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Redress for Taxpayers (Special Report)

Chapter 6 - Findings and Recommendations

Chapter 6

Findings and Recommendations

Findings

I was satisfied that each of the complainants was adversely affected as a result of the Revenue Commissioners' actions. All suffered monetary loss and in the cases of Mrs Kelly and Mrs Nolan, both suffered obvious hardship.

My findings in relation to the two questions central to this investigation were:

Were further retrospective payments of overpaid income tax due in the cases of Mrs Kelly and Mrs Nolan?

I found that both Mrs Kelly and Mrs Nolan were entitled to repayment of the tax overpaid by them. Revenue was mistaken in applying Section 133 rather than Section 498 ITA 1967 and in limiting the period for which retrospection was payable. Revenue acted contrary to its own Charter of Rights and I found that its actions were based on erroneous or incomplete information and were contrary to fair or sound administration.

Should compensation in the form of interest for loss in value in the case of delayed tax refunds have been paid to the complainants?

(i) I found that in refusing to pay the eight complainants compensation for loss in value, the Revenue Commissioners were acting in an improperly discriminatory manner. I did not accept the argument that the lack of specific statutory authority prohibits Revenue from making such payments nor has it prevented it from doing so in certain cases. Payment of compensation for loss in value in individual cases is possible under the care and management provisions. Failure to exercise this discretion in these cases, where fairness demanded that they did so, is contrary to fair and sound administration.
(ii) I found that the failure to provide for the same treatment in similar cases was improperly discriminatory and, therefore, failure to make provision for an appropriate general scheme which allows for such payments is in itself an undesirable administrative practice and is otherwise contrary to fair or sound administration.

Recommendations

I recommended that:

1. Revenue should undertake to make retrospective payments to cover the ten year period prior to the date of the O'Carroll judgement (9 November 1988) in respect of any income tax levied on Mrs Kelly and Mrs Nolan, and not already refunded, in respect of the pension payments made to their children during that period.
2. Revenue should put in place as soon as possible arrangements whereby refunds, in accordance with Section 498 ITA 1967, of any income tax levied, and not already refunded, can be made to all individuals who were similarly affected by the O'Carroll judgement. Revenue should report to me within twelve months on progress in regard to implementing this recommendation.
   
3. Revenue should make a compensation payment for loss of purchasing power or loss of interest on the refunds of income tax made in the individual cases listed in the investigation report and in all cases to which recommendation 2 applies. In calculating the compensation payable, the Revenue Commissioners should have regard to movements in the Consumer Price Index applicable for the relevant period or to the loss of interest suffered by those involved.
   
4. Revenue should similarly make compensation payments for loss of purchasing power or loss of interest in other cases where a complaint has been made to the Ombudsman (I supplied details of four such cases to the Revenue) and where the examination of the complaint has been held over pending the outcome of this investigation.
   
5. Revenue should without delay make provision for a general scheme for payment of compensation for loss of purchasing power in respect of tax refunds made to taxpayers of income tax levied and paid. This general scheme should be designed to cover cases where, as a result of an error, misinterpretation, oversight or other similar action on the part of the Revenue Commissioners, the taxpayer has been adversely affected. In this connection, Revenue should have regard to the compensation scheme operated by the Department of Social and Family Affairs referred to in chapter 5 of this report. Revenue should report to me within six months on progress in regard to implementing this recommendation.

The Revenue response to my recommendations

The Revenue response to my recommendations was as follows:

"Recommendation 1 - Mrs. Kelly and Mrs. Nolan

We will implement recommendation 1 of your report. We will do this on a without prejudice basis as the legal opinion 'stalemate' - i.e. as to whether section 498 or 133 applies - has not, in our view, been satisfactorily resolved. We regret that you neither provided us with a copy of your legal opinion nor agreed to the referral of the matter to the Attorney General.

Recommendation 2 - Cases similarly affected by the O'Carroll judgement

We will, as best we can, implement recommendation 2 of your report - also on a without prejudice basis. I should point out however that we may encounter practical difficulties in doing this. Preliminary contacts with two of the largest payers of widows pensions, and also with the main tax offices involved, indicate that records may not extend beyond the late 1980s. Notwithstanding these difficulties, I want to assure you that we will explore all options available to us to identify the cases concerned and quantify the further repayments due. We will come back to you within twelve months with a progress report.

Recommendations 3, 4 and 5 - Compensation for loss of purchasing power

We are not able to implement recommendations 3, 4 and 5 because of the far-reaching implications these would have. As we have explained previously, the circumstances of the cases covered by the recommendations are so disparate that it would be unfair - and virtually impossible - to ring-fence them. This is acknowledged in the finding of the investigation which states "that failure to provide for the same treatment in similar cases is improperly discriminatory". Any exercise of care and management as recommended in 3 and 4 would have to be extended widely. In effect, the entire population of income tax payers are potentially "on all fours" with the eight cases. And indeed it would be impossible to stop at income tax. The inevitable outcome would be - as recommended in 5 - a general non-statutory scheme for the payment of compensation

We are clear that we do not have authority to pay out compensation for loss of purchasing power under our general care and management powers. Nor, given the budgetary and public finance implications, would it be appropriate to do so without clear statutory authority.

