by the Tribunal. The Clerk of the Tribunal will send a copy of the document recording the final determination to each party.

68. A second point at which the lack of written reasons becomes important is in connection with the preparation of a case stated from the Appeal Commissioners to the High Court (though this is a device which attracts only some 5-10 cases annually). Facts as decided by the Appeal Commissioners become central to cases when a party is seeking to have a case stated to the High Court. The lack of a written record of the Appeal Commissioners’ decision on the facts and legal reasoning has contributed to parties experiencing significant delays when trying to reach agreement on a case stated. While the parties may agree to employ a stenographer, this is not a desirable approach as it results in ad hoc recording (and only provides a solution to taxpayers who can afford to divide the cost of a stenographer with the Revenue Commissioners).³⁴⁷ If the Appeal Commissioners produced, at or about the time of the determination, a summary of the facts, its determination and reasons, the delay in agreeing a case stated would be substantially reduced. Given the workload of the Appeal Commissioners, as discussed in paragraph 3.05, it would not seem unreasonable to require the Appeal Commissioners to produce written determinations, which would include a summary of the facts found and the reasoning followed in arriving at such determinations for circulation to the parties. The Commission appreciates that producing a detailed summary entails some extra work, but written reasoned determinations could be produced inexpensively, if, for example, the scope of the AS1, currently used by the Revenue Commissioners, was expanded and circulated to all parties.

69. The next question which arises is how detailed the reasons should be. The general guidance here is that the duty to give reasons in an administrative context will be satisfied so long as the reasons given are meaningful. The reasons should be given in “general and broad terms,”³⁴⁸ so that the “gist”³⁴⁹ of the basis for a decision is apparent.³⁵⁰ At the same time, the reasons given should not be merely formulaic, since this would defeat the purpose of the recommendation.

70. Safeguards should be built into the system to ensure that there is no delay in issuing the written determination. A reasonable time-limit, within which the Appeal Commissioners must issue the written determination, should be established, since it would not be in the interests of the taxpayer or the Revenue for the process to continue ad infinitum. We propose that this time-limit should be three months. Additionally, in order to ensure that this time-limit is complied with an appeal should be deemed to have been determined in favour of the taxpayer if a written determination is not issued within three months. Section 34(8)(f) of the Planning and Development Act 2000 is an example of where this mechanism is used in order to ensure decisions are given within specified periods.³⁵¹

71. The Commission recommends that the Appeal Commissioners should issue a concise written reasoned determination in all appropriate cases within three months of the determination including reasons and a summary of the facts.

1. Publication of determinations

72. This last recommendation will also help in the present context. The Appeal Commissioners were given the power to publish details of their determinations under section 944A of the TCA 1997.³⁵² However, to date only twenty nine determinations have been published. There is no register of precedents³⁵³ and there seems to be a lack of public knowledge of the Appeal Commissioners’ decisions, even among accountants and other professionals. Certain practitioners, especially in Dublin, may hear about the decisions on the ‘grapevine’, but there is no reliable access to a very large number of cases. It has been suggested that this situation gives the Revenue Commissioners an added advantage over the taxpayer, due to the Revenue Commissioners’ having greater familiarity with previous determinations of the Appeal Commissioners and the procedure before the Appeal Commissioners.³⁵⁴

73. The Appeal Commissioners have acknowledged this difficulty, and are in the process of establishing a reporting and tracking system for determinations, and a number of determinations have been published on the website of the Appeal Commissioners, which is hosted by the Irish Taxation Institute.³⁵⁵ The Commission understands that the Appeal Commissioners intend to increase the number of determinations published when additional administrative staff are recruited and to publish a procedural manual and explanatory guide.

74. The Commission recommends the establishment, without delay, of an effective system for reporting decisions of the Appeal Commissioners, since knowledge of relevant precedents ought to be more widely accessible.

1. ‘What’s in a Name?’

75. The Commission believes that the Appeal Commissioners are independent, and that the present reforms which are in train will help dispel any lingering feeling on the part of the public that they are less than independent. However, there is one further simple change which could be made. The similarity in the names of the Office of the Revenue Commissioners and the Office of the Appeal Commissioners is part of the basis for the perception that the Appeal Commissioners are an arm of the Revenue Commissioners, and not an independent, impartial forum.³⁵⁶ We suggest a change of name. The question is: ‘what ought the new title be?’ The use of the term ‘Court’ ought to be avoided, as the courts have already held that the Appeal Commissioners are not involved in the administration of justice.³⁵⁷ Thus, the use of the description ‘Court’ would cause confusion about the status of the Office of the Appeal Commissioners. Of the alternative names, ‘tribunal’ or ‘board’ seem the most likely and, although “tribunal” has the more definite and precise meaning,³⁵⁸ it could risk confusion with tribunals of inquiry. The Commission, therefore, prefers the term “board”. As to the adjective, the Commission prefers ‘tax’ to ‘revenue’, again to avoid identification with the Revenue Commissioners.

76. The Commission recommends a change in the name of the Office of the Appeal Commissioners to the Tax Appeals Board. The Commission invites submissions on this point.

1. Scope of Appeal Commissioners’ Jurisdiction

77. The limited scope of review which the Appeal Commissioners may carry out has also been subject to criticism. Although interest and penalties often exceed the amount of the tax, the Appeal Commissioners have no jurisdiction to hear an appeal in relation to interest or penalties (except in relation to the issue of whether the 2% interest rate for fraud or negligence is applicable under section 1082:³⁵⁹ but in practice this is almost never levied). There are, however, other avenues open to a taxpayer wishing to challenge penalties imposed by the Revenue Commissioners, namely: an internal or joint review by an Inspector of Taxes and/or an External Reviewer (see paragraph -); the Ombudsman or a judicial review action alleging that they have been unfairly penalised by the Revenue Commissioners. Nor, at the moment, do the Appeal Commissioners have jurisdiction to consider Revenue discretions, statutory or extra statutory, exercised in accordance with the “the care and management” provision of section 849 of the TCA 1997. The Appeal Commissioners’ remit is confined to the interpretation and application of the law.

78. In the context of reform, the question to be asked is whether the Appeal Commissioners’ remit ought to be extended to cover appeals on penalties and hardship. A major argument for extending the Appeal Commissioners’ remit would be that a taxpayer should have a right of appeal from every decision of the Revenue to a body independent of the Revenue, and that the Appeal Commissioners would be an appropriate body to hear appeals on these issues, as they do on other matters. Additionally, as discussed at paragraphs - , if civil penalties are held to be criminal charges for the purposes of Article 6(1) of the ECHR, a right of appeal to an impartial and independent tribunal will have to be provided.

79. On the other hand, it may be said that the matters excluded from the Appeal Commissioners’ jurisdiction are discretionary, and so not appropriate to be dealt with by way of a tribunal, such as the Appeal Commissioners, which is designed to apply rules. Moreover, the existing appeal mechanisms, which have been listed in paragraph , may be considered to be sufficient. It is arguable that the current system of appeals strikes a balance between the Revenue Commissioners’ right to enforce penalties, utilising their discretion under the ‘care and management’ provisions and, on the other hand, a taxpayer’s right to be treated fairly.

80. If an appeal to the Appeal Commissioners on the issue of penalties were created, a further question would arise, namely whether an appeal from the Appeal Commissioners to the Circuit Court and also the High Court and Supreme Court should also be allowed. See paragraphs - for a discussion on this point.

81. The Commission recommends that the Appeal Commissioners’ jurisdiction be extended to cover appeals against penalty determinations made by the Revenue Commissioners. A further fresh appeal should lie from the Appeal Commissioners to the Circuit Court and from there an appeal on points of law to the High Court and Supreme Court. The Commission looks forward at the consultation phase to hearing views on whether the Appeal Commissioners jurisdiction should be further extended to, for example, hardship cases.

82. Another point arises in relation to the Appeal Commissioners’ jurisdiction to issue precepts. Once a Notice of Appeal has been issued, the Appeal Commissioners have the power under section 935 of the TCA 1997 to issue a precept ordering the appellant to deliver to them, within certain time limits, a schedule containing particulars of:

(a) “the property of the appellant;

(b) the trade, profession or employment carried on or exercised by the appellant;

(c) the amount of the appellant's profits or gains, distinguishing the particular amounts derived from each separate source; or

(d) any deductions made in determining the appellant's profits or gains.”

83. A precept is a “command; a written order; an order or direction given by one official person or body to another requiring some act to be done.”³⁶⁰ Precepts are very rarely used. However, the Appeal Commissioners only have the power to issue precepts to appellants and not to other witnesses.³⁶¹ The Appeal Commissioners believe that the power to require the production of documents should be extended to include all witnesses.

84. The Commission recommends that the Appeal Commissioners be given the power to issue precepts to all witnesses to assist them in performing their functions.

5. The Circuit Court

   1. The Present Law

85. From the Appeal Commissioner, the taxpayer, though not the Revenue Commissioners,³⁶² has a right to appeal to a Circuit Court judge. The taxpayer may require the case to be reheard by a Circuit Court judge, on giving notice in writing to the inspector within 10 days of the Appeal Commissioners’ determination.³⁶³ The appeal, which is held in camera, is based on a full rehearing of the facts and law.³⁶⁴ Only about 10 to 15 appeals proceed to the Circuit Court from the Appeal Commissioner each year.³⁶⁵ Under section 942(3), the judge has the same powers as an Appeal Commissioner (a point to which we return at paragraph ).

1. Is there a need for an appeal to the Circuit Court at all?

86. Historically, the Appeal Commissioners were regarded as being very close to the Revenue Commissioners. However, it may be that until the proposed reforms are implemented, there would be room for suspicion that the appeal to the Appeal Commissioners was not an appeal to a perceptibly independent body.³⁶⁶ But in the past decade there has been a great deal of progress - and more in prospect - in terms of putting the independence of the Appeal Commissioners beyond question. Once the reforms in prospect have been implemented, then the question arises: why should a taxpayer have two opportunities at a complete re-hearing?³⁶⁷

87. To make comparisons with similar situations: if an applicant is refused a welfare benefit or planning permission, there is one appeal to an appeals officer³⁶⁸ or to An Bord Pleanála respectively but there is no possibility of a further full re-hearing before a court. The only right of appeal from the social welfare appeals officer is on a point of law to the High Court.³⁶⁹ A decision of An Bord Pleanála may only be challenged by way of judicial review.³⁷⁰ However, on the other hand, there is fresh right to appeal, from a decision of the Employment Appeals Tribunal to the Circuit Court. And in the case of another taxation system – business rates – there is an appeal from the Commissioners of Valuation to the Valuation Tribunal,³⁷¹ and thereafter an appeal to the High Court on a point of law;³⁷² and hence to the Supreme Court.³⁷³

88. Another relevant set of comparisons concerns the United Kingdom. Here, there is no entitlement to have a tax appeal re-heard anew: appeals from the General Commissioners take the form of cases stated to the High Court, but appeals from the Special Commissioners are heard on the basis of the Special Commissioners’ decision, and the papers which the Special Commissioners had before them. If a taxpayer wishes to appeal a decision of the Commissioners, different procedures apply, depending on whether the appeal was decided by the General or Special Commissioners. A taxpayer has 30 days to appeal a decision of the General Commissioners. The taxpayer must write to the Clerk of the Commissioners, requesting a case to be stated for the opinion of the High Court (in Scotland the Court of Session, or, in Northern Ireland, the Court of Appeal (Northern Ireland)). The taxpayer may be asked to identify the legal basis for the case stated. After a process involving the exchange of documents, the taxpayer must send the application to the relevant court. If a taxpayer wishes to challenge a decision of the Special Commissioners, a notice must be sent within 56 days, to the High Court, stating the grounds for the appeal.

89. As against this, it has been argued that the right of appeal to the Circuit Court is a useful right for the taxpayer. Both the expertise of the Appeal Commissioner and the generality of the Circuit Court have benefits. The advantage of an appeal to the Circuit Court is that it involves a fresh, dispassionate look at the issues, in contrast to cases at the Appeal Commissioner level, where an Appeal Commissioner may have set views on the matter. Another advantage lies in the – admittedly rare – case in which a question of law, other than revenue law, impacts in a revenue dispute. The wider experience of the Circuit Court judge might make for a ‘better’ decision. Practitioners to whom the Commission has spoken believe that, in practice, the appeal is useful, and a fairer result is achieved. The appeal to the Circuit Court Judge is a valued right among taxpayers and provides a safeguard for those aggrieved by a decision of the Appeal Commissioners. Furthermore tax appeals to the Circuit Court are usually dealt with locally with expedition.

90. The Commission recommends the retention of the taxpayer’s right to appeal to the Circuit Court. See also paragraphs -.

1. Should the Right of Appeal be Extended to the Revenue Commissioners?

91. This last recommendation leads to a discussion of whether the Revenue Commissioners should have a right to appeal a decision of the Appeal Commissioners to the Circuit Court. Significantly, while the taxpayer can appeal in all cases, the Revenue Commissioners have a right of appeal from the Appeal Commissioners to the Circuit Court only in the limited area of capital acquisitions tax cases.³⁷⁴ In all other cases, the Revenue Commissioners are bound by the Appeal Commissioners’ findings of fact, save in the unlikely event that they bring a successful action in the High Court, establishing that no reasonable Commissioner could have found as the Appeal Commissioner did on the facts.³⁷⁵ IMPACT, the trade union which represents the Association of Inspectors of Taxes, has advocated the extension of the Revenue Commissioners’ right of appeal from the Appeal Commissioners in a range of cases beyond capital tax cases.

92. In addition, it has been suggested that there is a higher rate of success in appeals to the Circuit Court than in appeals to the Appeal Commissioners. It is recognised that the Appeal Commissioners’ decisions can be the most important decisions as “many critical aspects of Revenue law are matters of fact”.³⁷⁶ Generally, issues of fact, which do not go in the Revenue Commissioners’ favour end with the Appeal Commissioners. It ought also to be noted that an exception for Capital Acquisitions Tax in which the Revenue Commissioners did have a right of appeal proved invaluable in securing an IR£1 million (€1.27 million) settlement with Mr Haughey in 2000:³⁷⁷ Mr Haughey had appealed the Revenue Commissioners’ assessment to tax to the Appeal Commissioners. The Appeal Commissioner hearing the case reduced the assessment to nil on the grounds that the evidence of the McCracken Report to the effect that the donor of the capital was Mr Dunne, the beneficiary Mr Haughey and that both were domiciled in Ireland) was an insufficient ground for the assessment to capital acquisitions tax. In the case of any other type of tax, the Revenue Commissioners would not have been in a position to challenge the Appeal Commissioner’s finding of fact. But in this case, the Revenue Commissioners were able to initiate an appeal from the Appeal Commissioners to the Circuit Court just because it was the exceptional case of capital acquisitions tax which was involved. Ultimately, a settlement of the Revenue Commissioners’ appeal to the Circuit Court was reached, because the Revenue Commissioners would have had a second opportunity to argue the case, and could have addressed the evidential shortcomings identified by the Appeal Commissioner.³⁷⁸

93. A countervailing point is that if the Revenue Commissioners were given a right to appeal to the Circuit Court in all cases, the issue of costs would become much more important in appeal cases. Costs will be granted at the discretion of the Court. At the moment, the parties to a Circuit Court appeal from the Appeal Commissioners do not generally seek costs, unless there is a feeling that the other party’s behaviour was unreasonable or vexatious. If appeals to the Circuit Court became a more common occurrence, the incidence of the parties seeking costs would probably increase. The potential amount of those costs should not be underestimated.

94. In principle, it would seem appropriate to extend the Revenue Commissioners’ right of appeal to the Circuit Court beyond Capital Acquisitions Tax cases. The Commission would welcome submissions on this point.

95. Section 942(5) of the TCA 1997 requires the Circuit Court Judge to make a special declaration to preserve the confidentiality of the taxpayer’s affairs.³⁷⁹ In the light of the constitutional declaration judges are required to make before entering into office, which supersedes all other declarations,³⁸⁰ this seems to the Commission to be an invidious requirement: no other legal provision requires a judge to make a particular declaration when performing a statutory function.

96. Accordingly, the Commission recommends that the requirement that the Circuit Court judge make this special declaration be terminated.

97. The Revenue Commissioners are responsible for listing appeals from the Appeal Commissioners to the Circuit Court Judge. The listing system operates in an analogous way to that which exists in the context of the appeal from the Revenue Commissioners to the Appeal Commissioners at paragraphs -. If the taxpayer wishes to appeal a decision of the Appeal Commissioners, the taxpayer must write to the Inspector who will in turn contact the Circuit Court in order to arrange for a judge to hear the appeal and the time and venue for the appeal. Section 942(2) of the TCA 1997 provides that the Inspector should transmit, to the Circuit Court Judge, at or before the time of the rehearing of the appeal the form on which the Appeal Commissioner’s determination was recorded.

98. Where an Inspector is delaying in listing a case for the Circuit Court, there is no explicit right for a taxpayer to apply directly to the Circuit Court (equivalent to that contained in section 933(2)(c) where an Inspector is delaying in listing an appeal before the Appeal Commissioners: see paragraph ). Thus, it would seem that, theoretically, an Inspector may delay indefinitely in listing a case. In an effort to counteract this, as one possible proposal, an equivalent protection to that contained in section 933(2)(c) should be provided for appeals to the Circuit Court Judge.

99. There is, however, a more radical alternative. Tax appeals to the Circuit Court Judge are unique within the Court system, in the sense that no file is created nor is any record of the proceedings kept by the Courts Service. The Revenue Commissioners perform a dual function in these cases: they are both a party to the appeal and the administrator of the appeal in that they have the entire responsibility for organising the Court time and venue with the Courts Service and for notifying the parties of the arrangements for the hearing. Comparable considerations arise in relation to the appropriateness of the listing of appeals remaining in the hands of the Revenue as were discussed in paragraphs -.

100. In the light of the above discussion, the Commission recommends, at a minimum that an equivalent to section 933(2)(c), with the amendment suggested at paragraph , be extended to appeals before the Circuit Court Judge. The question arises whether the Courts Service should create a file for each appeal from the Appeal Commissioners to the Circuit Court or whether the less radical reform of enabling the taxpayer to apply directly to the Circuit Court where an appeal has not been listed expeditiously before the Court would suffice. The Commission looks forward to receiving submissions on this point.

101. Section 942(4) provides that section 934(2), which stipulates who may represent a taxpayer before the Appeal Commissioners, will apply to a rehearing of an appeal before a Circuit Court Judge. Thus, a taxpayer may appear in person, or may choose to be represented by a barrister, solicitor, accountant, member of the Irish Taxation Institute or any other person whom the Circuit Court Judge may permit. In many cases at Circuit Court hearings lawyers represent the parties. The Revenue Commissioners do not employ independent counsel in all cases, but are likely to employ counsel where there is counsel on the other side, or where there are important issues at stake.

1. Hearing by a “Judge of the Circuit Court”

102. Appeals from the Appeal Commissioners are heard by Circuit Court Judges under an unusual provision. Section 942(1) provides that a person may require that an appeal from a decision of the Appeal Commissioners “be reheard by the judge of the Circuit Court” rather than the Circuit Court.

103. The significant case in this field is Inspector of Taxes v Arida Limited.³⁸¹ This was a case stated from the Circuit Court to the High Court and, subsequently, the Supreme Court. The question of law to be determined was “whether a Circuit Court Judge sitting to hear an appeal pursuant to the provision of section 429 of the Income Tax Act, 1967, has any jurisdiction to award costs.”³⁸² The substantive case concerned an appeal to the Circuit Court from the decision of the Appeal Commissioners confirming assessments. The Circuit Court Judge upheld the appeal, and awarded the costs in favour of Arida. The Inspector of Taxes took a case stated to the High Court, asking whether a Circuit Court Judge hearing an appeal pursuant to section 429 of the Income Tax Act 1967 (“1967 Act”) had jurisdiction to award costs.³⁸³

104. First, the respondent Arida argued that the Circuit Court Judge had express power to award costs under the Rules of the Circuit Court, and in particular under Order 58, rule 1 of the Circuit Court Rules 1950, which provides that a judge may award costs in any proceedings ‘save as otherwise provided by statute’. Secondly, the 1967 Act did not expressly or implicitly prohibit the Circuit Court from awarding costs. In the alternative, the respondent argued that the Circuit Court judge had express power, under its inherent jurisdiction, to award costs.

