Taxation - appeal against a determination - reasons
Before : |
M. J. Thompson, Esq., Commissioner |
Between |
Comptroller of Revenue |
Appellant |
And |
Y |
Respondent |
Advocate S. A. Meiklejohn for the Appellant.
The Respondent was excused appearance.
judgment
the COMMISSIONER:
1. This judgment contains my written reasons for allowing the Appellant's appeal against a determination of the Commissioners of Appeal for tax ("the Commissioners") on 24 May 2022, when the Commissioners concluded that they had power under appeal to reduce or abate surcharges applied under Article 41I of the Income Tax (Jersey) Law 1961 ("the Income Tax Law").
2. On 25 July 2022, the Respondent's tax agent filed the Respondent's tax return for the 2021 year of assessment and advised the Respondent that he was due to pay the Appellant £[redacted].
3. On 9 September 2022, the Respondent emailed his relationship manager at his private bank ("the Bank") requesting that £[redacted] be released from his ninety day notice account.
4. On 30 September 2022, the Comptroller, through the Respondent's tax agent, issued the Respondent with a notice of assessment for 2021 requiring a payment on account of £[redacted] to be paid by 30 November 2022 to avoid a penalty surcharge.
5. On 3 October 2022, the agent notified the Respondent of the notice of assessment. The Respondent requested his agent to apply for an extension to pay the payment on account.
6. On 30 November 2022, the agent informed the Comptroller of Income Tax that the payment would be late.
7. On 8 December 2022, the ninety day notice period expired and the Respondent made the full payment on account for his 2021 tax liability.
8. On 1 February 2023, the Comptroller issued a late payment surcharge notice to the Respondent for the 2021 year of assessment in the sum of £[redacted]. The parties subsequently agreed that this sum should be reduced to £[redacted] due to the allocation of a long-term care payment to the 2021 year of assessment.
9. On 2 February 2023, the Respondent through his tax agent appealed against the surcharge notice.
10. Article 39 of the Income Tax Law provides that a taxpayer's income tax becomes due and payable "on or before 30 November in the year following the year of assessment". For income earned during 2021 the final amount of any income tax assessed for that year was therefore payable on 30th November 2022.
11. Article 41I of the Income Tax Law sets out when a late payment charge may be imposed and how that surcharge may be waived. Article 41I(2) provides as follows:
"(2) If a person in relation to whom this Article applies does not pay in full, before the specified time, the tax chargeable for a year of assessment on that person, the person shall be liable, whether or not an assessment has been served on the person, to pay an additional amount (the "surcharge") equal to 10% of such tax as remains unpaid at the specified time. Provided that the Comptroller may waive payment of the surcharge -
(a) if it amounts to £50 or less for any year of assessment;
(b) where failure to pay the tax by the specified day is caused by the action of a person, in accordance with Article 3A, not connected with the person liable to the surcharge and the failure is remedied without unnecessary delay; or
(c) the Comptroller is satisfied that death, serious illness or other grave and exceptional circumstance prevented payment by the specified time."
12. The right to appeal is set out in Article 41I(7):
"(7) A person aggrieved by the Comptroller's refusal to waive liability under paragraph (2) may appeal to the Commissioners, on giving notice in writing to the Comptroller within 40 days of the issue of notice of refusal."
13. In relation to how the appeal is to be conducted, Article 41I(8) provides as follows:
"(8) Part 6 applies, with the necessary modifications, to an appeal under paragraph (7) as if it were an appeal against an assessment."
14. The relevant provisions on an appeal are set out in Article 29 which provides as follows:
"29 Procedure on appeals
(1) The Commissioners shall cause not less than 21 days' notice of the day for hearing appeals to be given to every appellant and shall meet together for the hearing of appeals from time to time, with or without adjournment, until all appeals have been determined. 140
(2) An officer shall attend every appeal and may be present for all of the hearing and the determination, 141
(3) On an appeal the following persons shall have right of audience, either viva voce or in writing, before the Commissioners -
(a) the Law Officers of the Crown or an advocate or solicitor of the Royal Court;
(b) a member of an incorporated society of accountants; and
(c) any other person, except that if in a particular case the Commissioners are satisfied that there are good and sufficient reasons for so doing, they may refuse to permit a particular person to represent the appellant.