We feel very strongly that the findings which led to recommendations 3, 4 and 5 cannot and should not be classified as maladministration under any of the headings set out in section 4 of the Ombudsman Act. To the extent that there is any unfairness or discrimination involved in failing to compensate taxpayers for loss of purchasing power when they receive a tax rebate, that unfairness arises from the statutory tax code; it does not arise from the manner in which the code is administered on the ground by Revenue.

We have stated before that the whole area of paying interest on tax rebates is in need of review, but we must again stress that any decision to change the law in this area is a matter for the Minister for Finance, the Government and the Oireachtas. We brought your concerns to the attention of the Department of Finance in the context of last year's Finance Bill and, as indicated in my letter of 13 September last, work is currently underway in that Department to consider the matter with a view to bringing forward options or recommendations for consideration by the Minister and the Government in the context of a future Budget and Finance Bill."

Ombudsman's response to Revenue

I replied to the Chairman on 7 October:

"Thank you for your letter of 4 October in response to my investigation report on the complaints of Mrs Maria Kelly and seven other complainants. I note that you intend to implement my first recommendation and that you also intend to implement, as best you can, the second recommendation.

I must express my grave disappointment at your response to my other three recommendations in relation to compensation for loss in value in the case of tax wrongly withheld by you. You claim inability to implement these recommendations because of the far-reaching implications these would have. It appears to me, pursuant to Section 6(5) of the Ombudsman Act, 1980, that this is not a satisfactory response. I consider your response incomprehensible and I believe it is at best disingenuous and possibly mischievous.

As my investigation report makes clear, the eight complainants each suffered adverse effect as a result of maladministration by the Revenue Commissioners. Your claim that the entire population of income tax payers is potentially on "all fours" with the eight cases would be true only if you accept the possibility that the entire population could be the subject of maladministration by the Revenue. If you have evidence that this is likely, then may I suggest that you take appropriate steps to prevent it.

You claim that you lack authority to pay compensation in these eight cases under your care and management powers. You have already paid such compensation in other similar cases. Your refusal to do so in these cases, following an investigation by me as Ombudsman, I regard as a direct challenge to the authority of the Office of Ombudsman. It is unfair to the eight complainants and the other cases mentioned in the report and this unfairness arises directly from the manner in which the Revenue Commissioners have operated the tax code.

It is clear to me that the Revenue Commissioners are out of step with other Departments and Offices in refusing to accept the basic principle that members of the public are entitled as of right to compensation for loss in value of payments due to them which are wrongly withheld for lengthy periods due to error or some other form of maladministration on the part of the public body. It is not sufficient in my view to state that the whole area of paying interest on tax rebates is in need of review. "

Revenue's further response

I refer to your letter of 7 October.

In relation to the "compensation for loss of value" recommendations, at this stage I can only reiterate our basic position which is that it is not possible for us to do what you are asking here. We have no authority to pay such compensation, either under the tax code or out of voted funds. Neither have we implicit authority under our care and management functions - our advice on this is very clear.

Whether you agree with us or not, I want to assure you of our bona fides in responding to your recommendations. There is absolutely no question of our being mischievous or disingenuous in any way - we are quite taken aback that you should think that this was the case. We did not take the decision in this case lightly. We explored in great detail the options for implementing your recommendations on compensation in this case but were left each time with the core difficulty - we do not have the authority to do so.

Our response therefore should not in any way be interpreted as a challenge to the authority of the Office of the Ombudsman. Neither indeed should it be seen as a refusal to accept a basic principle that members of the public may, in certain circumstances, be entitled as of right to compensation for the loss in value of payments due to them which are wrongly withheld for lengthy periods by a public body. However the widespread implications of making compensation payments in the cases involved in your investigation make it imperative, in our view, that there be a clear statutory basis for taking such action.

To the extent that there is any unfairness in our failure to compensate the eight complainants for loss of value, that unfairness arises from the statutory position; it should not be laid at Revenue's door.

Special Report to each House of the Oireachtas

As will be clear from my letter of 7 October 2002 to the Chairman of the Revenue Commissioners, I do not consider that Revenue has given a satisfactory reason for rejecting my recommendation that the eight complainants named in my report be compensated for the delay in making tax refunds to them. Neither do I consider that Revenue has given a satisfactory reason for refusing to introduce a general scheme to compensate taxpayers for delays in making refunds when Revenue itself has been solely or significantly at fault. In the circumstances, I have decided to make a special report to each House of the Oireachtas, in accordance with Sections 6(5) and 6(7) of the Ombudsman Act, 1980.

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