105. In response, the appellant argued that under section 429(2) the Circuit Court Judge heard the appeal qua Appeal Commissioner.³⁸⁴ Accordingly, the Circuit Court Judge could only exercise the same powers as an Appeal Commissioner, who did not have the power to award costs under the 1967 Act. Secondly, the appellant relied on section 428(6) of the 1967 Act which expressly granted the High Court the power to award costs in a case stated from the Appeal Commissioners. The appellant alleged that it was to be inferred, on the basis of the maxim expressio unius est exclusio alterius,³⁸⁵ that the Circuit Court Judge had no such power.³⁸⁶

106. The Circuit Court judge accepted both of the respondent’s arguments as outlined in paragraph , namely that a Circuit Court judge had inherent jurisdiction to award costs and, alternatively, that a Circuit Court judge had power to award costs under the rules of court. In the High Court, Murphy J answered the question in the affirmative. The Supreme Court also upheld the decision of the High Court on the basis that the phrase “any proceedings in the Court” in O. 58 of the Circuit Court Rules was wide enough to embrace appeals from the Appeal Commissioners, and there was no indication that the Circuit Court Rules were to be disapplied.³⁸⁷ Egan J held that:

“It is inconceivable, in the absence of any indication to the contrary, that the Oireachtas intended that the whole paraphernalia of procedural regulation provided for by the Circuit Court Rules, 1950, should be disapplied merely because a particular jurisdiction is conferred upon the Circuit Court by legislation other than the Courts Act.”³⁸⁸

1. In short, the Supreme Court decision seems to reject the notion of a distinction between the Circuit Court and a Circuit Court judge.³⁸⁹

2. While it is now clear that a Circuit Court judge can award costs when hearing an appeal from the Appeal Commissioners, the wider question remains as to whether the Circuit Court Rules apply in their entirety to such proceedings. It is at least arguable that one can infer from the Arida decision that the Circuit Court Rules apply when a Circuit Court judge hears an appeal from the Appeal Commissioners. The significance of this might arise, for instance, in relation to discovery, which has, in fact, already been granted by a Circuit Court judge in an appeal from the Appeal Commissioners to the Circuit Court. ³⁹⁰

3. However, these appeals continue to be heard under unusual circumstances. The Registrar is not present, and therefore the Registrar cannot record the case.³⁹¹ As the judge has no Registrar, the judge has no information on the case. The judge does not know how many tax appeal cases are pending. When the case has been heard and the judge makes a decision, the Revenue Commissioners send an AS1 to the judge, on which the judge writes the decision, signs it and returns it to the Revenue Commissioners. The judge therefore has no record of the case. Although the intention behind the special arrangements for hearing tax appeals is to keep the appeal as informal as possible, records of the proceedings should be kept.

4. The Commission recommends that a registrar should attend all hearings.

1. The High Court and Supreme Court

1. Under the existing system, if either the taxpayer or the Inspector considers the Appeal Commissioner’s decision to have been erroneous on a point of law, they may ask the Appeal Commissioner to state a case to the High Court.³⁹² The application must be made within 21 days of the Appeal Commissioner’s decision. The taxpayer is again obliged to pay the tax as assessed by the Appeal Commissioner before a case stated may be taken.³⁹³ Alternatively, the taxpayer may appeal to the Circuit Court by way of complete rehearing. If the taxpayer remains dissatisfied with the outcome, he may seek a case stated from the Circuit Court to the High Court. Moreover, at this stage, the Revenue Commissioners may seek a case stated. Finally, an appeal will lie at the instance of either party from the High Court to the Supreme Court.³⁹⁴

2. Sixty three applications for cases stated were made to the Appeal Commissioners from 1 January 1998 to November 2002 – in other words, an average of 10 applications each year; but the Appeal Commissioners estimate that only three of these cases would have reached the High Court annually, the others being withdrawn or settled. A survey of the reported cases stated reveals that there has been an average of 1-2 cases stated reported annually.

3. There are few applications for cases stated made to the Circuit Court, with only a very few cases stated a year being signed by a Circuit Court judge.

4. Criticisms have been levied at the case stated procedure due to the inordinate length of time it may take the parties to agree a case stated. As a case study, take O’Connell v Keleghan.³⁹⁵ The delay between hearing before the Appeal Commissioner’s and stating the case to the High Court was just over four and a half years. The Appeal Commissioner’s hearing was held in March 1995. The Appeal Commissioner stated a case to the High Court in September 1999. The High Court gave a decision in February 2000, and the Supreme Court issued its decision in May 2001. In another case, the case stated was dated almost five years after the Appeal Commissioner’s hearing and decision.³⁹⁶ It has been suggested that this is not unusual.³⁹⁷

5. Currently, Order 62 of the Circuit Court Rules 2001 governs cases stated. Only Rules 6-10 of the Order apply to Revenue cases stated.³⁹⁸ Rule 7 requires the party seeking the case stated to send a copy of the notice required by section 428(2) of the Income Tax Act 1967. The party seeking the case stated must also send, within three months of the judge’s determination, a draft of the case stated to the other party and to the County Registrar for transmission to the judge. In the event of the parties failing to reach agreement on the text of the case stated, the final word lies with the Circuit Court judge, who must draft, sign and state the case.³⁹⁹

6. One way of addressing the problem of delay difficulty would be to place more stringent time-limits on the parties to ensure that a case stated is agreed within a reasonable time. An obligation could be placed on the parties to submit the terms of the case stated either to the Appeal Commissioner or the Circuit Court Judge within a specified period of the decision: if the parties fail to comply with this requirement, the case should automatically be relisted before the Appeal Commissioner or the Circuit Court Judge.⁴⁰⁰

7. The delay experienced in relation to a case stated is a problem common to all cases stated and more appropriately falls within the ambit of the Working Group on the Jurisdiction of the Courts, established in January 2002. Accordingly, the Commission makes no recommendation on this point.

8. Nevertheless, the procedure for agreeing a case stated needs to be improved in order to reduce, at an earlier stage, the scope for excessive delays. The Commission believes that at the root of the delay in the present system is the fact (already mentioned in the context of the Appeal Commissioners at paragraph ) that currently no written, reasoned decisions are produced. For, if both the Appeal Commissioners and the Circuit Court produced written decisions, which included a summary of the facts found and the reasoning leading to the decision, there would be less scope for disagreement between the parties on the facts, the decision or the point of law at issue and, therefore, less delay between the decision of the Appeal Commissioner or Circuit Court and the case stated to the High Court.

9. However, the Commission’s recommendation above at paragraph , recommending that the Appeal Commissioners produce concise written determinations in all cases, would reduce the difficulties that parties experience in agreeing a case stated, and, therefore, should reduce the delays involved in the resolution of a case stated.

4. A Civil Revenue Court

   1. Introduction

1. The term “revenue court”, used in the Attorney General’s reference specifying the Commission’s terms of reference, is not further elucidated. However, various possibilities are worth considering here in order to explore the subject comprehensively. A “revenue court” could be assigned either criminal or civil jurisdiction, or both. This Chapter will address the benefits of creating a specialist court for civil revenue cases, and the form which any such court might take. The term “specialist court” can be used in a number of senses and contexts. (See for a discussion of the forms a specialist criminal court might take). “Specialist Court” will be used to refer to a court staffed by experts or specialists in tax law, with a concentration of all civil tax appeals in this court, which would also encompass the institutional innovation of a Revenue Court “constituted to have financial and accountancy assessor available to advise the Court” considered by the DIRT Inquiry.⁴⁰¹ The question of which of the existing arrangements it would replace is discussed at paragraph -.

2. Is there a need for a specialist civil revenue court?

2. A key issue which arises in this discussion is whether there is a need for a specialised court to hear civil tax matters. Would “significant advantages in justice and efficiency”,⁴⁰² not available in the current courts’ structure, result from the creation of a specialist civil revenue court? If it were established would the advantages outweigh the disadvantages? Before addressing these questions we describe two other sets of courts and tribunals, which offer useful analogies: first, the increasing specialisations in other areas of the civil law in Ireland; and, secondly, tax courts in other jurisdictions.

1. Specialisation in Other Areas of Law

3. The traditional principle of the common law is that, provided that opposing counsel present their cases effectively, the judge’s attention will be drawn to all the relevant arguments. Accordingly, the judge only has to follow the competing contentions, and need not be an expert in the relevant area. Despite this traditional view, it is striking that some specialisation within at least two other areas (competition and commercial cases) of the civil jurisdiction of the High Court is under consideration.

1. Competition Cases

4. The Competition and Mergers Review Group recommended that “[w]here possible, competition law cases in the High Court should be determined by a judge drawn from a small panel of High Court judges with a training and/or expertise relevant to competition law and economics, which panel would be nominated for this purpose by the President of the High Court on an informal basis.”⁴⁰³ “The OECD in its report on Regulatory Reform in Ireland (April, 2001) also approved of this recommendation.”⁴⁰⁴ The President of the High Court has now nominated particular judges for this purpose in competition cases.

1. Commercial Cases

5. The Company Law Review Group (“CLRG”) in its First Report⁴⁰⁵ examined the case for establishing a “Commercial Division within the High Court which would deal with a Companies list as well as other commercial cases”.⁴⁰⁶ The group approached the issue from two points of view – (i) dedicated treatment of company law within the High Court system and (ii) improving dispute resolution in company law cases.

6. The Group noted that it was not proposing reforms “because of a general perception of problems and inadequacies” in corporate litigation in the courts.⁴⁰⁷ Nor did it receive submissions which referred to specific inefficiencies due to delay of process or the lack of specialised company law expertise in the administration of justice. The Group made its recommendations in the context of an expectation that the growth in economic activity in the State and the increasing use of e-commerce, which may have complex or international dimensions, would lead to more commercial law disputes coming into the courts.

7. The CLRG Report recommended that a Commercial Division be established within the High Court to deal with a Companies list and other commercial cases.⁴⁰⁸ It recommended that a specific judge and dedicated back-up judges should be assigned to the Companies list. The 27^th Interim Report of the Committee on Court Practice and Procedures also saw merit in a more specialised approach to commercial cases and suggested that a division of the High Court could be developed into a de facto Commercial Court under the direction of the President of the High Court, which would involve judges with a particular expertise specialising in the area as opposed to the creation of a stand-alone court.⁴⁰⁹

8. The Minister for Justice has announced that the President of the High Court intends establishing a Commercial Court as a division of the High Court in 2003 and a Working Group is drafting Court Rules for it. It is envisaged that this court will not be established until later this year.⁴¹⁰ The class of cases falling within the new arrangements for commercial litigation will not necessarily coincide with the recommendations of the Company Law Review Group or the Committee on Court Practice and Procedures. The categories of cases which will be assigned to the new Commercial list will probably be determined by practice directions.

1. Conclusion

9. Provision for specialisation in revenue cases also exists. The Rules of the Superior Courts provide that “[s]ubject to the power of transfer, proceedings in Revenue causes and matters shall be assigned to such Judge as the President of the High Court may from time to time assign to hear the same.”⁴¹¹ Additionally, Order 36, rule 41 provides that “[t]rials with assessors shall take place in such manner and upon such terms as the Court shall direct.”⁴¹² Thus in theory, a judge could appoint an assessor, if a case required the technical assistance of an expert in accounting or tax matters.

10. Although these specialisations exist or are in contemplation in the High Court, they are not present in the organisation of the Circuit Court. The case for the assignment of a particular judge to tax appeal cases in the Circuit Court will be discussed below at paragraphs -.

1. Models from other jurisdictions

11. In this Part, the Tax Court of Canada and the United Kingdom’s General and Special Commissioners are described in order to illustrate the advantages associated with the different approaches of a specialist court and a specialist tribunal for civil tax appeals.

1. Specialist Tax Court: Canada

12. The Tax Court of Canada provides an example of a specialist tax court.⁴¹³ Its predecessor was the Tax Review Board, which was itself preceded by the Income Tax Appeal Board.⁴¹⁴ The name of the Tax Review Board led to the mistaken public perception that it was an extension of the Department of National Revenue. The Government decided to make the Board a court in both name and status in order to establish clearly its judicial independence. Accordingly, the Tax Court was created in 1983 under the Tax Court of Canada Act.

13. When the Tax Court was established, the Government was eager to retain the advantages which flowed from the use of informal procedures before the Tax Review Board. With this in mind, two forms of procedure, the informal and formal, exist before the Tax Court. The informal procedure may only be selected under certain circumstances. One of the advantages of the informal procedures is a guarantee that the entire procedure will be completed within certain time-limits. The taxpayer is also entitled to be represented by an accountant instead of a lawyer. Legal rules are not applied strictly, but rather flexibly. Decisions do not set a precedent. The taxpayer cannot be ordered to pay the costs incurred by the Canadian Customs and Revenue Agency (“CCRA”). By contrast, under the formal procedure all the legal rules that normally apply to a procedure before the Federal Court of Appeal apply. Only lawyers may represent the taxpayer. There are no set time-limits. Rulings do set precedents. The taxpayer has to pay a court fee of between Canadian $250 and $550. The Tax Court can order the taxpayer to pay the expenses incurred by the CCRA.⁴¹⁵

14. However, when these arrangements were reviewed in a report prepared in 1997 on the Tax Court of Canada, the report concluded that “on balance … a separate specialized court is not required to hear tax cases or to ensure that such cases are handled efficiently”. Nonetheless, many Tax Court judges and private-sector tax lawyers did not agree with the Report’s conclusion. Their attitude was that:

“In such areas of law, specialized judges are seen as better able to evaluate evidence and legal arguments quickly and astutely, to remain up-to-date with new developments, and to have a better appreciation of how individual issues relate to the overall legal scheme. Further, in the area of tax law, uniform interpretation is important and a specialized court was seen as more likely to lead to consistency and coherence in judicial decisions.”⁴¹⁶

1. Specialist Tax Tribunal: United Kingdom

1. In common with the approach adopted in Ireland, the UK, Australia and New Zealand do not have specialised tax courts. Instead, they have specialised tax tribunals, which provide the first level of appeal to a taxpayer seeking to challenge a tax assessment. Then there is an appeal from the specialised tribunal to a general court.

2. Although the UK does not have a specialised tax court, it offers a taxpayer the option of an informal or formal appeal procedure in the form of the General and Special Commissioners respectively.⁴¹⁷ In a historically-based arrangement, these are alternative tribunals. The General Commissioners were appointed to implement the Income Tax Act 1799.⁴¹⁸ They had sole authority to assess and collect income tax and hear appeals until the establishment of the Special Commissioners in 1842, considered in the next paragraph. Under the Finance Act 1946, the General Commissioners became purely judicial officers, hearing and adjudicating disputes between the taxpayer and the Inland Revenue. The current jurisdiction of General Commissioners is contained in the Taxes Management Act 1970, as amended by subsequent Finance Acts.

3. The Special Commissioners offer the taxpayer a more formal and legalistic alternative to the General Commissioners. They cannot hear appeals from decisions of the General Commissioners. They hear appeals from assessments and decisions made on Income Tax, Corporation Tax, Capital Gains Tax, Inheritance Tax, Development Land Tax, Petroleum Revenue Tax and some Stamp Duty appeals. The Court Service administers the Special Commissioners and the VAT and Duties Tribunal⁴¹⁹ to form the Combined Tax Tribunal, but each retains their distinct jurisdictions.⁴²⁰ The General and Special Commissioners and the VAT and Duties Tribunal are each independent of the Inland Revenue.

4. The General Commissioners are appointed to deal with cases arising in a particular area, known as a Division. Their proceedings are generally informal and held in camera. The General Commissioners do not have the power to award costs. “Unlike the General Commissioners, who are unpaid laymen, the Special Commissioners are salaried legally qualified judicial officers.”⁴²¹ The Special Commissioners’ proceedings are normally conducted more formally. They are held in public, but the taxpayer or the Inland Revenue may request that the appeal or part of it be heard in camera.⁴²² Decisions are published, but, if the need arises, a taxpayer’s identity may be withheld. The Special Commissioners have a limited power to award costs. Generally, a taxpayer may choose whether the General or Special Commissioners hear their case. However, some cases are reserved for the Special Commissioners. In either case, the taxpayer may appear in person, or may choose to be represented.⁴²³

1. The Options for Reform

1. If a specialised court were established in respect of civil jurisdiction in the revenue sphere, it could play either of two roles. It could take the place in the hierarchy of either the Appeal Commissioners or the Circuit Court. Theoretically, one could also envisage a court with both original and appellate jurisdiction which would take the place of both. However, as the Commission does not favour such basic changes, there is no need to consider whether such a specialist court would fit into the system.

1. New Court Instead of the Appeal Commissioners

1. A Court could be created to replace the Appeal Commissioners. However, the Appeal Commissioners represent a more ‘user-friendly’ method of dispute resolution. The advantages of the Appeal Commissioners when compared to a court are: ease of access, relative inexpensiveness, specialist expertise and a fairly informal procedure. The value of these advantages should not be underestimated. (Indeed, when the Tax Court of Canada was created, it retained an informal procedure as one of its two alternatives (see paragraph )). The first independent level of appeal from an assessment raised by Revenue is intended to provide the taxpayer with an accessible and expeditious avenue of relief. It was never intended to resemble a court or to become a lawyer’s forum. The Commission has made a number of recommendations on improvements to the mechanisms in an appeal to the Appeal Commissioners in Chapter 3. (See also for a discussion on the benefits of establishing a specialist criminal revenue court).

2. The Commission does not recommend the creation of a specialist civil court to replace the Office of the Appeal Commissioners.

1. New Court Instead of the Circuit Court

1. In today’s society, there is an increasing tendency to specialise due to the rate of change and complexity of issues. This tendency has also shown itself in the courts system. For example, the establishment of a commercial court is envisaged by the end of 2003.⁴²⁴ This era of specialisation might support arguments in favour of a specialist court for revenue cases.⁴²⁵ Currently, the judges who hear tax appeals are generally not specialists, but are simply those who happen to be sitting at the time and place the appeal arises. The only element of subject-matter specialisation at the Circuit Court level is an informal arrangement for the assignment of a judge with particular expertise in landlord and tenant issues to landlord and tenant cases. The only form of concentration of work within the courts system in relation to tax appeals occurs in the Dublin Circuit Court. Appeals from the Appeal Commissioners are assigned to a particular courtroom though not necessarily a particular judge. In practice, it is Court number 57, which also hears District Court Appeals and Licensing matters.⁴²⁶

2. Arguments for and against the retention of the general Circuit Court as an appellate court are rather different from those for the retention of the Appeal Commissioners, in that the Appeal Commissioners are specialised, but not a court whereas the Circuit Court is a court, but is not specialised.

3. Some of the potential benefits of specialist courts include: a quicker and more effective court process; consistency in the decision-making process; the creation of a corpus of specialist advocates, and a reduced caseload in the general courts. Presumably, if a specialist court were established, judges sitting in the court would be chosen from those with a pre-existing specialist knowledge and expertise in the particular area of law. With time and experience, the specialist judge would become even more familiar with the area of law. It would be easier for the judge to keep up-to-date with the particular developments in the area.⁴²⁷ The potential disadvantages associated with a specialist tax court would include: the loss of a generalist overview; the risk of the development of a ‘cosy’ culture between the specialist judges and advocates and even between the judges and the Revenue Commissioners; the potential isolation of the specialist area of law from the development of the general law; the potential overlap between the jurisdiction of the general and specialist courts; the requirement for the court either to sit in a centralised location, requiring the parties to travel to the court or requiring the court periodically to travel around the country; and insufficient volume of cases.

4. In addition, at the moment, appeals from the Appeal Commissioners only form a minor part of the Circuit Court’s work (approximately 15 cases per year). ⁴²⁸ There are no delays in getting a case listed before the Circuit Court once the Revenue Commissioners request that a case be listed. One might ask whether this argument might be overcome and a recommendation for a specialised court justified, on the basis that such a court would have both criminal and civil Circuit Court style jurisdiction. Even on this assumption, that a specialist criminal revenue Circuit Court would be established, the case appears weak. For to be precise, and using recent figures; at present there are likely to be about 15 civil appeals to the Circuit Court each year; plus 10-12 trials on indictment when the anticipated increase has been achieved.

5. It seems that the current arrangements – which offer the taxpayer the right to appeal to an informal specialist tribunal in the form of the Appeal Commissioners, and from there to the more generalist Circuit Court – provide more advantages than those associated with specialist civil revenue courts.

