The High Court rejected Gerard Gaffney’s judicial review challenge to the Revenue Commissioners’ refusal to let him make a prompted qualifying disclosure after an investigation into his tax affairs had begun.
In a judgment delivered on 1 February 2013, Ms Justice Dunne held that section 1077E of the Taxes Consolidation Act 1997 did not require Revenue to give him that opportunity in the circumstances. The court dismissed the relief he sought; it did not determine the disputed nature of the underlying tax liability or make a fresh finding on the amount of tax due.
Revenue notified Gaffney by letter dated 8 March 2011 that it had commenced an investigation into his tax affairs for 2009 onwards, including the tax consequences of a transfer of share rights to him by Venture Construction Limited. The judgment records Revenue’s evidence that its investigation had identified the case as part of a wider examination of transactions involving company share rights and liquidation distributions.
After receiving the letter, Gaffney, on advice from his tax advisers, paid Revenue €366,705: €308,040 in capital gains tax, €27,861 in interest and €30,804 in penalties. The judgment notes a dispute between the parties over whether the liability was for capital gains tax or income tax, but says that question did not need to be resolved in the judicial review.
Gaffney argued that the statutory definition of a prompted qualifying disclosure allowed a taxpayer to disclose information after being notified that an investigation would start but before it began. He also argued that Revenue’s approach unlawfully restricted that opportunity for taxpayers subject to an investigation, and challenged the way its Code of Practice described disclosures.
Revenue submitted that the investigation into the relevant matters had already begun and that section 1077E(15)(a) therefore applied. The court agreed. It found the statutory disclosure window applied when Revenue notified an individual in advance that an investigation into that person’s tax affairs would start on a specified date. It did not require Revenue to notify potential taxpayers before starting a broader investigation into a scheme, when the individuals involved might not yet be identified.
The judge also concluded that section 1077E did not confer a discretion on Revenue to offer a prompted disclosure after an investigation had started. She found no basis for the claims that Revenue had unlawfully fettered a discretion, acted irrationally or unreasonably, or operated the alleged policy distinction between audits and investigations. The court was satisfied Gaffney was not entitled to the relief claimed.