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