6. All in all, the Commission does not recommend a specialised civil revenue court in place of either the Appeal Commissioners or the Circuit Court, as the current avenues of appeal offer the advantages of specialisation at the level of the Appeal Commissioners, coupled with a generalist approach in the Circuit Court. In addition, there is informality in both venues and it remains an accessible forum for taxpayers wishing to challenge tax assessments. Again, the volume of work does not exist at present to justify a separate revenue court. The Commission does not recommend the creation of a specialist revenue court, even on the basis of joint criminal and civil jurisdiction.

1. A List and/or Assessors in the Circuit Court

1. Less radical than a special court would be a ‘revenue list’. The expression ‘a list’ is used to refer to the nomination of particular judges to hear specific types of cases. A revenue list would, like a specialised court, result in a number of advantages, for example the accumulation of expertise and administrative convenience. Increasingly, as the law becomes more and more specialised, lists in such areas as judicial review and commercial law have come into existence in this and other jurisdictions. However, such specialisation has not emerged in the Circuit Court, except perhaps in Dublin.

2. The Dublin Circuit Court is initially divided into: the Circuit Court Civil; Circuit Court Criminal; Circuit Court Family; District Court Appeals and the County Registrar's List. However, the only element of subject-matter specialisation at the Circuit Court level is an informal arrangement for the assignment of a judge with particular expertise to landlord and tenant cases. There is no equivalent policy in relation to tax appeals. Tax appeals are simply assigned to a particular courtroom in the Dublin Circuit Court, to which appeals from the District Court are also assigned.

3. The classic approach to court proceedings is that the judge need not be an expert in the subject-matter, since counsel on each side will present the alternative arguments. Then the judge has to choose between these arguments. However, especially in a complex area like tax, it is possible that counsel will not always be perfectly informed. More broadly, in other areas, albeit in the High Court, we see that the need for some element of specialisation among the judiciary has been increasingly accepted (see paragraphs -).

4. Because of the increasing complexity of tax law, the Commission recommends that the assignment of judges should remain within the discretion of the President of the Circuit Court and that, where possible, the President of the Circuit Court should assign judges with some knowledge of tax law to tax appeals by arrangement with judges of each circuit.

5. Additionally, the Circuit Court Rules could be amended to provide that a Judge could appoint an assessor where it was deemed necessary for the due administration of justice. As against this, the parties will call their experts where necessary and may even in some cases agree an assessor, thus, obviating the need for the court to appoint an assessor.

5. Offences and Prosecution

   1. Introduction

1. In principle, revenue offences are prosecuted in the same manner as all other criminal offences. Under the Prosecution of Offences Act 1974 (the “1974 Act”), the DPP is responsible for the prosecution of criminal offences. The Act transferred nearly all of the functions previously carried out by the Attorney General in relation to criminal matters to the DPP. The Revenue Commissioners are responsible for investigating cases of suspected revenue offences and reporting these cases to the DPP. The Director of Public Prosecutions will only direct a case to be prosecuted if the Director is satisfied, on the evidence, that there is a case to answer. As with all criminal offences, there must be sufficient evidence available to prove the offence ‘beyond reasonable doubt’. Revenue offences, penalties and the manner in which the Revenue Commissioners take the decision to investigate a particular case with a view to prosecution will be outlined in this chapter. The DPP’s role and the potential role of a fiscal prosecutor will be discussed in more detail in .

2. Three sets of classifications are worth mentioning here. First, as with other crimes, some revenue offences may be prosecuted summarily, and some on indictment. Secondly, revenue offences may also be classified as the non-submission of returns or serious tax evasion,⁴²⁹ these being relatively few and including some summary and all indictable offences. Thirdly, revenue offences, in the broad sense, can be divided into ‘tax’ and ‘customs and excise’ offences: in this Paper, we are concerned mainly with tax offences.

2. Revenue Offences⁴³⁰

3. A person, who contravenes section 1078 of the TCA 1997,⁴³¹ shall be guilty of a “revenue offence” and may be liable to either a fine or a prison sentence or both. Breaches of certain other provisions of the Act are referred to simply as “offences”, as opposed to “revenue offences”. There is no statutory definition of a revenue offence given in the TCA 1997.⁴³² It merely refers to a criminal offence in the revenue area. In principle, there is no difference between revenue offences and ordinary offences in terms of procedure or the rules of evidence; for example, the hearsay rule applies and there is the same requirement of proof beyond reasonable doubt as is required to secure a conviction in criminal cases. The term is simply a convenient label.

4. Section 1078 provides that a person shall be guilty of a “revenue offence” where that person:

1. Knowingly or wilfully furnishes or delivers any incorrect return, statement or accounts or information in connection with any tax (section 1078(2)(a));

2. Knowingly aids, abets, assists, incites or induces another person to make or deliver knowingly or wilfully any incorrect return, statement or accounts in connection with any tax (section 1078(2)(b)); ⁴³³

3. Claims or obtains relief or exemption from, or repayment of, any tax to which the taxpayer knows they are not entitled (section 1078(2)(c));

4. Knowingly or wilfully issues or produces any incorrect invoice, receipt, instrument or other document in connection with any tax (section 1078(2)(d));

5. Fails to make certain deductions or payments in relation to dividend withholding tax or deposit interest retention tax; (sections1078(2)(e) and 1078(2)(f));

6. Fails without reasonable excuse to comply with any provisions of the Acts requiring:⁴³⁴

1. The furnishing of any return, certificate, notification, particulars or any statement of evidence;

2. The retention or production of books, records, accounts or other documents for tax purposes (section 1078(2)(g));

1. Knowingly or wilfully destroys, defaces or conceals documents or other material from an authorised officer, which the Acts requires a taxpayer to keep for a certain period of time (section1078(2)(h));

2. Fails to remit VAT or PAYE (section 1078(2)(i));

3. Obstructs or interferes with a Revenue Commissioners official or other individual performing their duties under the Acts (section 1078(2)(j)).

5. Section 161 of the Finance Act 2003 inserted a new provision section 1078A. It creates a new offence of concealing facts disclosed by documents.⁴³⁵

6. Section 1078(3)(a) provides that an individual may be liable to a fine of €3,000 or to imprisonment not exceeding 12 months on summary conviction, or both.⁴³⁶ The fine may be mitigated by the court to not less than one fourth of the fine.⁴³⁷ If an individual is convicted on indictment, a maximum fine of €126,970 or a prison term not exceeding 5 years, or both, may be imposed under section 1078(3)(b).

7. A new subsection was added to the provision quoted in paragraph by the Finance Act 1999. Section 1078(3A) grants a court the power to order an individual who has been convicted of an offence under section 1078(2)(g)(i), to comply with the obligations arising under the section. A person shall be guilty of an offence under this section 1078(3B) for failure or refusal to comply with a subsection 3A order.⁴³⁸

8. Section 1078(4) provides for the application to revenue offences of the general procedure established in section 13 of the Criminal Procedure Act 1967,⁴³⁹ whereby an individual may plead guilty to an indictable offence in the District Court. Section 1078(4) applies the penalties under section 1078(3) of the TCA 1997 in lieu of the penalties under the Criminal Procedure Act 1967. For offences after the passing of the Finance Act 2003 28 March, 2003 the District Court penalty pursuant to section 1078(4) is now €3,000 which may be mitigated to not less than one fourth part of such fine or at the discretion of the Court to imprisonment for a term not exceeding twelve months or to both the fine and imprisonment.

9. The Revenue Commissioners may use certificate evidence, in accordance with the provisions of section 987(4), 1052(4) and the new section 1078B inserted by section 161 of the Finance Act 2003, when establishing that a revenue offence has been committed.⁴⁴⁰

10. Following a pattern used elsewhere in the criminal law, where an offence under section 1078 is committed by a body corporate and the offence is shown to have been committed with the consent or connivance of a director, manager, secretary or other officer of the body corporate, or a member of the committee of management or other controlling authority of the body corporate, the individual shall also be deemed to be guilty of the offence, and may be proceeded against and punished accordingly.⁴⁴¹

11. Liability also attaches to an auditor or tax adviser of a company or friendly society who is aware that the client is not complying with the Acts or is guilty of tax evasion. Section 1079 of the TCA 1997 obliges the auditor or tax adviser to report such to the company.⁴⁴² If the company does not rectify the matter within 6 months, the auditor or tax adviser then has a duty to resign and report the resignation to the Revenue Commissioners.⁴⁴³ If the auditor or tax adviser fails to take either of these steps an offence is committed, for which the punishment is a €1,265 fine if convicted summarily and a maximum penalty of €6,345 or two years’ imprisonment on indictment or both.

12. By virtue of section 1056, if individuals knowingly make a false statement in relation to their income or corporation tax in order to obtain an allowance, they may be subject to either summary prosecution or prosecution on indictment. It provides for a sliding scale of penalties, which vary according to the amount of the difference between the tax actually payable and the tax which would have been due if the statement had been true and accurate. If convicted summarily, there is the possibility of a maximum one-year’s imprisonment in addition to the sliding-scale fine. If convicted on indictment, they may be subject to a sliding-scale fine or a maximum of eight years imprisonment, or both.⁴⁴⁴

3. Decision to Prosecute

   1. Investigation with a view to Prosecution

13. Up to the mid-1990s, as explained in , the Revenue Commissioners followed a very restrained policy in respect of prosecution. In 1996/1997, the Revenue Commissioners adopted a new policy for investigation and the referral of cases of ‘serious tax evasion’ to the DPP.⁴⁴⁵ With the aim of promoting voluntary compliance with the tax system, new procedures were established for the referral of cases to the DPP. These procedures will be discussed in this Part.

1. Audits

14. Audits play an important part in the Revenue Commissioners’ selection of cases for investigation with a view to prosecution. Unless there is voluntary⁴⁴⁶ or third-party disclosure, the only other method available to the Revenue Commissioners for uncovering tax evasion is the audit process. If strong indications of tax evasion emerge during the course of an audit, the Revenue Commissioners’ prosecution strategy requires the auditor to refer the case to the Investigations and Prosecutions Division.⁴⁴⁷

15. The Revenue Commissioners’ 2002 Auditor’s Code of Practice contains instructions for auditors who uncover evidence of evasion.⁴⁴⁸ If the auditor discovers documentary evidence of tax evasion, the auditor is required to refer the case to the Investigations and Prosecutions Division for assessment. If the Investigations and Prosecutions Division decides that the case is suitable for investigation with a view to prosecution, it will take over the case and the audit will be terminated. If the taxpayer makes an incriminating statement to an auditor and the offence is of the type identified by the Revenue Commissioners as suitable for investigation with a view to prosecution, the Code of Practice provides that the taxpayer should be cautioned. However, an auditor will generally not issue a caution without the prior approval of an Audit Manager or the Investigations and Prosecutions Division.

1. Prosecution Criteria

16. Upon referral, the Investigations and Prosecutions Division will evaluate the case before starting an investigation. The Revenue Commissioners have compiled a set of criteria and factors which are to be taken into account when considering whether or not to investigate a case with a view to prosecution. The criteria are not exhaustive. Each case will be considered on its own merits.⁴⁴⁹ The following is an extract from the Revenue Commissioners’ Code of Practice indicating the types of tax offences which should be investigated with a view to prosecution:

    “Use of forged or falsified documents;

    Systematic scheme to evade tax;

    False claims for repayment;

    Failure (as distinct from minor delays) in remitting fiduciary taxes;

    Deliberate and serious omissions from tax returns;

    Use of off-shore bank accounts to evade tax;

    Insidious schemes of tax evasion;

    Aiding and abetting the commission of a tax offence;

    Offences under the Waiver of Certain Tax, Interest and Penalties Act 1993.”⁴⁵⁰

17. If an offence of the type described above is identified, a number of other factors will be considered before a decision to investigate with a view to prosecution is taken. The following considerations will influence the decision:

    1. whether sufficient evidence is or will be available to prove that the accused committed the alleged offence beyond reasonable doubt;

    2. the length of time since discovery of the alleged offence and any damage consequent on a delay in initiating proceedings;

    3. the assessment of the cost of prosecution;

    4. the “culpability, responsibility and experience”⁴⁵¹ of the accused;

    5. the deterrent effect of prosecution for the particular offence;

    6. whether full disclosure has been made, whether co-operation has been given and whether the tax, interest and penalties due have been paid.⁴⁵²

4. Prosecutions To Date

   1. Failure to File Returns

18. Prosecutions concerning the non-submission of returns are routine and non-problematic.⁴⁵³ The Revenue Commissioners prosecute, on average, 1,200 cases for the non-submission of returns annually. These cases are prosecuted summarily in Dublin by the Revenue Solicitor and outside Dublin by the relevant State Solicitor on behalf of the DPP. The Inspector of Taxes will refer the case to the Revenue Solicitor who may either issue a “pre-prosecution warning letter” or may advance the case to the summons stage without a “pre-prosecution warning letter”. The Revenue Solicitor will take the latter course of action where a person has a previous conviction for failing to file a return. If a taxpayer receives a warning letter, the taxpayer has 21 days to submit a return. If a return is not submitted the case will proceed to the summons stage. Once they have issued a summons, the Revenue Commissioners will not stop a prosecution even if a taxpayer subsequently files a return. The following table sets out the statistics in relation to warning letters, prosecutions and convictions:

Table A: Non Filing Income and Corporation Tax Returns

19. The Commission recommends, in the interests of fairness, that a pre-prosecution letter be issued in all cases.

20. In sentencing a person who has been convicted, some judges will take into account the fact that a defendant has subsequently filed the relevant returns when considering whether to mitigate the statutory fine. However, a judge cannot mitigate the statutory fine below 25% of the sum set out in the statute.⁴⁵⁴ Section 1078(7) provides that the Probation of Offenders Act 1907 cannot be applied. Therefore, some penalty, whether a fine or (theoretically) a prison sentence, must be imposed on a defendant convicted of an offence under section 1078.

21. Table B sets out information on fines in the District Court for failure to file a return, taken from Tax Briefing:⁴⁵⁵

Table B: Fines

22. In some of these cases, steeper fines than the average were imposed. Between April and June 1999, “40 cases had fines totalling in excess of £1,500 imposed, 12 of these cases had fines totalling in excess of £4,000 imposed and in one of the cases, fines totalling £8,000 were imposed.”⁴⁵⁶ Jail sentences were also imposed in a number of cases.

1. Customs and Excise

23. The prosecution culture on the customs and excise side may be contrasted with prosecutions on the tax side.⁴⁵⁷ For example, 297 people were prosecuted for various Customs and Excise offences in 1997. These offences included: cigarette smuggling and the illegal selling of cigarettes, illegal use of duty-rebated marked gas oil (“green diesel”), betting offences, vehicle registration tax offences and unlicensed trading. The Revenue Commissioners secured 358 convictions on the customs and excise side in 2001. Custodial sentences and almost €300,000 in fines were imposed in court. Twenty-five custodial sentences were imposed for customs and excise offences between 1 January 1988 to 30 April 2002.

24. The Revenue Commissioners have had a different approach to tax offences from customs and excise offences. They have traditionally concentrated on reaching monetary settlement with the tax recalcitrant. However, as explained at paragraphs and , the Revenue Commissioners are beginning to place a stronger emphasis on the prosecution of ‘serious tax evasion’.

1. Serious Tax Evasion

25. The prosecution of ‘serious tax evasion’ has proved more problematic than prosecutions for failing to file returns and in respect of customs and excise offences. The phrase ‘serious tax evasion’, which is not a legal term of art, is frequently used. It is not confined to indictable cases. The Revenue Commissioners seem to use the term to refer to all cases of tax evasion other than the failure to submit returns or the late submission of returns.⁴⁵⁸ The Steering Group defined it as involving actions “knowingly taken by taxpayers with the intention of defrauding the State.”⁴⁵⁹

26. In indictable cases, the DPP decides whether the case should proceed to the Circuit Criminal Court. If the DPP decides to prosecute a case in the Circuit Criminal Court, the Revenue Solicitor or the relevant State Solicitor will instruct counsel in and outside Dublin, respectively.

27. There were 18 prosecutions for serious tax evasion during the period January 1995-November 2001, with one case resulting in an acquittal.⁴⁶⁰ Custodial sentences were imposed in six of these cases, with two of the six attracting suspended sentences and one case being appealed.⁴⁶¹

28. In 1995, a defendant was prosecuted under the general criminal law for obtaining VAT repayments under 3 pseudonyms. The defendant was given a 10-month jail sentence. In a summary prosecution in 1996, a defendant was fined IR£1,250 for VAT fraud under section 94 of the Finance Act 1983, and for failing to produce books to a Revenue officer. There was only one conviction in 1997. The defendant was convicted of knowingly or wilfully delivering incorrect VAT returns, and was fined IR£500.

29. Seven cases, involving three companies and six individuals were concluded in 1998. The offences ranged from knowingly or wilfully failing to keep proper records for tax purposes; knowingly or wilfully producing an incorrect invoice or document in relation to tax on rental income and knowingly or wilfully delivering incorrect income tax; corporation tax, VAT or PAYE/PRSI returns. An individual who had been convicted in 1995 was committed to prison for 10 months for failing to make full restitution of monies defrauded under the VAT system.⁴⁶² In two other cases suspended sentences were imposed. In the remaining cases fines were imposed on the company or individual concerned. The fines ranged from IR£1,000-12,000 (€1,270-15,237).⁴⁶³

30. Three cases were decided in 1999. In the first case the defendant was convicted of submitting false PAYE/PRSI returns and received a fine of IR£15,000 (€19,046). The second case resulted in acquittal. The third case was finalised when the taxpayer withdrew an appeal against an earlier fine of IR£1,000 (€1,270).⁴⁶⁴

31. Convictions were secured in the three cases decided by the courts in 2000. In the first case the defendant, a director of a company, was convicted of submitting false VAT repayment claims. The defendant was sentenced to two years imprisonment. In the second case a director of a company was convicted of delivering an incorrect corporation tax return. The defendant was fined IR£750 (€952). In the third case an individual was convicted of submitting a false VAT repayment claim. A twelve-month suspended sentence was imposed.⁴⁶⁵

32. Convictions were obtained in four cases in 2001. One individual was sentenced to twelve months imprisonment for submitting false PAYE returns. Two defendants were fined and given suspended sentences and another was sentenced to three months imprisonment. In one case in 2001, the defendant pleaded guilty to a revenue offence in the District Court. However, the District Court Judge refused jurisdiction when the case came up for sentencing in April 2002. The defendant successfully sought judicial review of the decision of the District Court Judge’s decision. The case was subsequently disposed on a guilty plea in the District Court.

33. Three cases were decided in 2002. A suspended sentence was imposed in one case and fines were imposed in the other two cases.

Table C: Serious Tax Offences

(* figures not available).

34. The Revenue Commissioners justify the small number of criminal prosecutions by reference to the peculiar difficulties of obtaining evidence to a criminal standard in this field⁴⁶⁶ and the resource-intensive and time consuming work involved in every prosecution.⁴⁶⁷ The recent Inland Revenue Report and the Report of Lord Grabiner QC into “The Informal Economy” in the UK⁴⁶⁸ reached a similar conclusion in relation to the Inland Revenue’s staff time dedicated to prosecutions.

35. Various factors are said to make revenue offences difficult to prosecute. Firstly, unlike conventional crime, there is no specific victim to report the commission of the crime to the authorities. Thus, while ultimately the public are the victims of tax evasion, the lack of a particular victim places the burden of establishing that a crime has been committed, in the first place, on the Revenue Commissioners. Secondly, there is no power of arrest and detention in respect of revenue offences. It is often during the period of arrest and detention that the evidence necessary for a prosecution is uncovered. Thirdly, there were general weaknesses in the law which were not remedied until recently. For example, the Finance Act 1999 introduced two new ways in which the Revenue Commissioners could obtain information from financial institutions, namely with the consent of a Revenue Commissioner or by order of the District or Circuit Court.⁴⁶⁹ Particular problems in relation to evidence may arise where foreign jurisdictions, especially tax havens, are involved in the commission of a revenue offence.⁴⁷⁰ For example, if off-shore accounts are involved, the Revenue Commissioners will need the co-operation of foreign authorities, which may not be forthcoming.⁴⁷¹ Problems also arise at the later stage of admissibility. If the tax recalcitrant has made statements to the Revenue Commissioners during the course of the Revenue Commissioners’ investigation, the evidence may have been tainted. For example, a caution may not have been administered and the evidence may be inadmissible in a criminal trial.

