I will outline how poor tax compliance will cost you money. Plus, time. What you don’t know can create an issue when dealing with Revenue. The best way to let you know what I’m harping on about is to discuss a recent case. The figures involved are eye-watering. A taxpayer gets involved in a mess but is there a way out? Let’s look at
- Background
- The Issue
- Case for the Taxpayer
- Case for Revenue
- The Ruling
- Lessons
Background
Revenue raised amended Notices of Assessment for Corporation Tax in March 2023 for
| CT Period Ending | Close Company Surcharge | Late CT Surcharge | Total for the Period |
| 30/04/2019 | €120,000 | €12,000 | €132,000 |
| 30/04/2020 | €240,000 | €24,000 | €264,000 |
| Total | €360,000 | €36,000 | €396,000 |
However, there were no Corporation Tax liabilities in the Corporation Tax [CT] returns filed. So, Revenue want €396,000 and the taxpayer thinks it should be nil. Hence the visit to the Tax Appeals Commission.
The parties involved are Missed the Boat Ltd [MTBL], the parent company of Missed the Plane Ltd, and Revenue. I will call MTBL the taxpayer, so you know who I’m talking about.
In April 2022 Revenue wrote to the taxpayer confirming that it hadn’t filed corporation tax returns for
- Year ended 30th of April 2018 (due on the 23rd of January 2019)
- Year ended 30th of April 2019 (due on the 23rd of January 2020)
- Year ended 30th of April 2020 (due on the 23rd of January 2021)
The taxpayer filed the CT returns in July 2022. There is no question that the returns were late. The CT returns filed didn’t include the close company surcharge for the relevant years. The taxpayer elected for relief from the surcharge by ticking the correct box on the return
Revenue raised the amended assessments because it believed the relief didn’t apply.
In July 2023, the taxpayer appealed to the Commission.
The Issue
To understand the issue, it will help to explain how money moves around companies. MTBL is the parent company of Missed the Plane Ltd [MTPL]. MTBL, as the parent, sits above the subsidiary MTPL. This is a group structure with a parent or holding company and a subsidiary company. It’s a common structure.
Often a trading subsidiary will have excess cash, and it may want to reduce that down. Or the parent could need money to invest, and it gets that from a subsidiary that is in funds. It saves the need for bank finance.
The subsidiary can get that money to a parent company by a loan or a dividend. If it’s a loan the money is owed back. Not so with a dividend. There is no tax liability on receipt of a dividend from another Irish company. But, to ensure that no tax liability arises both companies must elect in their CT returns to apply this treatment. Failure to elect means the dividend received will be liable to the close company surcharge.
In this case, both companies made the elections to claim relief from the surcharge. But Revenue’s view was that the election wasn’t valid because the taxpayer filed the CT returns late. That’s why Revenue raised the amended assessments.
Case for the Taxpayer
The main case for the taxpayer is around the interpretation of Tax and Case law. Neither of which I want to bore you with. Some of the relevant facts that MTBL put forward in support of its case were
- Tax law doesn’t state that the election is invalid if one or both tax returns of the company are filed late. There is no specific time limit mentioned in the law.
- There are many instances where tax law specifies a set time limit. If the intention was to have a specific time limit, then it would have put that in the relevant tax section.
- Their appeal must succeed as there is no legislative basis that the election made was invalid.
Case for Revenue
In the case for Revenue, they submit that
- The burden of proof to show the relief is due falls on the taxpayer as confirmed in the Menolly Homes Ltd. case.
- The taxpayer failed to make a valid election. This is because the taxpayer did not make the election in a return that was filed on time.
They went on to confirm the sections in the legislation outlining the taxpayer’s obligations. This covers two aspects. Firstly, the form for the accounting period in question. And secondly the due date for filing the return being
“not later than day 21 of the month in which that period of 9 months ends”
That’s 9 months after the accounting period ends and by the 21st of that 9 month. The 21st is extended by 2 days to the 23rd when paying and filing through ROS.
Given the taxpayer failed to deliver the return on the due date it didn’t meet the election criteria. As a result, of that the taxpayer
“has been properly assessed to the close company surcharge and its appeal must fail”
The Ruling
Claire is the Tax Appeals Commissioner who made the ruling. Her decision is whether the taxpayer made a valid election to avoid the close company surcharge. She takes a deep dive into the tax legislation. And in her ruling, she outlined how the word “shall” is interpreted to “indicate the mandatory nature of a requirement”
She was satisfied that the tax legislation imposes a time limit on the election being made so that it
“must be included with a return, a return which must be filed on or before the specified return date for the chargeable period.
That didn’t occur in this case. As the taxpayer failed to comply with the correct return date it failed with the election. So, the taxpayer’s appeal fails.
“The Commissioner determines that the Notices of Amended Assessment, raised by the Respondent, in the amounts of €132,000 and €264,000 respectively, shall stand.”
The taxpayer, not being happy with the outcome, will go to the High Court for their opinion. More time and money.
Lessons
The main lesson is that poor tax compliance will cost you money. It cost this taxpayer €396,000. Included in that is €36,000 being the 10% late CT filing surcharge. So, if the elections weren’t made and MTBL filed the returns on time, the liability would have been €360,000.
Yet, the taxpayer was well-clued in about the elections and the surcharge. There’s is an element out there that has the attitude of
“Ah sure, there’s no liability anyway so there’s no need to worry about filing the return on time”
Value of tax compliance
If you are in business having your taxes up to date and payments made has huge value. Often, Revenue will be your largest creditor. They are bloody good at getting money out of you and the law is in their favour. Paying what you owe when you owe it keeps them off your back. Even during Covid, when many people hadn’t the money to pay them, they insisted on getting all tax returns filed on time. That way they know what you owe them and collecting is their number one skill.
No reasons were given for the late filing. And not a mention of an accountant either. Given the large amount of money involved, I don’t doubt many talented people are involved with these companies. As a company director, you have to be up to date with company taxes and the numbers of the company. Having a quality accounting team to support your business will save you money in the long term with
- Up-to-date numbers so you know how your business is doing
- Tax returns filed on time, every time
I will leave you with the words of Modest Mouse
Was it ever worth it, was there all that much to gain?
Well we knew we’d missed the boat and we’d already missed the plane
Don’t miss the boat. Make sure you and your company are well looked after. Need help, start here
