Background
Chili Bagan Restaurant Limited was selected for a Revenue audit in November 2017 covering VAT and Corporation Tax. Following the audit, the Revenue Commissioners issued Corporation Tax assessments of €8,210 and €21,739 for the financial years ending October 2016 and October 2017 respectively, together with a 10% surcharge for negligent returns. Chili Bagan appealed to the Tax Appeals Commissioner (TAC), arguing principally that the underlying figures were unachievable, that accounting discrepancies arose from a change in its EPOS system, and that the assessments were exaggerated and already partially paid.
At the appeal hearing, the TAC raised—on its own initiative—the question of whether Chili Bagan had unutilised Corporation Tax losses available to offset the assessed liability. That issue had not been raised by Chili Bagan in its grounds of appeal or at the hearing itself. The same day, after the hearing concluded, Chili Bagan’s tax agent submitted CT1 return summaries and company accounts directly to the TAC, which indicated €378,293 in losses carried forward. The TAC informed Revenue by email that the information had been provided and that Revenue was no longer required to submit the loss data it had been asked to furnish. The documents were never shared with Revenue.
On the basis of those documents, the TAC found as a material fact that Chili Bagan had €378,293 in unutilised Corporation Tax losses and reduced the CT assessments to nil under the loss carry-forward provisions of section 382 of the Taxes Consolidation Act 1997. Revenue challenged that determination by requesting a case stated to the High Court on three questions: whether the TAC erred in making the factual finding, whether it failed to adhere to the burden of proof, and whether it relied on evidence that was not properly admissible or admitted.
The Court’s Holding
Justice Dignam answered the first and third questions “Yes” and held that the TAC erred in law on two distinct but related grounds. First, the issue of unutilised losses was never raised by Chili Bagan in its grounds of appeal and was not addressed in any substantive way at the hearing. The TAC had no proper basis to make a finding of fact on a matter that was not an issue before it. The court emphasised that any jurisdiction to consider additional issues or expanded grounds requires that both parties receive an opportunity to address whether the new point should be admitted and to contest its substance—neither of which occurred here.
Second, even treating the loss issue as properly before the TAC, the admission of post-hearing documents prepared solely by Chili Bagan—without sharing them with Revenue or inviting Revenue’s response—was a breach of procedural fairness that constituted an error of law. The court noted that Revenue would have contested the losses: it had issued an assessment in December 2018 reducing the allowable losses from €378,293 to €168,084 (an assessment that was never appealed), and the remaining losses had in any event already been fully utilised in computing the very assessments under appeal. While section 949AC of the TCA permits the TAC to relax strict rules of evidence and adopt flexible procedures, it does not authorise the admission of evidence on a contested issue without affording the opposing party an opportunity to respond.
On the burden of proof, the court held that the TAC correctly identified the burden as resting on the taxpayer—consistent with Menolly Homes Limited v The Appeal Commissioners [2010] IEHC 49 and the line of authority reaffirmed in McNamara v Revenue Commissioners [2023] IEHC 15—and rejected Chili Bagan’s argument, based on Hanrahan v Merck Sharp & Dohme [1988] IESC 1, that the burden should shift to Revenue. The Hanrahan principle applies to civil tort litigation, not to statutory tax appeals, and in any event Chili Bagan’s books and records were in its own possession and control. However, the court found that, having correctly stated the burden, the TAC then failed to apply it by simply accepting the CT returns and accounts at face value without scrutiny.
Key Takeaways
- A Tax Appeals Commissioner cannot make a material finding of fact on an issue that was not raised by the appellant in its grounds of appeal; doing so is an error of law regardless of whether the TAC raised the point itself at the hearing.
- Post-hearing evidence submitted by one party must be communicated to the opposing party, and that party must be given a meaningful opportunity to challenge it before the evidence is admitted and relied upon—this is a minimum requirement of procedural fairness that cannot be waived by the TAC’s statutory flexibility under section 949AC TCA 1997.
- The burden of proof in Irish tax appeals rests on the taxpayer challenging the assessment; the Hanrahan shifting-onus doctrine is confined to civil tort litigation and does not apply in this context.
- Correctly stating the applicable burden of proof is insufficient—the TAC must actually enforce it; accepting uncontested self-prepared documents as conclusive evidence of loss entitlement amounts to a failure to apply the burden.
Why It Matters
This judgment reinforces that the informality and flexibility permitted in TAC proceedings have firm outer limits set by natural justice. A Commissioner who introduces a new issue, solicits evidence on it from one side only, and then resolves the appeal on that basis exposes the resulting determination to reversal on a case stated—even if the underlying statutory regime encourages accessible, non-formalistic proceedings. Practitioners advising clients before the TAC should ensure that any novel argument, however late it emerges, is formally raised as a ground of appeal and that all evidence on which reliance is placed is served on Revenue in advance.
The decision also serves as a practical reminder that CT loss positions are often less straightforward than a return summary suggests. Revenue may have issued assessments modifying the quantum of allowable losses, or the losses may already have been utilised in earlier periods. Advisers who identify a potential loss carry-forward relief must verify both the amount accepted by Revenue and the utilisation history before presenting that relief to the TAC—and must be prepared to substantiate it through formal evidence rather than document submission after the hearing has closed.