5. Revenue Offences: the British Approach

   1. Revenue Offences

36. The Inland Revenue, unlike the Revenue Commissioners, is a prosecuting authority in its own right. This independent power to prosecute arose historically. “There is no express statutory power to prosecute; but it is common ground that the Revenue have such power in aid of their overall function.”⁴⁷² It was not until recently that a general statutory offence, which can be prosecuted either summarily or on indictment, was introduced in the UK. Prior to the enactment of section 144 of the Finance Act 2000, the Inland Revenue were restricted to prosecuting under the Theft Acts 1968 and 1978⁴⁷³ or the common law offence of cheating the public revenue.⁴⁷⁴

37. The common law offence of cheating the public revenue,⁴⁷⁵ which is also recognised under Irish law, was used for the prosecution of many existing income tax frauds. However, this charge could not be tried summarily. As a consequence of this Lord Grabiner found that the Inland Revenue was pursuing larger tax frauds to the exclusion of smaller tax frauds. Thus, in response to recommendations contained in the Grabiner Report, section 144 of the Finance Act 2000 introduced a new criminal offence of fraudulent evasion of income tax which may be tried either on indictment or summarily. This provides that:

“(1) A person commits an offence if he is knowingly concerned in the fraudulent evasion of income tax by him or any other person.

(2) A person guilty of an offence under this section is liable-

(a) on summary conviction, to imprisonment for a term not exceeding six months or a fine not exceeding the statutory maximum, or both;

(b) on conviction on indictment, to imprisonment for a term not exceeding seven years or a fine, or both.

(3) This section applies to things done or omitted on or after 1 January 2001.”

1. Prosecution Arrangements

1. Like the Revenue Commissioners and other tax authorities,⁴⁷⁶ the Inland Revenue has also adopted a selective prosecution policy for serious tax offences, complemented by publication of the cases.⁴⁷⁷ Within the Inland Revenue, the prosecution arrangements are tripartite, involving the Inland Revenue Solicitor’s Office; the Special Compliance Office (‘SCO’) and the Board of the Inland Revenue.

2. The SCO is responsible for investigating the most significant cases of suspected fraud, evasion and avoidance.⁴⁷⁸ Once the SCO has investigated the case, it reports the evidence to the Inland Revenue Solicitor’s Office, which in turn reports to the Board of the Inland Revenue or a representative of the Board. In the Inland Revenue Solicitor’s Office, the specialist crime team’s function, apart from advising the SCO on evidential issues, is to review these cases and give an opinion on them to the Board of the Inland Revenue.

3. In deciding whether to prosecute or not, the decision is ultimately taken by a representative of the Board, since the Board has delegated its power to decide on prosecutions to a senior official who is independent of both the SCO and the Inland Revenue Solicitor. One of the issues which the Board's representative has to consider is whether the case falls within the Department’s prosecution policy.⁴⁷⁹ The representative will also apply the principles contained in the Code for Crown Prosecutors, which requires certain evidential and public interest tests to be satisfied.

1. Decision to Investigate with a view to Prosecution

1. The decision to investigate a case with a view to prosecution is taken fairly early in the case but the decision is not irrevocable. A senior manager from within the SCO takes the decision on whether to forward the case for investigation with a view to prosecution or not. The Inland Revenue conducts extensive investigations of its own, using third party sources before any contact is made with the taxpayer. Cases can move from the civil to the criminal investigation group and vice versa. On the tax side, the cases, which are selected for prosecution, tend to be the more serious ones and go to the Crown Court. The procedure here is very similar to the Irish arrangement described in Part of this Chapter.

2. Prosecution is more likely to be pursued where evidence exists, or is likely to become available, of:

• deliberate concealment or deception;

• false or forged documents, certificates, statements, or claims, prepared with the intention to deceive;

• conspiracy;

• corruption;

• a second or subsequent serious offence;

• additional books or records for accounting, tax, contribution or tax credit purpose, prepared or used with the intention to deceive;

• organised or systematic fraud against the tax, contribution or tax credit systems;

• unusual frauds of novelty or ingenuity;

• deliberate manipulation of special tax deduction schemes;

• phoenixism.”⁴⁸⁰

43. The Inland Revenue tends to consider a prosecution for fraud cases, where there has been deliberate falsification. For example, where there are two sets of records, or where the taxpayer has previously lied to the Inland Revenue. In its standard civil investigation, the Inland Revenue requires taxpayers to sign a certified statement declaring their entire assets, bank accounts and financial documents.⁴⁸¹ If the taxpayer is found to have practised deceit, the Inland Revenue goes into prosecution mode. Previous offences will be taken into account when deciding whether to investigate with a view to prosecution or not.

1. Prosecutions to Date

44. The Inland Revenue prosecute on average 60 cases per year. In 1999/2000,⁴⁸² criminal proceedings were concluded against 55 defendants of whom 37 were found guilty.⁴⁸³ In 2000/01, criminal proceedings were concluded against 70 defendants of whom 56 were found guilty.⁴⁸⁴

1. Sentences

45. The sentences tend to average between 12 to 18 months. The most significant recent case was that of Regina v Allen,⁴⁸⁵ which involved a company director, who was prosecuted for substantial tax fraud of STG£7 million (almost €10 million). He was sentenced to 7 years’ imprisonment, and a confiscation order of STG£3 million (approximately €4.2 million) was also granted. A default sentence of a further 7 years was also imposed in the event of failure to comply with the confiscation order. The default sentence would run consecutively, if triggered. The severity of the punishment handed down by the judiciary is illustrative of a strong disapproval of tax evasion, particularly as it is rare for a custodial sentence to be handed down for first- time offenders. The Inland Revenue have found that the severity of default sanctions tends to act as an effective deterrent, and encourages people to comply with the court order.⁴⁸⁶

6. Prosecution Policy

   1. The Irish Approach

46. The Revenue Commissioners’ core responsibility is to enforce compliance with the tax code. However this has to be balanced with the task of collecting revenue for the Exchequer.⁴⁸⁷ They primarily seek to achieve this by maximising voluntary compliance. The audit process and any resultant prosecutions are intended to serve as a deterrent, with the ultimate objective of increasing voluntary compliance and collecting monies owed to the Exchequer.

47. If the number of prosecutions for serious tax evasion were to increase, the Revenue Commissioners would have to devote more attention to detecting criminal wrongdoing, and divert resources from other sectors of the Office to the Investigation and Prosecution Division in order to manage the increased number of cases. At the moment, there are fourteen tax personnel in the Investigations and Prosecutions Division. These have been augmented by 25 customs and excise personnel. Before 2002, the separate income tax and customs and excise departments were responsible for investigating and conducting prosecutions in their respective spheres. The Revenue Commissioners believe that interaction between tax and customs and excise personnel will improve the Office’s ability to detect and prosecute revenue offences. It is anticipated that the restructuring within the Revenue Commissioners will produce a more integrated approach to investigations and a greater appreciation of the cross-tax-heads dimension. (See paragraphs -)

48. By 2005, the Revenue Commissioners intend to have more cases under investigation, which should lead to an increase in the number of cases before the courts, although not significantly more. The Revenue Commissioners aim to bring between ten and twelve cases per year before the courts. The Revenue Commissioners will continue to concentrate on deterrence, and the bulk of cases will continue to be the subject of monetary settlements, as opposed to prosecution.⁴⁸⁸ As the Revenue Commissioners’ resources are limited, they will only employ them on significant prosecution cases. Revenue will not prosecute “less worthy cases … at the expense of more important cases.”⁴⁸⁹

49. There is undoubtedly a large amount of tax recalcitrance: see paragraphs - dealing with the shadow economy. It is anticipated that the arrangements with the DPP, the establishment of the Investigations and Prosecutions Division and the overall restructuring and modernisation of the Revenue Commissioners will yield more prosecutions in an attack on the shadow economy. However, the Revenue Commissioners’ overall prosecution policy can be summarised in the following manner:

“prosecution in the Courts is not an end in itself but rather one of the means of achieving a level playing pitch for all taxpayers and thus enhancing the public confidence in, and compliance with, the administration of tax laws.”⁴⁹⁰

50. The question of the balance between settlement and prosecution and the conflict between co-operation and conviction are issues the world over for revenue authorities. The principal function of taxation is to raise revenue.⁴⁹¹ Taxes are levied to fund the administration of Government and to promote the provision of public services. Although prosecution does not exclude the possibility of achieving a monetary settlement with a recalcitrant taxpayer, and thus collecting the taxes due, the institution of criminal proceedings may result in a taxpayer invoking the privilege against self-incrimination. If the taxpayer is refusing to co-operate and remains silent, the Revenue Commissioners’ task is made more difficult and troublesome in that case. Another possible outcome is that the taxpayer either settles, or pleads guilty, or is found guilty by the courts. In such cases, a settlement can be easily achieved at the end of the proceedings. On the other hand, if the Revenue Commissioners prosecute unsuccessfully, the taxpayer will have no incentive to co-operate or to negotiate a settlement, thus resulting neither in a conviction nor collecting the revenue allegedly due. Thus, the decision to investigate with a view to prosecution or the decision to prosecute itself must be taken after due consideration of the most appropriate course of action.

51. A further point concerns the sanctions open to a criminal court. If one leaves aside the possibility of imprisonment, which, as illustrated in paragraphs -, has been rare in the tax field, the available sanctions are a stiff fine and publicity. Yet, to a substantial degree, each of the elements can be achieved without a prosecution. This was recognised in 1994 by the then Minister for Finance, Mr Bertie Ahern TD. He acknowledged that:-

“[i]n the majority of cases the most effective way of dealing with evasion is by way of settlement. The fact that the settlements are published and include interest and an amount to cover penalties is an effective deterrent to evasion. In line with the practice in most other jurisdictions only a limited number of cases are selected for prosecution in any one year.”⁴⁹²

52. The combination of the ‘name and shame’ procedure and the civil penalty system is much cheaper and simpler for the Revenue Commissioners to pursue than prosecuting a taxpayer and recouping a court-imposed fine. Furthermore, the court interest rate is only 8% per annum, whereas the interest rate applicable to the statutory penalties the Revenue Commissioners may apply for each day or part of a day from the date the tax became due and payable is 0.0322% - equivalent to 11.753% per annum.⁴⁹³ Thus, the Revenue Commissioners can gather huge amounts of money in the form of civil penalties and interest without the difficulties associated with prosecution. Furthermore, the tax defaulter will be inclined to reach a settlement with the Revenue Commissioners to avoid the uncertainty of facing a judge or jury where the penalty could, potentially, involve a custodial sentence and much adverse publicity.

53. However, the imposition of monetary penalties does not preclude the possibility of proceedings under common law. It is a matter for the Director of Public Prosecutions to decide upon and to initiate proceedings in relation to common fraud or conspiracy to defraud. Similarly in the UK, where the Inland Revenue have adopted a policy of monetary settlement in a particular case, this does not preclude the Crown Prosecution Service from later prosecuting the taxpayer.

1. The UK Approach

54. The Inland Revenue, like the Revenue Commissioners, “tends wherever possible to make settlements or use civil proceedings against offenders, rather than initiate criminal prosecution.”⁴⁹⁴ The Hansard Policy, contained in Code of Practice 9, provides that the Inland Revenue has absolute discretion on whether to prosecute or not. The Hansard sets out the Inland Revenue’s general approach. It provides that the Inland Revenue will, typically, adopt the following approach in cases of tax fraud:

“Where serious tax fraud has been committed, the Board may accept a money settlement instead of pursuing a criminal prosecution.

The Board will accept a money settlement and will not pursue a criminal prosecution, if the taxpayer, in response to being given a copy of this Statement by an authorised officer, makes a full and complete confession of all tax irregularities.”⁴⁹⁵

55. Cases have been brought seeking judicial review of the Inland Revenue’s decision to prosecute. They have in most cases been unsuccessful. The Inland Revenue’s prosecution policy has been considered recently in R v Inland Revenue, ex p Mead and another,⁴⁹⁶ R v IRC, ex p Allen⁴⁹⁷ and R v W.⁴⁹⁸ Mead was the first case where judicial review of the decision to prosecute was taken.

56. In Mead, the Court of Appeal explained the reasoning behind the Inland Revenue’s preferred selective prosecution policy in the following manner:

“[the Inland Revenue does] so for three main reasons: first their primary objective is the collection of revenue and not the punishment of offenders; second they have inadequate resources to prosecute everyone who dishonestly evades payment of taxes; and third and perhaps more importantly they consider it necessary to prosecute in some cases because of the deterrent effect that this has on the general body of taxpayers, since they know that if they behave dishonestly they may be prosecuted.”⁴⁹⁹

57. The applicant had sought judicial review of the Inland Revenue’s decision to prosecute him in circumstances where other taxpayers involved in the same tax evasion scheme were not prosecuted. The Court rejected the applicant’s contention that he was entitled to be treated the same as the other dishonest taxpayers as it would be both inconsistent with the Inland Revenue’s selective prosecution policy and impractical. Stuart-Smith LJ held that: - “[a] decision to prosecute by the prosecuting authority is in theory susceptible to judicial review, albeit the circumstances in which such jurisdiction could be successfully invoked will be rare in the extreme.”⁵⁰⁰

58. While the taxpayer could seek judicial review of the Inland Revenue’s decision to prosecute, Stuart-Smith LJ dismissed the application on the facts. He stated that:

“[i]t is inherent in such a policy that there may be inconsistency and unfairness as between one dishonest taxpayer and another who is guilty of a very similar offence. Nevertheless while not challenging the validity of the policy Mr Beloff [counsel for the taxpayer] submits that there must be grafted onto it a requirement to treat all dishonest taxpayers guilty of similar offences in like manner: either all must be prosecuted or none. I reject this submission for two reasons. First it is inconsistent with the policy and cannot be operated consistently with it: you cannot be both selective and treat every case alike. Second it seems to me to be quite impracticable. How are the Revenue to decide what cases are alike? What is to be the basis of the group of cases that has to be considered?”⁵⁰¹

59. While Popplewell LJ also held that the court had no jurisdiction to hear the application, he did not do so on the same grounds as Stuart-Smith LJ. He held that, once a prosecution is taken, the criminal courts are seized with jurisdiction and therefore judicial review in the High Court should not be available. Accordingly, he felt that the correct avenue for relief would be an application to the criminal court to stay the proceedings as an abuse of process.

60. In Allen, the second of the cases listed in paragraph , the applicant unsuccessfully sought judicial review of the Inland Revenue’s refusal to stay criminal proceedings. The applicant was involved with several Jersey-based companies. The Inland Revenue suspected that the applicant was concealing his true income to reduce his tax liability. The applicant was informed in 1991 of the Hansard Policy, and was advised by a member of the Inland Revenue that, although the case was suitable for criminal prosecution, it would proceed along the lines of a monetary settlement, as the Inland Revenue were unlikely to obtain evidence to a sufficient standard so as to prosecute. In a later meeting in November 1992, the Inland Revenue informed the applicant that the case could either be settled between them or go before the Special Commissioners. New facts emerged in 1994, revealing evidence of the applicant’s control over several offshore companies. The Inland Revenue then took the view that the investigation should proceed with a view towards criminal prosecution due to the applicant’s failure to make a disclosure after he was given the Hansard statement. The applicant was advised of this and was charged in 1995. The applicant’s request to the Inland Revenue to stay the proceedings was refused. The applicant then applied for judicial review of the refusal to stay the criminal proceedings. Judicial review proceedings were taken in 1996 on the grounds that:

    1. The decision to prosecute was contrary to the established practice as set out in the Enquiry Branch’s manual, in particular in relation to the Hansard policy, that prosecution would not be taken where the taxpayer was lead to believe that the case was suitable for monetary settlement and;

    2. The decision to prosecute was unfair in the light of the history of the investigation.

61. Although the application was capable of being disposed of on the basis of delay alone as the application for judicial review was not made until at least ten months after the applicant became aware of the criminal proceedings, the High Court dealt with the merits of the application. It held that the Inland Revenue’s decision to prosecute and subsequent refusal to stay the proceedings was not unfair. The Court rejected both of the applicant’s contentions and held that the decision to prosecute the applicant was taken in accordance with the Enquiry Branch Manual, which contained both general and particular qualifications to the Hansard policy. In particular, the manual contained the following warning:

“Serious fraud is a matter of grave concern to the Board of Inland Revenue. It is the Board's policy to prosecute the most serious cases covering all types of fraud, but they may accept a monetary settlement instead of starting criminal proceedings. The Board cannot give an undertaking not to pursue such proceedings, even where a disclosure has been made. However, a full disclosure and the extent to which the taxpayer co-operates in the investigation are matters which will be taken into account in deciding whether a particular case should result in prosecution.”⁵⁰²

62. The Court held that the Enquiry Branch manual could not give rise to a legitimate expectation that a prosecution would not be taken. It remained open to the Inland Revenue to prosecute the applicant when new evidence was discovered, and where there was no tangible co-operation. The Court concluded that:

“The code itself is capable of giving some comfort to a taxpayer who makes full disclosure, co-operates and works towards a monetary settlement. It is careful, however, to identify the Revenue's general discretion. In ordinary common sense the Revenue's attitude at any stage will depend, not only on the extent of disclosure and co-operation, but also upon the Revenue's own assessment of the seriousness and ramifications of any fraud (including the range of persons potentially involved) and the strength of all the evidence available.”⁵⁰³

1. The Court also held that leave to apply for judicial review should only be granted in exceptional circumstances.

2. In R v W, the Court of Appeal described the Inland Revenue’s common law power to prosecute as “ancillary to, supportive of and limited by their duty to collect taxes.”⁵⁰⁴ The Court held that there was no “dichotomy or logical inconsistency” in the Crown Prosecution Service prosecuting where the Revenue had decided not to do so. However, it was held that an abuse of process might arise if the Crown Prosecution Service prosecuted when the Revenue had accepted settlement and, with the agreement of the Crown Prosecution Service, told the taxpayer that no prosecution would be brought. No such abuse was present on the facts of the case.

1. Concluding Comments

1. As can be seen from the last Part, the tension between tax collection and criminal prosecution exists in other jurisdictions, and is resolved apparently in a similar way. It is true that a successful prosecution does not prevent the Revenue Commissioners reaching a settlement for the tax outstanding. However, an acquittal could make a settlement more difficult to reach than if there had been no trial, in that a good part of the motive for co-operation is removed from the influences on the tax recalcitrant. Thus, from the Revenue Commissioners’ point of view, settlement without prosecution is often advantageous. The investigation is made easier through the taxpayer’s co-operation and the Revenue Commissioners are not obliged to gather evidence to establish guilt beyond reasonable doubt.

6. Public Prosecution System

   1. Law Officers

      1. Introduction

1. The central role which public prosecution plays in the criminal justice system is described at the outset of the DPP’s Statement of General Guidelines for Prosecutors, in the following terms:⁵⁰⁵

“[f]air and effective prosecution is essential to a properly functioning criminal justice system and to the maintenance of law and order. The individuals involved in crime - the victim, the accused, and the witnesses - as well as society as a whole have an interest in the decision whether to prosecute and for what offence, and in the outcome of the prosecution.”⁵⁰⁶

2. The Irish prosecution system is a complex one, with interaction between many different actors and agencies.⁵⁰⁷ At the apex is the Office of the Director of Public Prosecutions. In 95% of minor and serious cases, the Garda Síochána conducts the investigation. In summary prosecutions, the Garda who investigates a minor offence is usually also the prosecutor in court (see paragraph ).⁵⁰⁸ In other summary prosecutions, the Chief Prosecution Solicitor’s Division of the DPP’s Office⁵⁰⁹ or a State Solicitor instructs counsel to present the case.⁵¹⁰ The Gardaí do not play a prosecutorial role in relation to serious offences: the file, after investigation, is referred by the Gardaí to the DPP, who takes the decision as to whether a prosecution should be initiated or not. If the DPP determines that the case is appropriate for prosecution, the Chief Prosecution State Solicitor or a State Solicitor will usually refer the case to counsel to advise on proofs and appear at the trial.

3. Part of this chapter outlines the role currently played by the DPP. Part will discuss the possibility of a establishing a ‘fiscal prosecutor’ who would “be singularly focused on Revenue offences and have the necessary specialist expertise in the office,”⁵¹¹ in the light of the arrangements currently in place for the prosecution of revenue offences, namely the interaction between the DPP and the Revenue Commissioners.

1. The Attorney General

4. Prior to the establishment of the DPP’s Office in 1974 responsibility for prosecution rested with the Attorney General. The Attorney General’s Office existed by virtue of section 6 of the Ministers and Secretaries Act 1924. The Office of the Attorney General, in its modern form, was created by Article 30 of the 1937 Constitution,⁵¹² which describes the Attorney General’s function as legal adviser of the Government. Article 30.3 provides that all crimes and offences prosecuted on indictment “shall be prosecuted in the name of the People and at the suit of the Attorney General or some other person authorised in accordance with law to act for that purpose.” The Criminal Justice (Administration) Act 1924 vested responsibility for the prosecution of offences in the Attorney General.⁵¹³ By virtue of section 9(1) of the 1924 Act, the Attorney General has been held, by the courts, to be the sole prosecutor on indictment.⁵¹⁴ Section 9(2) provides that all summary prosecutions will be prosecuted at the suit of the Attorney General, save where a Minister, Department of State, or other person authorised by law is prosecuting.⁵¹⁵ Section 9 of the 1924 Act was not repealed and continues to apply insofar as it was not inconsistent with Article 30.

1. The DPP

5. Article 30.3 of the Constitution envisaged a possible substitution instead of the Attorney General in the prosecution of indictable offences by “… some other person authorised in accordance with law to act.” The Office of the Director of Public Prosecutions was created pursuant to the Prosecution of Offences Act 1974, in order to “perform all the functions capable of being performed in relation to criminal matters … by the Attorney General ….” Section 3(1) of the 1974 Act transferred⁵¹⁶ most of the Attorney General’s functions in relation to criminal matters, election and referendum petitions to the DPP.⁵¹⁷

6. The DPP is appointed by the Government⁵¹⁸ from among candidates selected by a special Committee made up of legal office-holders.⁵¹⁹ The “Office … was established to insulate the prosecution system from extra-legal considerations.”⁵²⁰ The independence of the DPP is spelt out by both the Constitution and the 1974 Act. As regards the former, the Supreme Court held in McLoughlin v Minister for Social Welfare⁵²¹ that it was implicit in the Constitution that the Attorney General was independent in the exercise of the prosecutorial functions formerly exercised by that office and now exercised by the DPP, and it seems likely that the DPP has inherited the same independence in the performance of prosecutorial functions.

7. Section 2(5) of the Act provides that “[t]he Director shall be independent in the performance of his functions”. The independence of the DPP is strengthened by section 6 of the 1974 Act. It makes it unlawful, subject to certain exceptions, to communicate with the DPP or any of his staff, for the purpose of influencing a “decision to withdraw or not to initiate criminal proceedings or any particular charge in criminal proceedings.”⁵²² The DPP and his officers have a duty not to entertain communications which breach the prohibition.⁵²³

2. Summary Prosecutions

   1. Introduction

8. A number of persons have been authorised by law to prosecute in courts of summary jurisdiction, for example, the common informer and statutory bodies. The right of the common informer⁵²⁴ could be broadly described as a general right to prosecute summarily, available at common law, to all individuals in their private capacity. And as regards the second category, the Health & Safety Authority, the Director of Corporate Enforcement and other regulatory authorities discussed below have all been granted the power to prosecute summarily under various statutes. In the case of the Gardaí and Revenue Commissioners, the power to prosecute summarily in the name of the DPP, arises under their delegations granted by the DPP. Each of these will be described in this Part. A significant difference between an authorisation to prosecute arising from a delegation and authorisation stemming from a statutory provision concerns the measure of control the DPP could in the last resort exercise over the conduct of the prosecution.

1. Statutory Authorities

9. A number of statutory bodies and Government Ministers have been given a statutory power to prosecute for specified criminal offences.⁵²⁵ The Health and Safety Authority and the Director of Corporate Enforcement are examples of statutory bodies authorised to prosecute by statute. They are worth describing here because they provide possible models for the prosecution of summary revenue offences.

10. These statutory provisions only grant the relevant authorities the right to prosecute summarily and do not exclude the right of the common informer to prosecute summarily in these areas. Additionally, the DPP retains the right to prosecute summarily where “a Minister, Department of State, or person (official or unofficial) authorised in that behalf by the law for the time being in force” has declined to prosecute.⁵²⁶

1. Health & Safety Authority

11. Section 51 of the Safety, Health and Welfare at Work Act 1989 provides that the National Authority for Occupational Safety and Health, better known as the Health and Safety Authority (‘HSA’) may prosecute summary offences under any of the relevant statutory provisions, subject to a limited exception for offences which contravene provisions which are to be enforced by “an enforcing agency”. The HSA sends all files to the Chief Prosecution Solicitor’s Division, which is within the Office of the DPP, with a recommendation on whether the case should be prosecuted summarily or on indictment. The file is considered by the Chief Prosecution Solicitor’s Division and/or the DPP where appropriate and a decision is taken on whether a case should proceed summarily or on indictment.⁵²⁷ Summary prosecutions are taken in the name of the HSA but the Chief Prosecution Solicitor’s Division will present the prosecutions. Prosecutions on indictment under Health and Safety legislation are taken in the name of the DPP. The HSA publishes the details of these prosecutions in its Annual Reports.

1. Director of Corporate Enforcement

12. The Office of the Director of Corporate Enforcement (‘ODCE’) was established in November 2001 under the Company law Enforcement Act 2001. Under section 12(1)(a) of the Act one of the functions of the Director is to “enforce the Companies Acts, including by the prosecution of offences by way of summary proceedings”. The Director may also refer cases to the Director of Public Prosecutions where the Director of Corporate Enforcement has reasonable grounds for believing that an indictable offence under the Companies Acts has been committed.⁵²⁸ Summary prosecutions are taken in the name of the Director of Corporate Enforcement and the details of outcomes of the cases are published on the website of the Office.⁵²⁹

1. The Gardaí

13. Most summary prosecutions are taken by the Gardaí. They may prosecute as common informers in their own name, or in the name of the DPP. Under a general authorisation given in 1975, Gardaí may prosecute in the name of the DPP without having to secure the prior consent of the DPP or bring the case to the DPP’s attention.⁵³⁰ The Gardaí may commence a prosecution in the name of the DPP without receiving his directions in the particular case.⁵³¹ However, the DPP retains a measure of control over the Gardaí, since he can discontinue any prosecution brought in his name at any stage.

1. The Revenue Commissioners

14. Section 1078 of the TCA 1997 lists a number of acts and omissions which are revenue offences. Section 1078(3) specifies those offences that are “hybrid offences”, that is offences which can be tried either summarily or on indictment.⁵³² Thus, there is a considerable scope for the exercise of discretion in deciding whether a case should be taken in a court of summary jurisdiction or on indictment.

15. In general, the Revenue Commissioners decide whether or not to prosecute a case summarily. They take prosecutions in the name of the DPP in courts of summary jurisdiction under a general delegation from the DPP.⁵³³ The DPP is not appraised of the existence of a file unless the Revenue Commissioners consider it to be appropriate. In cases where the Revenue Commissioners consider a case should be prosecuted on indictment the file will be referred to an Official of the DPP’s Office for a decision on whether the case should be prosecuted summarily or on indictment. But in the case of indictable offences, the Revenue Solicitor provides legal services to the DPP in respect of revenue offences. The Director has consented, for the purposes of section 13 of the Criminal Procedure Act 1967 as applied by section 1078(4) of the TCA 1997 to the summary disposal, on a plea of guilty, of any prosecution which is brought on indictment, provided that the Revenue Commissioners consider such summary disposal to be appropriate.⁵³⁴

16. The current arrangements for the summary prosecution of the non-submission of returns are said to be routine and non-problematic.⁵³⁵ The Revenue Commissioners prosecute on average 1,200 cases for the non-submission of returns annually. The Inspector of Taxes will refer the case to the Revenue Solicitor who may either issue a “pre-prosecution warning letter” or may advance the case to the summons stage without a “pre-prosecution warning letter”. (See paragraph ). The Revenue Solicitor will take the latter course of action where a person has a previous conviction for failing to file a return. If a taxpayer receives a warning letter, the taxpayer has 21 days to submit a return. If a return is not submitted, the case will proceed to the summons stage. The Revenue Commissioners will not stop a prosecution once it has issued a summons if a taxpayer subsequently files a return.

17. The Revenue Solicitor presents all summary cases in the Dublin Metropolitan District, and cases outside Dublin are referred by the Revenue Solicitor to the appropriate State Solicitor for prosecution. Criminal prosecutions amount to about 25% of the Revenue Solicitor’s work.⁵³⁶

18. Since early 1997, an officer of the Office of the Director of Public Prosecutions, at Assistant Secretary level, has been available to the Revenue Commissioners, for half the week, for the purposes of “case referral and for consultation.”⁵³⁷ Much of the senior official’s work is concerned with cases on indictment. The official is presented with a file after a full investigation by the Revenue Commissioners. In effect, this official decides whether a case is suitable for prosecution and, if so, whether it should be prosecuted summarily or on indictment. Another officer of the Office of the Director of Public Prosecutions also spends half his week in the Revenue Commissioners, and meets with officials from the Revenue Commissioners’ Investigations and Prosecutions Division to discuss evidential issues and any other issues which arise in the course of an investigation.⁵³⁸

19. The Nally Report did not recommend any change in the arrangements for the prosecution of revenue offences.⁵³⁹

1. Conclusion

20. The policy point to be considered is whether the status quo for the prosecution of revenue offences should be retained. In other words, the alternatives for the prosecution of revenue offences are either the present system of the ultimate control by the DPP over summary prosecutions taken by the Revenue Commissioners (the delegation model); or the independent statutory authorisation, along the lines of the HSA or the Director of Corporate Enforcement.

21. In the case of prosecutions on indictment, we shall be taking the policy view that, especially given the peculiarly large element of discretion in the decision to prosecute a revenue offence; it is prudent that in the final resort the independent figure of the DPP should have the last word (see paragraphs -). There does not seem to be any reason to justify a different policy for summary prosecutions. It is also relevant that we have been told that there is no dissatisfaction with the existing arrangement, under which, as we have seen, the Revenue Commissioners have a good deal of operational independence.

22. The Commission recommends that the Revenue Commissioners continue to prosecute summarily under a delegation from the DPP, rather than under an independent statutory authorisation. The Revenue Commissioners should issue a pre-prosecution letter in all cases before issuing a summons.

3. Prosecution on Indictment

23. The DPP will only prosecute if there is sufficient evidence⁵⁴⁰ and prosecution is in the public interest.⁵⁴¹ Where a prima facie case exists, the discretionary power not to bring a prosecution is not frequently used. The 1999 Annual Report specifies that the DPP’s discretionary power not to prosecute may be exercised: where prosecution would not be in the interests of the victim in the case; where the accused is terminally ill; where the accomplices in a crime are granted immunity because their evidence is essential for the successful prosecution of another participant; or in a case where the breach of the law is technical and no real purpose would be served by a trial.⁵⁴²

24. Although the Supreme Court has rejected the contention that the DPP’s “decisions are not as a matter of public policy ever reviewable by a court”,⁵⁴³ the Courts are reluctant to apply the normal standards of judicial review to prosecutorial decisions.⁵⁴⁴ The DPP’s discretion is only subject to judicial scrutiny in extremely limited circumstances.⁵⁴⁵ Indeed, with particular reference to cases involving State security, the UN Human Rights Committee used the following strong language to describe the circumstances in which judicial review of the DPP’s decisions will be granted: “[it] is effectively restricted to the most exceptional and virtually undemonstrable grounds”.⁵⁴⁶

25. The courts will only intervene to review the DPP’s decision where it is demonstrated that the decision on whether to prosecute or not was “mala fide or influenced by an improper motive or improper policy ….”⁵⁴⁷ As a consequence of this the courts have also approved the DPP’s policy not to give reasons for his decisions.⁵⁴⁸

26. While judicial review of a decision to prosecute or not to prosecute may in reality be difficult to obtain in the present state of the law, the same is not true for judicial review of the reversal of a decision not to prosecute. In the recent case of Eviston v DPP,⁵⁴⁹ the Supreme Court granted an injunction to restrain the DPP from proceeding any further with a prosecution against the applicant.

27. In addition, the DPP has considerable discretion in relation to ‘hybrid offences’, which are statutory offences which may be liable to punishment on summary conviction, or on indictment, (with the Act not indicating the circumstances in which the charge should be prosecuted summarily, rather than on indictment or on indictment rather than summarily).⁵⁵⁰ The District Court cannot try an indictable scheduled offence summarily, unless the DPP consents to the accused being tried summarily under section 2(2) of the Criminal Justice Act 1951 (as amended).⁵⁵¹

28. The DPP bears a number of other functions, the most relevant here being the provision for prosecution appeals in relation to summary cases and appeals against sentence.⁵⁵² The Summary Jurisdiction Act 1857⁵⁵³ is an example of a statute which provides a statutory right of appeal for the prosecution. In relation to cases on indictment,⁵⁵⁴ section 34 of the Criminal Procedure Act 1967 provides for a limited without prejudice right of appeal in relation to questions of law arising from directed acquittals in Circuit Court and Central Criminal Court trials.⁵⁵⁵

29. Under section 2 of the Criminal Justice Act 1993, the Director may apply to the Court of Criminal Appeal to review a sentence which in his opinion is unduly lenient. The DPP recently sought a review of the sentence imposed for ten revenue offences in DPP v Redmond.⁵⁵⁶ The defendant had failed to file returns for nine years contrary to section 94 of the Finance Act 1983 and section 1078 of the TCA, 1997.⁵⁵⁷ He was fined IR£7,500 (€9,523) in total in respect of these offences. In refusing the DPP’s application, the Court held that, although the penalties may have been low, the DPP had not established that the trial judge had erred in principle or that the fines were unduly lenient within the meaning of section 2 of the Criminal Justice Act 1993 as interpreted in DPP v McCormack.⁵⁵⁸ The DPP failed to establish, by comparable cases or otherwise, that in the particular circumstances of the Redmond case, the fine of IR£7,500(€9,523), was “unduly lenient”.

4. Reforms

30. As a preliminary matter the term ‘fiscal prosecutor’ ought to be defined. ‘Fiscal’ can mean a number of things, but in this Paper, the term is used in the sense of an office-holder who would be responsible for the prosecution of revenue offences, (and so the term ‘revenue prosecutor’ might be as appropriate).⁵⁵⁹

31. There are a number of options for reform of the current system for the prosecution of revenue offences. There are many stages, involving the exercise of discretion, along the trail which commences with a suspicion (on which see paragraphs , -, and ) of non-payment or false accounting and culminates in the prosecution of a case before a court. In respect of which one or more of these stages is it suggested that a fiscal prosecutor should replace an actor in the existing structure? Basically, the possible changes may be categorised in the form of two possible models:

    1. One might involve simply replacing the DPP by a fiscal prosecutor (whom we call the Director of Fiscal Prosecutions or “DFP”) who would specialise in the prosecution of revenue offences, but who would otherwise have a similar status and similar powers to the DPP. We shall consider this option in Part ;

    2. The alternative would be to make the changes outlined above and to widen the powers of the DFP, as compared with those of the DPP, in any of three possible ways of which the most important would be to create a single unit for the investigation and prosecution of revenue offences. These options will be considered in Part . A joint investigation and prosecution office has been established in New Zealand, and this model is outlined in Part .

5. Director of Fiscal Prosecutions

32. Here we consider the creation of an office which would “be singularly focused on Revenue offences and have the necessary specialist expertise in the office.”⁵⁶⁰ The proposed reform may be analysed from two perspectives. First, the most likely rationale justifying the creation of a fiscal prosecutor would be to secure the prosecution and conviction of tax evaders who currently go unprosecuted or undetected. Thus from one point of view the efficacy of the Office of the DFP can be gauged by whether it would bring more tax evaders to justice. A second consideration is whether in achieving more tax compliance the DFP would ensure and maintain respect for civil liberties, particularly those of citizens who are suspected of recalcitrance in paying the tax due.

1. Independence

33. In order to meet this second consideration, the DFP would presumably enjoy the same institutional protections to independence as does the Office of the DPP; or such other constitutional offices, as the Ombudsman or the Comptroller and Auditor General.

34. The following is a sketch of the DFP’s institutional role. The DFP would be chosen from persons whose independence and integrity is beyond question. Recruitment and appointment would be carried out in a fair and impartial manner. Safeguards against government pressure should be built into the method of appointment and removal. Mechanisms to protect the DFP from unjustified interference while in office would have to be provided. The DFP and the staff would be civil servants of the State⁵⁶¹ and there would be a statutory provision similar to section 6 of the Prosecution of Offences Act 1974 which would explicitly provide that the DFP would be independent in discharging the functions of the Office.⁵⁶² The conditions of service, including remuneration and pension rights could be governed by law. An annual report would have to be compiled and published. (However, this might be published with that of the DPP). Presumably, the Office of the DFP would have its own grant in aid and the DFP would be the accounting officer of the DFP’s Office, in the same way as the DPP is the accounting officer of the DPP’s Office, so as to prevent subversion of its independence by any attack on its resources.

35. Even given this institutional independence, a practical query has to be raised. One criticism is that creation of the DFP would lead to further fragmentation of the public prosecution system. At the moment, the DPP has a measure of control over almost the entire prosecution system. The DPP’s supervision and control ensures that there is consistency and standards in prosecution policy. The DPP commented on this point before the DIRT Inquiry. He remarked:

“[y]ou suggested the idea of a special prosecutor. I would be quite reluctant to see us go down that road. We have always in this State had the principle of a single prosecutor to deal with indictable crime. … I certainly would not favour breaking up the prosecution service into different units which would deal with different types of crime. I think it is important that we maintain a consistency and a unity, so far as criminal prosecution is concerned, and the same standards.”⁵⁶³

36. The Commission favours the standards of consistency and fairness assisted by the unifying experience of the overall supervisory role exercised by the DPP. The DPP has a wide sphere of interest, ranging over the entire field of serious crime. The Office’s status, raison d’etre and reputation is not tethered to one sector. By contrast, if a DFP were established as a prosecutor confined to a single sphere, the DFP would perhaps be, or at least might be perceived as being, over involved in that one sector and as developing over time, too much affinity with those who work in it. Moreover, because there is more discretion involved in deciding whether to prosecute a revenue offence than, say, a robbery charge, more hinges on the independence of the process of determining whether to prosecute. While no doubt a DFP would be careful to establish the independence and integrity of the Office, it seems sensible to keep the benefits of the existing experience and overall supervisory role of the DPP, which help in maintaining high standards, consistency and probity throughout the prosecution system.

37. A further point is that those responsible for revenue prosecutions in this jurisdiction have expressed the view that revenue offences are no more complicated than other criminal charges, and thus do not need any particular specialisation in order to ensure successful prosecution, (the question of investigation is a separate issue, which we will return to at paragraph -). Finally, the usefulness of simply replacing the DPP with a DFP must be questioned. Substituting a DFP would not necessarily result in an increase in the number of prosecutions. A change of policy would be needed at the investigation level in order to increase the potential number of cases for prosecution; a change in priorities as well as more personnel and resources might be required.

1. Conclusions

38. The structure sketched at paragraphs - at least prompts the question as to whether this would be expedient or worthwhile. Would the proposed new Office do what it is actually intended to do, namely, increase the number of prosecutions and secure more convictions? It seems from present figures that even allowing for the anticipated moderate increase in prosecutions, relatively few cases, would be taken by a DFP.

39. A number of reforms, outlined at paragraphs and , have been put in place in recent years. It would be unwise to pronounce on their success or failure until they have had a chance to prove their worth. Subject to that qualification, all that can be said at present is that there are no advantages which would derive from the fiscal prosecutor, with the fairly cumbersome legislative and administrative arrangements already described which this would entail, which could not be achieved by the recent changes. Perhaps the arrangements currently in place for co-operation between the Revenue Commissioners and the DPP should be made better known simply in order to publicise the efforts being made to combat tax evasion. As noted earlier, the DPP has made available experienced senior officers to advise the Revenue Commissioners and this should perhaps be recognised as going part of the way to establishing de facto fiscal prosecutor, while still operating under the aegis of the DPP.

40. The Commission recommends that the arrangements currently in place for the prosecution of revenue offences be maintained for a period and then reviewed in a few years. The Commission does not recommend the creation of a DFP.

6. A Director of Fiscal Prosecutions with additional functions

41. Let us assume that, contrary to the recommendation made in paragraph , there is to be a separate Director of Fiscal Prosecutions. The question would then arise as to whether the responsibilities of the new office should go beyond the present powers and duties of the DPP to embrace all or any of the following: (1) the Revenue Solicitor’s role; (2) summary prosecutions; or (3) the investigative function.

1. Incorporating the Revenue Solicitor’s Role in Criminal Prosecutions

42. One possible addition to the DFP’s roles, as compared to the functions presently discharged by the DPP, concerns the Revenue Solicitor’s role. On the criminal side (there are other functions on the civil side), the Revenue Solicitor provides legal advice to those investigating revenue offences, issues warning letters to tax recalcitrants, and also provides legal services to the DPP in respect of both summary and indictable revenue offences.⁵⁶⁴

43. The DPP and the Revenue Solicitor presently enjoy a relationship similar to that which, before 2001, existed between the DPP and the former Criminal Division of the Chief State Solicitor’s Office. However in 2001, the Chief Prosecution Solicitor’s Division within the DPP’s Office was established following the recommendation in the Nally Report that control of the Criminal Division within the Chief State Solicitor’s Office be transferred to a new office under the control of the DPP, in “the interest of control, accountability and transparency”.⁵⁶⁵

44. The Nally Report also briefly considered the arrangements for the prosecution of revenue offences but did not recommend any such change in relation to the Revenue Solicitor.⁵⁶⁶ Thus, the addition of the Chief Prosecution Solicitor’s Division to the DPP’s Office has not affected the Revenue Solicitor’s role in the prosecution of revenue offences.

45. It might be asked why the Nally Report did not recommend the transfer of the criminal functions performed by the Revenue Solicitor’s Office to the DPP since the same concerns relating to control and accountability seem to arise. The answer is that the Revenue Solicitor provides a wide range of legal advice in respect of civil and criminal matters to the Revenue Commissioners drawing on expertise and experience built up over time. The Revenue Commissioners’ function is to ensure compliance with the Tax Acts, whether by way of monetary settlement or prosecution. It would be difficult and undesirable to separate the role played by the Revenue Solicitor in criminal matters from the role the Revenue Solicitor provides in reaching settlements. The dual role performed by the Revenue Solicitor provides for flexibility in dealing with cases either by prosecution or settlement depending on the evidence which emerges in the course of a negotiation or investigation, with the ultimate aim of enforcing compliance with the Tax Acts. The current arrangement has been working satisfactorily and a case for transferring the criminal work performed by the Revenue Solicitor has not been made.

46. Accordingly, the Commission does not recommend any change to the current relationship between the Revenue Solicitor and the DPP and would not recommend the transfer of the functions performed by the Revenue Solicitor’s Office to a DFP, if such an office was established.

1. Summary Prosecutions

47. Presumably, if all activities in relation to the investigation and prosecution of revenue offences were to be centred in one organisation, the question would then arise as to whether the Revenue Commissioners’ summary prosecution functions should be transferred to the DFP. However, given the routine manner in which such prosecutions are taken by the Revenue Commissioners, there does not appear to be any practical reason which would require the transfer of the summary prosecutorial function from the Revenue Commissioners.

48. Accordingly the Commission does not recommend the transfer of summary prosecution functions to the DFP, in the event of a DFP being established.

49. There is, however, another point, which might be thought to arise. It would be in the interests of consistency and equal treatment of offenders that, as occurs under the present arrangements, the one authority determines whether a particular offence warrants a summary or indictable prosecution. If a DFP were created, the current arrangement (see paragraph ), whereby the power to prosecute summarily is delegated to the Revenue Commissioners but the DPP remains the final authority, should be replicated with the DFP being the final authority. For if the DFP was not the final authority on whether a prosecution should proceed, and the Revenue Commissioners retained a power to prosecute tax evaders, conflicts could arise. An example of such a conflict arose in the UK in W v Inland Revenue.⁵⁶⁷ Here the Inland Revenue chose not to prosecute, and settled with the taxpayer for tax, penalties and interest. The Crown Prosecution Service later chose to prosecute in respect of the tax evasion. The applicant argued, on the basis of Crown indivisibility, that, once the Inland Revenue had decided not to prosecute and had accepted a monetary settlement, the Crown Prosecution Service could not prosecute. The Court of Appeal disagreed with the applicant and stated:

“the Revenue's common law power to prosecute is ancillary to, supportive of and limited by their duty to collect taxes. In contrast, the Crown Prosecution Service's statutory duty to take over and conduct criminal proceedings is free-standing, unconfined (for present purposes) and reflects much wider public interests, concerns and objectives.”⁵⁶⁸

50. Such a situation could not arise in Ireland at the moment but, if the DPP’s jurisdiction were transferred to a separate DFP, there would be scope for conflicts to arise between the DFP and the Revenue Commissioners and also between the DFP and the DPP. Thus, the relationship between the DFP, the Revenue Commissioners and the DPP would have to be clearly defined.

1. Joint Investigation-Prosecution Role

51. The most radical proposal would be to add on to the prosecutorial function the task of investigation. We should make it clear, at the outset that while there have been some well-publicised instances of defective revenue investigation,⁵⁶⁹ the question of investigation is strictly speaking outside our terms of reference and we have not investigated the area. On the other hand, it seemed useful simply to raise the question and to draw the reader’s attention to the New Zealand joint investigation-prosecution unit, which is outlined in paragraphs -. However, it also seemed appropriate not to make any recommendation on this issue, which affects fundamental principles.

52. There are two inter-related arguments in favour of incorporating the investigation and prosecution functions in the same constitutional structure. The first of these is that the employment of specialists in such fields as law, forensic accountancy, information technology or business of the relevant sort would be useful in respect of both investigation and prosecution. Given the inevitable budgetary and bureaucratic constraints, the employment of such specialists can most readily be achieved if they work on both the investigation and prosecution side. Secondly, early and effective communication between investigators and prosecutors would be improved if many of the staff were employed on both sides of the house.

53. The Council of Europe recognised the importance of specialisation in respect of investigation and prosecution in its “Recommendation on the Role of Public Prosecution in the Criminal Justice System.”⁵⁷⁰ It recommends that, in highly technical fields such as business-related and financial crime, including revenue, specialisation is essential in order to ensure effective prosecution. It recommends that the type of:

“specialisation that should be encouraged is the formation, under the direction of prosecutors who are themselves specialists, of truly multi-disciplinary teams whose members are drawn from a variety of backgrounds (a team dealing with financial crime and money laundering, for example, might include chartered accountants, customs officers and banking experts). This pooling of expertise in a single unit is a vital factor in the operational effectiveness of the system.”⁵⁷¹

54. The prosecution system would benefit from the combined skill and expertise of forensic accountants who “are skilled at piecing together transactions and analysing the flow of funds between different parts of an organisation”⁵⁷² and lawyers to assess whether the proofs needed to establish the commission of an offence are present. The Council of Europe’s recommendation observed that “[t]o discover, analyse and prosecute fraud needs a concerted and organised approach, where different but complementary skills can be brought together to construct as full a picture as possible.”⁵⁷³

55. The next thing to be said about such a proposal is that it would involve blurring the traditional divide in relation to the investigation and prosecution of serious revenue offences. The Nally Report considered the rationale for the separation of the investigation and prosecution functions. It stated that:

“[t]he practical aim of such a separation of functions is to avoid a situation in which the prosecution, instead of objectively assisting the court to arrive at the truth by presenting the facts which constitute the case against the accused, would be committed in advance, as a result of its involvement in the investigation, to securing a conviction.”⁵⁷⁴

1. In respect of prosecution for summary offences, the Nally Report did not find any compelling arguments supporting the contention that the separation of investigation and prosecution functions “should be regarded as a basic principle.”⁵⁷⁵ In respect of trials on indictment, the Nally Report seems to have reached no firm conclusion either way. However, the demarcation line between investigation and prosecution seems to the Commission to be an important separation which should be respected when this is practicable, although there are bound to be areas of some overlap. Nevertheless, this does not need to be fatal to the suggestion under consideration. For under the New Zealand model described at paragraph -, it has been possible to combine a common institutional structure with a practical demarcation between investigation and prosecution, particularly when it comes to the critical question of whether to prosecute, in respect of which the Director must be assiduous to exercise objective and independent judgment. No doubt such an arrangement could be developed in Ireland, if necessary.

2. On the other side of the argument, the question may be asked whether the new structural reforms, begun in 1996 for investigation and prosecution of revenue offences, already allow for a sufficient level of specialisation without the need for combining the prosecution and investigation functions. The issue which must be borne in mind throughout this discussion is whether any such new model would result in more successful prosecutions. Specifically, where there has been a failure to prosecute, would this be remedied by a joint investigation-prosecution unit? One should bear in mind that communication is good, under the present scheme between the Investigations and Prosecutions Division of the Revenue Commissioners and the DPP’s officer who spends much of his time with Revenue. The question of whether an increase in prosecutions for tax evasion is in the interests of the Exchequer and also of the common good arises, particularly when consideration is given to the delicate balance which must be struck between settlement and prosecution. For example, the Revenue Commissioners may be in a position to ensure that an errant taxpayer complies with his or her obligations under the Tax Acts by reaching a settlement which will lead to the recovery of the underpaid tax, penalties, and interest, without needing to prosecute the errant taxpayer. See further paragraphs -.

3. As mentioned at paragraph , since we have insufficient empirical evidence to answer these questions, the Commission makes no recommendations on the benefits of establishing a body with a joint investigation and prosecution role. Instead, we turn to consider a relevant foreign comparison.

1. The New Zealand Serious Fraud Office

   1. Introduction

1. The New Zealand Serious Fraud Office (“SFO”) has been selected as a possible model for a DFP with investigation-prosecution functions, as its remit covers revenue offences as well as a wide range of other serious frauds. The Serious Fraud Office constituted for England, Wales and Northern Ireland on the other hand, does not investigate or prosecute revenue offences.⁵⁷⁶ The New Zealand SFO was established in 1990, pursuant to the Serious Fraud Office Act 1990 (“the Act”). Modelled to some extent on the SFO for England, Wales and Northern Ireland, it is an independent government department with responsibility for the expeditious detection, investigation and prosecution of serious fraud, including tax fraud. The Attorney General is responsible for the SFO,⁵⁷⁷ but the Director is independent of the Attorney General. The Director is not accountable to the Attorney General for any decisions to investigate or prosecute cases.⁵⁷⁸ The Director has no obligation to investigate or prosecute particular fraud cases. Furthermore, any decision of the Director to investigate or prosecute a case which the Director suspects may involve serious or complex fraud may “not be challenged, reviewed, quashed, or called in question in any Court.”⁵⁷⁹

1. Multi-Disciplinary Approach

1. The SFO operates a new multi-disciplinary approach to the investigation and prosecution of serious fraud. The Office is staffed by the Director and two Assistant Directors, who lead the Investigations and Prosecutions branches. In line with the basic principle mentioned at paragraph , the decision as to the bringing of a prosecution is taken by the Director independently of the investigation staff. Within the Investigations branch, there are three subdivisions, namely: forensic accountants, a document management unit and a systems administrator. Initial complaints are handled by a ‘Complaints Officer’. Investigators and forensic accountants work together. They interview witnesses, gather documents and analyse financial transactions, under the supervision of management. Independent prosecutors are also engaged and assigned to each investigation. If necessary, they are consulted and give advice on any legal issues which arise in the course of an investigation and usually conduct the prosecution.

1. Powers

1. The Director of the SFO has the power to require the production of documents,⁵⁸⁰ to obtain a search warrant,⁵⁸¹ and to require attendance before the Director.⁵⁸² The Director may assume responsibility from the Police for investigating certain cases of fraud.⁵⁸³ All duties of confidentiality, except for strict legal professional privilege, are overridden by the Serious Fraud Office Act 1990. Although proceedings may be taken to challenge the Director’s exercise of powers, the Director may continue to use the challenged powers until the final decision in the proceedings.⁵⁸⁴

2. When served with a notice to attend, an individual cannot invoke the privilege against self- incrimination in order not to answer questions, supply information, produce documents or give explanations.⁵⁸⁵ Self-incriminating statements given on foot of a notice to attend will generally not be admissible in court. However, where an individual contradicts an earlier incriminating statement, it may be admissible.⁵⁸⁶

1. Selection of cases

1. Cases are referred to the SFO by “Government Departments, liquidators, receivers, statutory managers, professional associations and the general public. On occasions the Office is also pro-active in undertaking inquiries.”⁵⁸⁷

2. No statutory definition of ‘serious fraud’ is provided. However, section 8 of the Serious Fraud Office Act 1990 provides that the Director may take the following factors, among other things, into account when determining whether a case involves serious or complex fraud:

   1. “The suspected nature and consequences of the fraud;

   2. The suspected scale of the fraud

   3. The legal, factual and evidential complexity of the matter;

   4. Any relevant public interest consideration.”⁵⁸⁸

3. The following criteria are also taken into account when deciding whether or not to investigate and prosecute a case: whether the fraud involves over $500,000;⁵⁸⁹ whether the fraud was perpetrated by complex means; and whether the fraud involves major public interest. The decision to prosecute is taken within the framework of the Solicitor General’s Prosecution Guidelines.

1. Prosecutions to date

1. The system appeared to function well, and reported successful prosecutions in its early years. However, its efficacy was called into question between 1994 and 1997 as a result of a failed investigation, which revealed feuds within the organization and diminished public confidence in the office.⁵⁹⁰ Serious fraud trials are lengthy, and tend to last at least several weeks. Multiple defendants are often involved. Nonetheless, the SFO had a 100% prosecution success rate for the year ending 30 June 2002 - an increase on its 91% success rate since its establishment. It completed 15 prosecutions fully, partially completed two other cases, and had 31 prosecution cases on hand. Seven of the prosecutions went to full trial, and frauds of over $1 million were involved in over half the prosecutions. In a large percentage of SFO prosecutions, the defendant pleaded guilty. In specific cases, the SFO may engage specialist experts as required.

2. The SFO has a close working relationship with the Inland Revenue.⁵⁹¹ The following two cases are examples of serious fraud cases prosecuted by the SFO which also involved tax evasion. In May 2001, a defendant was convicted of both corruptly accepting secret commissions, and also of filing false tax returns with intent to defraud the Inland Revenue. The defendant was sentenced to 18 months imprisonment. The conviction and sentence were appealed, but the appeal was dismissed. In June 2001, a former Tax Agent was sentenced to four years imprisonment. He pleaded guilty to 18 representative counts reflecting his theft of $1.045m from the Inland Revenue among others.⁵⁹² Examples of other cases prosecuted by the SFO include the false representation of self-liquidating loans as successful and the use of documents with intent to defraud.

1. Conclusion

1. Although a Serious Fraud Office is outside the precise terms of reference of the Paper, it was worthwhile to consider the multi-disciplinary approach to the investigation and prosecution of serious fraud adopted by the SFO in New Zealand. The Commission does not recommend the creation of a Serious Fraud Office in Ireland.

7. Criminal Revenue Court

   1. Introduction

1. In this chapter, we consider changes involving or related to a court which is dedicated to the trial of revenue offences.⁵⁹³ It is worth emphasising that, while the phrase “revenue offence” is a convenient and often-used expression to capture a criminal offence in the revenue field, it has no other significance than that. There is, in Irish law, no special category of revenue offences with distinctive substantive and evidential rules. In particular, revenue offences are subject to the same constitutional protection as those which apply in the trial of any offence. Nor is there, at the moment, any specialised revenue court in this jurisdiction, the equivalent, say, of the Special Criminal Court.

2. A specialist criminal revenue court might take one of at least three forms. First, in descending order of radical change, such a court could be staffed wholly or partly by experts in areas other than the law, such as accountants. The DIRT Inquiry considered whether a Revenue Court with “expert assessors”⁵⁹⁴ or “constituted to have financial and accountancy assessor available to advise the Court”⁵⁹⁵ would “make a contribution to increasing the level of prosecution and compliance”⁵⁹⁶ with the Tax Acts (Part ). Secondly, it could sit without a jury (Part ). Thirdly, a specialist Circuit or District Court whose work would be confined to revenue trials, but otherwise would be unchanged from the present model, could be created. (Part ) Less radically, a listing system, involving the concentration of revenue trials before a judge with particular qualifications or experience in revenue law, could be established. (Part ) Finally, a list involving the concentration of revenue trials in a particular courtroom at a particular time could be used. (Part )

3. In this Chapter, the Commission examines these models to determine whether certain modifications might be thought to be desirable in the trial of revenue offences. Since any such court would have to respect existing constitutional limitations, in each case we first consider any relevant constitutional objections, and then go on to consider the policy considerations.

2. A Court of Accountants

4. When an accused is tried for a criminal offence, the Constitution guarantees the accused certain minimum protections, which are detailed in the following paragraphs. In the first place, the Constitution requires that criminal justice must always be administered in a court of law.⁵⁹⁷ This raises the question of what is a ‘court’. In particular, it raises the question of what restrictions exist on the sort of modifications which it might seem desirable to make in the institution trying a revenue offence, as compared to a conventional court. The following general points seem clear. First, “in order to fulfil the requirement of being a court, an entity must comply with the precepts as to remuneration, removal, impartiality, etc., [of judges] set out in the Constitution.”⁵⁹⁸ Likewise a court must be independent. Article 35.2 provides that “[a]ll judges shall be independent in the exercise of their judicial functions and subject to this Constitution and the law.” Article 35.5 reinforces the independence of judges by providing that their remuneration shall not be reduced during their continuation in office.⁵⁹⁹ Finally, as a result of Article 34.1, the entity would have to sit in public, save in those “special and limited” circumstances prescribed by law.⁶⁰⁰

5. But the point which arises in the present context is whether judges have to be legally qualified. Would it suffice if they were qualified accountants? It seems probable that the answer would be ‘no’. It is true that the Constitution says nothing about a judge’s qualifications save that they “shall be determined by law”.⁶⁰¹ However, the first of a court’s obligations is that it administers justice under the law. The judicial oath set out in Article 34.5.5 requires all judges to pledge that they “…will uphold the Constitution and the laws”. It would seem elementary that a judge should have some formal qualification in law in order to discharge this duty. Secondly, if the court were composed of accountants, it is arguable that a defendant’s right under Article 38.1 to be tried “in due course of law” would be infringed.⁶⁰² Finally, it is relevant that statute has laid down qualifications for appointment as a judge which differ only in detail: in every case, the appointee must be a practising barrister or solicitor of several years’ standing.⁶⁰³ If a new court were established in order to try revenue offences, and the court were staffed by accountants sitting in a judicial capacity, presiding over criminal trials, it would depart from this tradition and established practice.

6. The Commission does not recommend the establishment of a court whose members are qualified in a field other than law, for instance, accounting.

3. An alternative to jury trials

7. Here, the Commission considers whether revenue offences ought to be tried on indictment by a court sitting without a jury. As before, we examine first the constitutional imperatives and then the policy considerations.

8. Article 38.5 provides that “save in the case of the trial of offences under section 2, section 3 or section 4 of this Article no person shall be tried on any criminal charge without a jury.” One of the exceptions to this rule is Article 38.2,⁶⁰⁴ which allows “minor offences” or less serious offences, including less serious revenue offences, to be tried in the District court without a jury. However, we are discussing indictable offences here.

9. Another important exception is contained in Article 38.3, which provides a constitutional basis for the establishment of special criminal courts, with no jury, where “the ordinary courts are inadequate to secure the effective administration of justice, and the preservation of public peace and order.”⁶⁰⁵ For this exception to be invoked, Part V of the Offences Against the State Act 1939 has to be brought into force.⁶⁰⁶ While the current Special Criminal Court was established against a background of subversive crime, its jurisdiction is not confined to subversive crime.⁶⁰⁷ Although the creation of a special criminal court to try revenue offences would appear not to fall within the terms of Article 38.3, Walsh J hinted in The People v Quilligan (No. 1)⁶⁰⁸ that activities which are injurious to the economic position of the State might fall within the terms of the 1939 Act, the wording of which is patterned on Article 38.3. He stated that:

“It is not at all impossible that in the light of the economic conditions in the State there could be activities which would be very injurious to the economic position of the State and might equally well be comprehended by the Act. In fact in the years during the last war and the years following it, the Special Criminal Court was very frequently engaged in the trial of what were called “black market” cases… It is common knowledge, and indeed was discussed in the debates in the Oireachtas leading to the enactment of the Act of 1939, that what was envisaged were cases or situations of a political nature where juries could be open to intimidation or threats of various types. However a similar situation could also arise in types of cases far removed from what one would call ‘political type’ offences.”⁶⁰⁹

10. Nevertheless, this would seem rather slim authority on which to try a revenue offence in a non-jury court, at any rate in present circumstances.⁶¹⁰

11. Despite the rather clear constitutional ban imposed by Article 38.5, it is worth considering, from a policy perspective, the removal of the jury in tax prosecutions. In an analogous area of the law, serious fraud, the case for removing the traditional jury was recently considered in the UK. The British Home Office Consultation Paper, Juries in Serious Fraud⁶¹¹ considered the particular problems presented by serious fraud trials and possible alternatives to jury trial. However, in contrast to our own reference, the British Home Office Consultation Paper was prompted by a concern that the system in place for the trial of serious fraud offences was not working satisfactorily.

12. Ranging widely, Juries in Serious Fraud discusses four possible alternatives to conventional jury trials, namely:

1. the use of special juries, who “would be screened for their suitability to sit on a fraud trial jury” or the maintenance of a ‘special jurors’ pool for fraud trials;

2. the judicial option considers the possibility of trial by a judge or judges, “who, in either case, may be with or without the assistance of expert assessors.”;

3. the tribunal option would consist of a judge sitting with specially-qualified lay people; and

4. trial by a single judge with a jury for key decisions.

13. Using the same framework, an even more recent study by Auld LJ, A Review of the Criminal Courts of England and Wales, recommended the third option, namely that serious and complex fraud cases should be tried by a judge sitting with lay members who would be chosen from among a panel of experts established and maintained by the Lord Chancellor in consultation with professional and other bodies. The judge would be the sole judge of law, procedure, admissibility of evidence and sentence, whilst the judge and lay members would decide issues of fact. Alternatively, he recommended that such cases should be heard by a judge alone where a defendant opts for it. The Report also recommended that “judges trying such cases…should be specially nominated for the purpose as now, and provided with a thorough, structured and continuing training for it”.⁶¹²

14. Similarly the issue has arisen in New Zealand in the context of serious fraud. In its 2001-2002 Annual Report, the Director of the Serious Fraud Office had the following to say on the matter:

“[f]rom time to time the suggestion is made that there should be an alternative to ordinary jury trials for the more serious or complex fraud cases. For example, a Judge alone or a Judge sitting with assessors. I have an open mind on this matter. I can see several advantages in terms of the efficiency of the trial process if jury trials were to be modified for our trials. It may well be that a professional panel or a Judge sitting with advisors may better understand the complexity of the offending. Against that, however, is the fact that fundamental to any allegation of fraud is the question of basic dishonesty. That is the type of issue that arguably falls fairly and squarely within the domain of a jury. Based on the success rate of the Office to date, I could not claim that jury trials have seriously impeded the work of the Serious Fraud Office.”⁶¹³

15. In Ireland, in the handful of prosecutions for serious tax offences brought to date, it has not been established that revenue trials cause special problems for jurors. It is easy to see how this should be so, bearing in mind that criminal cases do not turn on sophisticated points of tax law as, for instance, the distinction between tax avoidance and evasion. In years to come, the type of offences being prosecuted could change so that this sort of difficulty may arise in criminal trials, but, at the moment, no problems have been reported with the workings of the jury. Thus, all that can be said with certainty is that, in the trials of revenue offences which have occurred in this country, it has not been established or suggested that the jury trial system is flawed.

16. Another consideration which tells positively in favour of the present (jury) system is the classical argument against non-jury trials, namely that one of the basic reasons for the jury is to keep the administration of the criminal justice system broadly in line with the standard of public morality of the average person on Dublin Bus, even if the jury may incline to do justice rather than to adhere to the strict letter of the law. In plain language, a jury may acquit someone because the law under which the individual is tried is unfair or has been unfairly applied in the particular case.⁶¹⁴ In de Burca v Attorney General,⁶¹⁵ Henchy J described the purpose of the constitutional guarantee to a jury trial in the following terms:

“There is no doubt that the primary aim of s. 5 of Article 38 in mandating trial by jury for criminal offences other than minor ones … is to ensure that every person charged with such an offence will be assured of a trial in due course of law by a group of laymen who, chosen at random from a reasonably diverse panel of jurors drawn from the community, will produce a verdict of guilty or not guilty free from the risks inherent in a trial conducted by a judge or judges only, and which will therefore carry with it the assurance of both correctness and public acceptability that may be expected from the group verdict of such a representative cross-section of the community.”⁶¹⁶

17. Revenue criminal law is deliberately drafted quite strictly, and therefore a good deal depends on convictions occurring only in what might reasonably be regarded as serious cases.⁶¹⁷ Bearing this in mind, it seems that the classical justification for the jury, just rehearsed, does have a role to play in the area of revenue offences.

18. The Commission recommends the retention of jury trial in the case of trials on indictment for revenue offences.

4. A Specialist Circuit or District Court whose work is confined to Revenue Offences

19. A court whose jurisdiction is confined to revenue work would probably not be unconstitutional. While most courts are general, in the sense that they cover a wide range of matters, there is nothing in the Constitution to require this. As to policy, a number of benefits could arise from establishing a specialised division of the Circuit Criminal Court to hear serious tax evasion cases. These would include the accrual of experience and expertise in the area, and the introduction of stability and consistency in the administration of the list.

20. But there are three arguments in the opposite direction. In the first place, specialised criminal courts have been rare and often unpopular in the history of the common law.⁶¹⁸ Experience has thrown up a preference for a general court which hears cases of all or several types. The reasons for this, often depending on the particular historical era, include the dangers that judges would become ‘case- hardened’; controlled by the limb of the Executive with which they constantly work, or even too familiar with the parties and their lawyers. To put the point another way: the view has been taken that dilution with other work enhances or maintains a desirable level of judicial detachment.⁶¹⁹ Secondly, revenue offences have been classified as crimes, and therefore should be treated in the same manner as all other crimes. Otherwise, the stigma attached to a conviction for a revenue offence may be less than that attached to other crimes which are processed within the normal criminal justice system.

21. The third point requires separate treatment, according to the level at which the court would sit. Would it be a specialised Circuit or District Court; or a court which could sit either as a Circuit Court or a District court? As regards the first of these options, the number of revenue offences prosecuted on indictment has so far been negligible (see paragraphs -). Thus, as of now a specialised criminal division of the Circuit Court created solely to try revenue offences would be under-employed.

22. Alternatively, it has been suggested by one group⁶²⁰ that there may be a greater need for a revenue court at the District Court level. This proposal is based on the difficulty which is said to be associated with getting a case listed in the District Court and the low priority afforded to revenue cases in the District Court. As against this, the Revenue Commissioners have informed the Law Reform Commission that, under the present arrangements, the summary prosecution for failure to file returns is routine and unproblematic. The Revenue Commissioners have not suggested that there is a need for a revenue court at District Court level, and maintain that any delays experienced in the prosecution of summary revenue offences are those common to all offences prosecuted in the District Court.

23. The Commission does not, at the moment, recommend the establishment of a specialised criminal revenue court, at either District or Circuit Court level (or both).

5. A List: The Concentration Of Revenue Trials before a Judge with Particular Qualifications or Experience in Revenue Law

24. A compromise, which secures some of the advantages, without the disadvantages, of a separate court would be a separate ‘list’: the trial of revenue offences would be assigned to judges in order to ensure an appropriate level of expertise for trying revenue offences. In order to avoid over-familiarity between the judges administering the list and the practitioners representing the taxpayers the list ought to be assigned to at least three judges and presumably more. Possibly a specialist revenue court could evolve, with time, from such a listing system.

25. While lists are becoming more commonplace in civil cases, they are only beginning to emerge in the criminal field. For example, the President of the High Court has indicated his intent that the judge or judges assigned to hear civil competition cases would also be made available to sit in the Central Criminal Court in cases involving offences under the Competition Act 2002 triable by that Court. If judges with an expertise emerged on the civil side of revenue law, an arrangement similar to the one intended to be introduced for the trial of offences under the Competition Act could be introduced.

26. The Commission recommends that judges with particular qualifications or experience in revenue law should be assigned to complex revenue trials, should they arise and where it is convenient and practical to do so.⁶²¹

27. Least radical would be an arrangement which would simply involve the concentration of work in a particular courtroom. There are no such lists at Circuit Court level. However, currently, at District Court level in Dublin, Revenue prosecutions are all listed on the same day, and, typically, will be listed with other prosecutions by State agencies.⁶²² The cases are assigned to the one courtroom for administrative convenience. A judge could be assigned to that courtroom for a week or two at a time, but typically not longer, as the judges’ work in a rota.

28. The assignment of courtrooms and times is an administrative convenience and therefore the Commission does not have any recommendations to make in this respect.

6. Evidential and Procedural Changes

29. Apart from changes to the forum, the question arises of whether the evidential and procedural rules should be modified in revenue trials.

30. Take first the Constitution: if procedural and evidential rules were adjusted to such an extent as to deny an accused a trial in due course of law, it would violate the guarantee of due process (“due course of law”) in Article 38. While the scope of the Article 38.1 guarantee is difficult to define, it would certainly prevent any departure from the long-recognised protections which an accused enjoys at a criminal trial. Mr Justice Gannon in The State (Healy) v Donoghue⁶²³ had the following to say in relation to the guarantee:

“The phrase “in due course of law”…is a phrase of very wide import which includes in its scope not merely matters of constitutional and statutory jurisdiction, the range of legislation with respect to criminal offences, and matters of practice and procedure, but also the application of basic principles of justice which are inherent in the proper course of the exercise of the judicial function.”

31. The accused’s rights include:

“the right to be adequately informed of the nature and substance of the accusation, to have the matter tried in his presence by an impartial and independent court or arbitrator, to hear and test by examination the evidence offered by or on behalf of his accuser, to be allowed to give or call evidence in his defence, and to be heard in argument or submission before judgment be given.”⁶²⁴

32. Furthermore, one of the cornerstones of a criminal trial is that the accused is presumed innocent until proven guilty, and therefore there could be no departure from this presumption: the prosecution is required to prove its case beyond reasonable doubt.⁶²⁵

33. However, while this legal obligation to prove guilt must always remain on the prosecution, the evidential burden of proof may, constitutionally, be reversed. In O’Leary v Attorney General,⁶²⁶ the constitutionality of section 24 of the Offences Against the State Act 1939 was challenged. Section 24 provided that possession of an incriminating document would be proof, until the contrary was proven, that the person in possession of the document was a member of an unlawful organisation. O’Flaherty J in the Supreme Court⁶²⁷ held that section 24 only amounted to establishing the evidence, as opposed to proof. He held that “the important thing to note about the section is that there is no mention of the burden of proof changing, much less that the presumption of innocence is to be set to one side at any stage.” In O’Leary, Costello J stated that:

“The Constitution should not be construed as absolutely prohibiting the Oireachtas from restricting the exercise of the right of the presumption of innocence. The right is to be inferred from Article 38, which provides that trials are to be held ‘in accordance with law’ and it seems to me that the Oireachtas is permitted in certain circumstances to restrict the exercise of the right because it is not to be regarded as an absolute right whose enjoyment can never be abridged.”⁶²⁸

34. An example of a provision of this type in the context of prosecutions for revenue offences is section 1078(6), which provides:

“In any proceedings under this section, a return or statement delivered to an inspector or other officer of the Revenue Commissioners under any provision of the Acts and purporting to be signed by any person shall be deemed until the contrary is proved to have been so delivered and to have been signed by that person.”

35. Section 161 of the Finance Act 2003 introduces a number of other presumptions which will assist the Revenue Commissioners in investigating cases with a view to prosecution. For example, section 1078B(1) provides:

“(3) Where a document purports to have been created by a person it shall be presumed, unless the contrary is shown, that the document was created by that person and that any statement contained therein, unless the document expressly attributes its making to some other person, was made by that person.

(4) Where a document purports to have been created by a person and addressed and sent to a second person, it shall be presumed, unless the contrary is shown, that the document was created and sent by the first person and received by the second person and that any statement contained therein- (a) unless the document expressly attributes its making to some other person, was made by the first person, and (b) came to the notice of the second person.

(5) Where a document is retrieved from an electronic storage and retrieval system, it shall be presumed unless the contrary is shown, that the author of the document is the person who ordinarily uses the electronic storage and retrieval system in the course of his or her business.”

1. No doubt on the basis of such precedents as O’Leary (paragraph ), such provision is constitutional. However, on policy grounds, the Commission feels that the legislature should be cautious in making changes to procedural and evidential rules, for revenue offences. An important policy consideration is that a significant aspect of a criminal conviction is the public opprobrium which the offender attracts, but plainly this feature may be eroded if it is perceived that special rules had been imposed to facilitate conviction.

1. Specialisation in Other Jurisdictions⁶²⁹

1. Specialised criminal chambers of the courts, which only deal with financial/tax cases have been established in Austria.⁶³⁰ In Germany, legislation providing for the establishment of chambers with special jurisdiction in ‘white-collar’ cases at the Regional Court level was enacted in 1971.⁶³¹ These chambers are not separate from the general courts “but only form one of the specialised chambers of the general court, acting in the framework of the Landgericht”. The aim behind the establishment of these chambers was “to further or speed up the criminal process in such cases”.⁶³² The substantive jurisdiction of the chambers is limited to offences committed in the framework of economic activities, actual or pretended, which damage economic life, the general public, or whose investigation requires specialised commercial knowledge. Offences under customs and tax laws fall within the jurisdiction of the chambers.⁶³³ France created specialised chambers to cater for financial and economic matters in 1975.

2. Italy has not created special courts to deal with white-collar crime. “Special courts or special chambers with jurisdiction in the economic crime field do not exist in Spain but there is a de facto centralisation of important and complex ‘white collar crime’ cases in the Audiencia Nacional in Madrid “for those offences which are committed by groups or organised gangs, or which have or may have effects on the security of trade and commerce, on the national economy or can cause financial disadvantage for a great number of people in the area of more than one Audiencia” (provincial court).”⁶³⁴

8. summary of recommendations

1. The provisional recommendations contained in this Paper may be summarised as follows:

2. Chapter 2 Civil Penalties

3. The Commission recommends that the Revenue Commissioners be responsible for publishing the lists in full, with a breakdown of the tax, penalties and interest involved, in at least two nationally circulated newspapers. [Paragraph ]

4. The Commission recommends that the appointment of external reviewers “should be a regular and permanent function of a body other than Revenue.”⁶³⁵ [Paragraph ]

5. The conclusion, which seems to the Commission to follow is that the European Convention probably requires that there be an appeal from the Revenue Commissioners to an independent and impartial tribunal, such as the Appeal Commissioners, in respect of penalties. Apart from the Convention there are some policy arguments, discussed at paragraph , which would support this. [Paragraph ]

6. Accordingly, the Commission recommends that a fresh right of appeal on the issue of penalties should lie from the Appeal Commissioners to the Circuit Court but not to the High Court and Supreme Court. [Paragraph ]

7. The Commission does not recommend any changes with regard to self incrimination as it is unclear whether the incorporation of the European Convention will require any modifications of the practices currently employed by the Revenue Commissioners. The Commission invites submissions on the impact of the domestic application of the ECHR in relation to a taxpayers’ right to silence and freedom from self incrimination. [Paragraph ]

8. Chapter 3 Appeals

9. The Commission recommends the establishment of an open and formal selection and appointment process for future Appeal Commissioners. An Appeal Commissioner should be appointed for a seven year fixed term, which is renewable. The proposed system would be that a group of experts from the fields of accountancy, law and taxation be used to short-list three possible candidates for appointment to the Office of Appeal Commissioner or else if none are eligible for security or other good reasons, the Minister should request the expert group to reconvene and engage again in the process of nomination. The Minister for Finance would then choose the Appeal Commissioner from among this further shortlist. The expert group should recommend whether or not the Minister for Finance should reappoint an Appeal Commissioner. [Paragraph ]

10. The Commission believes that it suffices if an Appeal Commissioner has a professional qualification for a specified period in any of the fields of: legal practice, accountancy or taxation and is otherwise well qualified. [Paragraph ]

11. When a vacancy appears, the Commission recommends that the qualifications for the new appointee should be specified as minimum qualifications in tax, accounting or law, irrespective of the profession of the remaining Commissioner. [Paragraph ]

12. Modelled on the similar and unexceptional provisions quoted in the previous footnotes, the Commission recommends that any new legislation ought to give the Office of the Appeal Commissioners the same sort of security as given to the bodies discussed in paragraph . We recommend that the appointment of the Appeal Commissioners be put on a statutory footing, utilising the following draft statutory provision

A person appointed to be an Appeal Commissioner—

(a) shall hold office for a term of 7 years and may be re-appointed to the office on the recommendation of the expert committee for a second or subsequent term,

(b) may at his or her own request be relieved of office by the Minister for Finance,

(c) may be removed from office by the Minister but shall not be removed from office except for stated misbehaviour, incapacity or bankruptcy and then only upon resolutions passed by Dáil Éireann and by Seanad Éireann calling for his or her removal. [Paragraph 3.52]

13. We suggest that three months would be an appropriate period as it would afford an Inspector a reasonable amount of time to assess the case. [Paragraph 3.58]

14. This is very much a practical question. The Commission would welcome views of the informed public as to whether responsibility for listing appeals before the Appeal Commissioners should be removed from the Revenue Commissioners as considered in paragraph , or whether, as discussed in paragraph the introduction of a three month time-limit within which an Inspector must respond in relation to listing an appeal would be sufficient. [Paragraph ]

15. The Commission recommends that the Appeal Commissioners should specify, (perhaps in their procedures manual/explanatory guide - see paragraph ) that, in appropriate and defined circumstances, the oath may be administered to the taxpayer or the Inspector of Taxes or both. [Paragraph ]

16. The Commission recommends therefore that the Appeal Commissioners should control the record of their own decisions and make them available to both parties as of right. [Paragraph ]

17. The Commission recommends that the Appeal Commissioners should issue a concise written reasoned determination in all appropriate cases within three months of the determination, including reasons and a summary of the facts. [Paragraph ]

18. The Commission recommends the establishment, without delay, of an effective system for reporting decisions of the Appeal Commissioners, since knowledge of relevant precedents ought to be more widely accessible. [Paragraph ]

19. The Commission recommends a change in the name of the Office of the Appeal Commissioners to the Tax Appeals Board. The Commission invites submissions on this point. [Paragraph ]

20. The Commission recommends that the Appeal Commissioners’ jurisdiction be extended to cover appeals against penalty determinations made by the Revenue Commissioners. A further fresh appeal should lie from the Appeal Commissioners to the Circuit Court and from there an appeal on points of law to the High Court and Supreme Court. The Commission looks forward at the consultation phase to hearing views on whether the Appeal Commissioners jurisdiction should be further extended to, for example, hardship cases. [Paragraph ]

21. The Commission recommends that the Appeal Commissioners be given the power to issue precepts to all witnesses to assist them in performing their functions. [Paragraph ]

22. The Commission recommends the retention of the taxpayers’ right to appeal to the Circuit Court. [Paragraph 3.90]

23. In principle, it would seem appropriate to extend the Revenue Commissioners’ right of appeal to the Circuit Court beyond Capital Acquisitions Tax cases. The Commission would welcome submissions on this point. [Paragraph 3.94]

24. The Commission recommends that the requirement that the Circuit Court judge make this special declaration be terminated. [Paragraph ]

25. In light of the above discussion, the Commission recommends, at a minimum that an equivalent to section 933(2)(c), with the amendment suggested at paragraph , be extended to appeals before the Circuit Court Judge. The question arises whether the Court Services should create a file for each appeal from the Appeal Commissioners to the Circuit Court or whether the less radical reform of enabling the taxpayer to apply directly to the Circuit Court where an appeal has not been listed expeditiously before the Court would suffice. The Commission looks forward to receiving submissions on this point. [Paragraph ]

26. The Commission recommends that a registrar should attend all hearings. [Paragraph ]

27. The delay experienced in relation to a case stated is a problem common to all cases stated, and more appropriately falls within the ambit of the Working Group on the Jurisdiction of the Courts, established in January 2002. Accordingly, the Commission makes no recommendation on this point. [Paragraph 3.117]

28. Chapter 4 A Civil Revenue Court

29. The Commission does not recommend the creation of a specialist civil court to replace the Office of the Appeal Commissioners. [Paragraph ]

30. All in all, the Commission does not recommend a specialised civil revenue court in place of either the Appeal Commissioners or the Circuit Court, as the current avenues of appeal offer the advantages of specialisation at the level of the Appeal Commissioners, coupled with a generalist approach in the Circuit Court. In addition, there is informality in both venues which ensures that the appeal process is not dominated by lawyers, and remains an accessible forum for taxpayers to challenge tax assessments. Again, the volume of work does not exist at present to justify a separate revenue court. The Commission does not recommend the creation of a specialist revenue court, even on the basis of joint criminal and civil jurisdiction. [Paragraph ]

31. Because of the increasing complexity of tax law, the Commission recommends that the assignment of judges should remain within the discretion of the President of the Circuit Court and that, where possible, the President of the Circuit Court should assign judges with some knowledge of tax law to tax appeals by arrangement with judges of each circuit. [Paragraph ]

32. Chapter 5 Offences and Prosecution

33. The Commission recommends, in the interests of fairness, that a pre-prosecution letter be issued in all cases. [Paragraph ]

34. Chapter 6 Public Prosecution System

35. The Commission recommends that the Revenue Commissioners continue to prosecute summarily under a delegation from the DPP, rather than under an independent statutory authorisation. The Revenue Commissioners should issue a pre-prosecution letter in all cases before issuing a summons. [Paragraph 6.22]

36. The Commission recommends that the arrangements currently in place for the prosecution of revenue offences be maintained for a period and then reviewed in a few years. The Commission does not recommend the creation of a DFP. [Paragraph ]

37. Accordingly, the Commission does not recommend any change to the current relationship between the Revenue Solicitor and the DPP and would not recommend the transfer of the functions performed by the Revenue Solicitor’s Office to a DFP, if such an office was established. [Paragraph 6.46]

38. Accordingly the Commission does not recommend the transfer of summary prosecution functions to the DFP, in the event of a DFP being established. [Paragraph ]

39. As mentioned at paragraph , since we have insufficient empirical evidence to answer these questions, the Commission makes no recommendations on the benefits of establishing a body with a joint investigation and prosecution role. Instead, we turn to consider a relevant foreign comparison. [Paragraph ]

40. Although a Serious Fraud Office is outside the precise terms of reference of the Paper, it was worthwhile to consider the multi-disciplinary approach to the investigation and prosecution of serious fraud adopted by the SFO in New Zealand. The Commission does not recommend the creation of a Serious Fraud Office in Ireland. [Paragraph 6.68]

41. Chapter 7 Criminal Revenue Court

42. The Commission does not recommend the establishment of a court whose members are qualified in a field other than law, for instance, accounting. [Paragraph ]

43. The Commission recommends the retention of jury trial in the case of trials on indictment for revenue offences. [Paragraph ]

44. The Commission does not, at the moment, recommend the establishment of a specialised criminal revenue court, at either District or Circuit Court level (or both). [Paragraph ]

45. The Commission recommends that judges with particular qualifications or experience in revenue law should be assigned to complex revenue trials, should they arise and where it is convenient and practical to do so. [Paragraph ]

46. The assignment of courtrooms and times is an administrative convenience and therefore the Commission does not have any recommendations to make in this respect. [Paragraph ]

Appendix A Comparative systems

1. Introduction

1. We have chosen not to describe the UK here (though particular features of it will be found throughout the Paper) partly because information on this is readily accessible elsewhere and partly because the Irish system is largely derived from that of the UK so that its value as a comparator is limited. Instead, we have selected two other jurisdictions - New Zealand from the common law world and the Netherlands from the civil law world- each of which has like, Ireland been a constitutional polity,⁶³⁶ free of any political extremism, for more than a century.

1. The Netherlands

   1. Introduction

2. “In general, the Dutch are public-spirited about paying taxes. The bulk of the tax returns (92%) are paid on time, albeit in some cases after the issue of a reminder.”⁶³⁷ The Tax and Customs Administration is responsible for collecting tax and on the whole have numerous ways in which to oblige taxpayers to pay and accordingly the amount that cannot be collected is limited. As will be seen from the following outline of the Dutch system for the administration and enforcement of the tax code, it is quite similar to the Irish system.

3. The policy of the Dutch tax authorities is aimed at achieving voluntarily compliance. The tax authorities have a range of measures at their disposal to encourage taxpayers to comply with their obligations. Sanctions, such as the imposition of fines and criminal charges, are used as a last resort. Cases will be selected for investigation with a view to prosecution in accordance with certain criteria, detailed below. If a case involves fraud but is not selected for prosecution, the case will be settled at the administrative level. The Tax and Customs Administration will issue tax assessments for the amount of tax due and may levy fines. These fines can reach a maximum of 100% of the amount of tax due. A settlement may also be reached in certain cases. In such cases, the Tax and Customs Administration will offer the taxpayer a “deal” on behalf of the Public Prosecution Service. If the taxpayer pays a certain amount of money, no prosecution will take place. If the taxpayer does not agree to a “deal”, the case will be prosecuted. The Tax and Customs Administration does not have the power to publish the names, businesses and amounts of settlements or convictions, of taxpayers involved in tax fraud in official gazettes. This naming and shaming tactic is used in Ireland under section 1086 of the TCA 1997.

1. The General State Taxes Act 1959

4. In the Netherlands, as in Ireland an Act of Parliament is needed for the imposition of State taxes and other levies.⁶³⁸ The General State Taxes Act 1959 (“the Act”) regulates the imposition of State taxes and import and export duties. It is the main source of law on the enforcement of the tax code. The Act contains the general procedural rules in relation to tax returns, assessments and enforcement rules, which govern the imposition of administrative and criminal law penalties for contravention of the tax code. The General Administrative Law Act also applies to objections and appeals in tax law insofar “as the General State Taxes Act does not provide otherwise.”⁶³⁹ Chapter IX of the Act sets out the criminal provisions applicable to tax offences. Article 91 provides that the general Criminal Code applies unless the Act provides otherwise.

1. The Tax and Customs Administration

5. The Taxes and Customs Administration (“TCA”) is responsible for levying and collecting State taxes, including customs duties. It “comes under the authority of the Minister of Finance and under the control of the Director General of Taxes.”⁶⁴⁰ The Minister will typically delegate responsibility for tax legislation and enforcement to the State Secretary, but the Minister will remain politically accountable.

6. The Fiscal Intelligence and Investigation Department (De Fiscale inlichtingen- en opsporingsdienst “FIOD”) provides an investigation service to the Tax and Customs Administration. The heads of the central and regional branches of the Fiscal Intelligence and Investigation Department and the investigation co-ordinators are also assistant public prosecutors. The FIOD officials have extensive powers of investigation, for example they may order the detention of suspects in police custody.⁶⁴¹

7. Investigation and prosecution also come within the tax official’s remit. The Act grants tax inspectors the power to compel taxpayers and others to furnish particular information. If an individual fails to comply with an inspector’s request, the individual may face administrative or criminal sanctions as provided for in the Act. Una via provisions ensure that only one of the “two-track system of punitive sanctions” will apply. The sanction system was recently revised in order to comply with the provisions of the European Convention on Human Rights, as the imposition of an administrative penalty is regarded as a “criminal charge” for the purposes of Article 6 of the Convention.

8. The Act sets out maximum fines and leaves the inspector a large margin of discretion in determining the appropriate fine.⁶⁴² The Administrative Fines (Tax and Customs Administration) Order contains rules for the imposition of fines. While the rules are not generally binding, they bind the tax inspector under administrative law.⁶⁴³ The Director of Taxes and the Procurators General at the Courts of Appeal issued rules, in the form of the Notification, compounding and prosecution guidelines for tax offences and customs offences (‘Notification Guidelines’) in 1993 which are binding on all parties.

9. A taxpayer may appeal a penalty to the inspector⁶⁴⁴ and the inspector’s ruling on the objection may in turn be appealed to the Court of Appeal.⁶⁴⁵ The taxpayer may appeal on points of law (in cassation) to the Supreme Court. The criminal and economic chambers of District Courts, and the tax, economic and criminal chambers of the Court of Appeal⁶⁴⁶ and the Supreme Court provide jurisprudential guidance on the imposition of administrative and criminal penalties.

1. The Public Prosecution Service

10. The Public Prosecution Service (“PPS”), the equivalent to the DPP, but subject to the Minister for Justice, is responsible for the investigation and prosecution of crime. Typically the public prosecutor will be an investigator and will control the investigation. However, an exception is made for tax investigations in the General State Taxes Act. The PPS has a prosecution monopoly. The PPS has a certain margin of discretion in determining whether to bring a prosecution or not. Even where there is prima facie evidence of a crime, the PPS may decide that a prosecution is not in the public interest. The PPS operates under the Minister of Justice.⁶⁴⁷

1. The Judiciary

11. The Judiciary (Organisation) Act governs jurisdictional issues in criminal cases. The (19) District Courts have jurisdiction in relation to both summary and serious offences under the tax legislation. This is a departure from the norm in relation to criminal offences since normally the sub-district court deals with summary offences.

12. There is an appeal from decisions in all serious cases and a limited right of appeal in relation to summary offences. The right of appeal in relation to summary cases only arises where a prison sentence has been handed down, or a fine in excess of a certain amount has been imposed or a confiscation order has been made. Appeals go to the Court of Appeal and from there on points of law (in cassation) to the Supreme Court.

13. Officials of the TCA and the ordinary police are responsible for the investigation of offences under the tax legislation. Most investigation is carried out by the FIOD, “although primary responsibility rests in principle with the Executive Board of the Tax and Customs Administration.”⁶⁴⁸ A decree from 1995 provides that officials of the FIOD may investigate all criminal offences.⁶⁴⁹ The PPS usually has responsibility for the investigation of criminal offences but an exception is made to the general principle in the case of offences punishable under the tax legislation. However, the public prosecutor retains some responsibility for the investigation of tax offences insofar as tax officials are investigating crime.

14. Another exception to the general prosecution system is made in the case of the decision to prosecute or not. Typically the decision is made by the PPS but in the case of tax offences all files are first sent to the Executive Board of the Tax and Customs Administration for a decision on whether to forward the case to the public prosecutor. Tax and Customs Administration officials help the Executive Board of the Taxes and Customs Administration to decide whether criminal proceedings should be brought. If the Board decides that it is not in the public interest to prosecute, the Board will deal with the case itself. A public prosecutor cannot prosecute a case unless the Board refers the case to the PPS. The Executive Board has an exclusive compounding power.⁶⁵⁰ Thus both the Tax and Customs Administration and the PPS are involved in decisions on the investigation and prosecution of criminal tax and customs offences.⁶⁵¹

1. Administrative Fines

15. The Tax and Customs Administration may impose fines for minor or serious violations of the tax laws. These administrative fines are known as omission fines and offence fines respectively. There is no need to prove intention or any other form of guilt in order to impose an omission fine. Detection of an act contravening the statute will justify the imposition of a fine. However, an omission fine will not be imposed if there is an absence of all blame on the part of the taxpayer. The maximum omission fine is €4538.

Table A: Omission Fines⁶⁵²

16. The maximum offence fine is 100% of the tax “that would not have been imposed had the tax inspector failed to detect the error.” Offence fines will only be imposed when the taxpayer has deliberately or as a result of gross negligence supplied the tax inspector with incorrect or incomplete information.

Table B: Offence Fines⁶⁵³

1. Criminal Charges

17. Article 69 of the Act outlines the following as constituting tax offences:

1. “A tax return as provided under the Tax Act is not submitted or submitted on time;

2. A tax return as provided under the Tax Act is inaccurate or incomplete;

3. A person required under the Tax Act to provide information, data or directions fails to do so, or provides incorrect or incomplete information;

4. A person required under the Tax Act to make available data carriers or their content for consultation, fails to do so;

5. A person required by law to keep accounts fails to meet the legal obligations for maintaining and keeping accounts, and co-operating with their audit;

6. A person who under the Tax Act is required to issue an invoice or bill, submits an incorrect or incomplete document.”⁶⁵⁴

18. A maximum fine of €45,378 or six years imprisonment may be imposed for tax offences.

1. The Decision to Prosecute

19. The tax authorities will determine whether the case is eligible for criminal charges on the basis of a points system. (See also paragraph for further discussion on the manner in which the Tax and Customs Authority determines whether or not to refer the case for prosecution). If the case has three points ascribed to it, it will be considered eligible for prosecution. The following criteria are used by the tax authority to assign points to a case:

1. “Absolute amount of tax that has been evaded (the higher the amount, the higher the number of points);

2. Whether the evaded amount is more than 25% of the total tax owed;

3. First repeated tax offence;

4. Recovery impossible;

5. Cooperation/knowledge of consultant;

6. Combination with other than tax offences;

7. Repetition of offence;

8. Status of suspect/example function/cunning;

9. Balanced law enforcement”.⁶⁵⁵

20. The decision to prosecute is taken by the Public Prosecutions Department, after tripartite consultation between the Public Prosecutions Department, the FIOD and the officials of the tax authorities.

1. Statistics

21. The Tax and Customs Administration and the PPS agree on the number of tax fraud cases which will be prosecuted each year. It was agreed that 450 cases would be prosecuted in 2001. This number was exceeded with 479 cases being prosecuted due to an overflow from previous years. 134 of these cases were dismissed, 81 were settled and the criminal courts gave rulings in the remaining 264.

22. The figures below show the seriousness of these cases (this is a general figure based upon the experiences of previous years):

1. New Zealand⁶⁵⁶

   1. The Inland Revenue

23. The Inland Revenue is the government department responsible for administering New Zealand's tax system. Sections 6 and 6A of the Tax Administration Act 1994 charge the Commissioners of Inland Revenue and all departmental staff with responsibility for the care and management of the tax system. The Inland Revenue has adopted a strategy aimed at voluntary compliance with tax laws within the self assessment system. Sanctions exist for failure to comply with the tax laws. The Inland Revenue can prosecute taxpayers for criminal offences, impose civil penalties and collect outstanding tax debts through the Courts. The Inland Revenue’s use of each of these options will be discussed in turn.

1. Criminal and Civil Penalties

24. Criminal offences are divided into information and knowledge offences, evasion and other offences, such as aiding and abetting offences. Charges may be brought under the Tax Administration Act 1994. These offences must be prosecuted by the Inland Revenue as the prosecuting authority. Charges may also be brought under the Crimes Act 1961. The most frequently invoked charge concerns the use of a document with intent to defraud. Prosecution under the Crimes Act 1961 is reserved for the most serious frauds on the revenue. These offences will be prosecuted by the Inland Revenue, the Police or the specialist Serious Fraud Office with the Inland Revenue as complainant.

25. The defendant may enter a guilty plea, or the offences may be tried summarily or on indictment depending on the seriousness of the offence. Revenue offences are dealt with in the same manner as other criminal offences. However, a District Court judge with experience in the specialist Taxation Review Authority (which deals with disputes over tax liability) may be assigned to the case where tax issues are important.

26. The introduction of a range of civil penalties during the 1990s saw a reduction in the number of minor criminal prosecutions. Although, the majority of prosecutions continue to be for minor offences, such as failure to file a return, the Inland Revenue is seeking to enlarge its investigation and prosecution of serious fraud. In conjunction with the Serious Fraud Office and the Police, the Inland Revenue will deal with a serious fraud case in a co-ordinated way. Prison sentences of up to four years have been imposed for serious fraud offences. This is a relatively heavy sentence for non-violent offending in New Zealand as the Criminal Justice Act establishes a presumption in favour of prison for violent offences, but a presumption against prison for “non-violence offences”. The names of taxpayers who commit criminal tax offences are published in the New Zealand Gazette.

27. The Inland Revenue also settles disputes over tax liability, and/or the collection of tax debt. It will have regard to the perceived litigation risk; recovery prospects; and compliance costs in deciding whether the case is suitable for settlement or prosecution. However, the Inland Revenue is aware of the questionable constitutionality of using criminal charges as a bargaining chip when negotiating civil liability. Therefore, where a mix of civil and criminal issues arises, any civil settlement of the civil issues will remain separate from consideration of the criminal issues. Whether the evidence is sufficient will typically be the determining factor in deciding whether to bring a criminal prosecution. The circumstances of the offence and the offender will be taken into account as subsidiary issues.

28. The civil penalties which may be imposed will be an additional charge, calculated as a percentage of the tax shortfall resulting from the breach. The percentage ranges from 20% for failure to take reasonable care to file a correct return to 150% for evasion. The penalty can be reduced for voluntary disclosure or increased when there is obstruction in the course of an investigation.

29. In the majority of cases debt collection is pursued by obtaining judgment against individuals; issuing statutory demands against companies; proceeding to bankruptcy action against individuals; and applying for delinquent companies to be placed in liquidation. The Inland Revenue use these methods rigorously. The Inland Revenue is the most frequent petitioner in bankruptcy and winding up applications.⁶⁵⁷

30. The government enacted the new compliance and penalties legislation in 1996 with application from the 1997-98 income year.

1. Late Payment Penalties

31. The late filing penalty recognises that taxpayers have a fundamental obligation to file their return by the due date. Previously, the only option available to the Commissioner was to prosecute, and this is a time-consuming and expensive procedure. The standard penalty for late filing is $50. This penalty rises to $250 if the net income exceeds $100,000 and to $500 if the income is higher than $1,000,000. A penalty of $250 applies if a PAYE or ACC reconciliation is filed late. The penalty is imposed only after prior warning from the Inland Revenue Department that the return is overdue.

32. The late payment penalties apply from the due date for a tax, or in the case of a reassessment, from the new due date for payment of reassessed tax. A 5 per cent penalty applies if the due date for the payment of the tax is missed. After the due date, however, incremental penalties of 2 per cent of the tax outstanding are charged monthly.

1. Shortfall Penalties

33. The fundamental standard expected from taxpayers in meeting their tax obligations is the standard of reasonable care. This standard is breached by lack of reasonable care, taking an unacceptable position, gross carelessness, abusive avoidance and tax evasion. Sanctions apply according to the seriousness of the offence and the amount of revenue at stake. The penalty rates applying are:

    Wrongdoing	Penalty
    Lack of reasonable care	20% of the tax shortfall
    Unacceptable interpretation	20% of the tax shortfall
    Gross carelessness	40% of the tax shortfall
    Abusive avoidance658	100% of the tax shortfall
    Tax evasion	150% of the tax shortfall.

34. The level of penalty may be adjusted up or down to take account of matters such as hindrance or voluntary disclosure.

35. The standard of reasonable care is the basic standard that all taxpayers must exercise in fulfilling any tax obligation. The term ‘reasonable care’ is not defined in the legislation. The government considered that the concept of reasonable care was sufficiently well established in the commercial world and in common law so that it did not require definition. Also, by not defining the term, it remains adaptable to changing perceptions of what constitutes reasonable care. The concept also is sufficiently flexible to reflect a wide range of circumstances as well as changes over time in the tax system.

36. The test of an unacceptable interpretation applies if the tax at stake exceeds the greater of $10,000 or 1 per cent of the income tax returned in the relevant period. The test applies in all cases if the tax at stake exceeds $200,000. An ‘unacceptable interpretation’ is defined in the legislation as an interpretation that does not meet the standard of being ‘about as likely as not’ to be correct. Effectively, ‘about as likely or not’ creates an expectation that the interpretation must be one that the courts might regard as worthy of consideration, even if it is not one that they will adopt. The decision as to whether or not an interpretation is unacceptable takes into account all the provisions of the relevant legislation, including the likelihood of the application of a general or specific anti-avoidance provision.

37. If an arrangement fails the unacceptable interpretation test, and its dominant purpose is determined to be tax avoidance, it constitutes ‘abusive avoidance’, the penalty for which is 100 per cent of the tax shortfall. If an arrangement is not abusive, but fails the unacceptable interpretation or reasonable care tests, the lower shortfall penalties will apply.

38. Abusive avoidance occurs if arrangements have as their principal purpose the gaining of a tax advantage, and the taxpayer’s interpretation was not “more likely than not” to be correct. Such arrangements are defined by characteristics such as artificiality, contrivance and lack of commerciality. They might also involve concealment of information.

39. The names of those who have taken a position of abusive avoidance are published in the New Zealand Gazette.

Appendix B Column 1 of Schedule 29: Provisions referred to in sections 1052, 1053 and 1054 (Annotated)

Appendix c British Tax Prosecution Statistics

Table A:⁶⁶⁹ Inland Revenue Prosecutions

Table B: Prosecution Sentences

APPENDIX d LIST OF LAW REFORM COMMISSION PUBLICATIONS