(4) If, on any appeal, it appears to the majority of the Commissioners present at the hearing, by examination of the appellant on oath, or by other lawful evidence, that the appellant is overcharged by any assessment, they shall direct the assessment to be abated or reduced accordingly, but otherwise every such assessment shall stand good.
(5) If, on an appeal, it appears to the Commissioners that the person assessed ought to be charged in an amount exceeding the amount contained in the assessment, they shall direct that the person be charged with the excess.
(6) At the beginning of the hearing of any proceedings the Commissioners shall -
(a) explain the order of proceedings which they propose to adopt unless they consider it unnecessary to do so;
(b) conduct the hearing in the manner they consider most suitable for the clarification and determination of the issues before them and, so far as it appears appropriate, avoid formality in procedure; and
(c) determine in which order the parties to the proceedings shall be heard.
(7) The appellant and the officer attending the appeal shall be entitled -
(a) to give evidence;
(b) to call witnesses;
(c) to question any witnesses including other parties who give evidence; and
(d) to address the Commissioners both on the evidence and generally on the subject matter of the proceedings."
15. The other relevant power is in Article 33 which states as follows:
"33 Power on appeal to confirm or amend assessments If-
(a) the Commissioners see cause to disallow an objection of the Comptroller to a schedule; or
(b) on the hearing of an appeal, the Commissioners are satisfied with the assessment made by the Comptroller, or if, after the delivery of a schedule, they are satisfied therewith, and have received no information as to its insufficiency,
they shall direct the assessment to be confirmed or to be altered in accordance with any such schedule, as the case may require."
16. The right of appeal within Part 6 is said to be against any assessment. How the Comptroller assesses income is set out in Part 5 at Articles 22 to 26. It is clear from these Articles that the assessment is the process of assessing how income is charged to tax under the Income Tax Law.
17. The Respondent, in appealing to the Commissioners against the imposition of the surcharge, raised two grounds.
18. He firstly argued that the Bank as a connecting party failed to make payment on time despite the Respondent requesting it to do so. As the payment was made without unnecessary delay on 8 December, the criteria for the waiver in Article 41I(2) was met.
19. The Respondent also argued that the 2021 assessment was only issued on 27 September 2022 and so did not give him sufficient time to make the payment as he had to withdraw the money from a ninety day notice account.
20. The Respondent's arguments were rejected by the Commissioners. In particular, they noted that the Respondent had been informed in July 2022 that he had to pay £[redacted] by 30 November 2022. The Commissioners therefore agreed with the Comptroller that the failure to make the payment by the due date was caused by the Respondent's delay in giving payment instructions, rather than any failure by the Bank.
21. The Commissioners also found that it did not matter by reference to Article 41I(2) that the Respondent had not received an assessment until September 2022. The obligation to pay was clear if there was unpaid tax.
22. The Commissioners also rejected an argument that the Comptroller should have waived the surcharge because the Respondent was going through a divorce which amounted to a grave and exceptional circumstance. The Commissioners concluded that while a divorce ending a long marriage might be exceptional, the requisite test within Article 41I(2) required grave and exceptional circumstances and concluded that they were not presented with any evidence that would suggest that the circumstances were also grave. The Respondent's appeal to the Commissioners was therefore unsuccessful.
23. However, the Commissioners then raised the question as to whether Article 41I(8) of the Income Tax Law and the reference to Part 6 gave the Commissioners a power to amend the surcharge under Article 29(4) of the Law. Both parties were then invited to make subsequent submissions on this question.
24. The Commissioners noted that prior to 2022, the right of appeal did not extend to Article 29(4). As Article 29(4) now applied "with necessary modifications", the Commissioners concluded that it was the intention of the States to grant the Commissioners power to abate, reduce or otherwise amend the amount of the surcharge.
25. Having reached this conclusion, the Commissioners then concluded that a 10% surcharge was a disproportionate penalty. They noted that there was no intentional delay on the part of the Respondent. Rather it was "due to an administrative difficulty as the financial institution would not allow an early withdrawal contrary to common practice". The Commissioners then went on to note that while these circumstances were not so grave and exceptional to justify a total waiver and that the taxpayer should be penalised for the delay, they concluded that the full surcharge was not proportionate to the offence and therefore reduced it to £[redacted].
26. Advocate Meiklejohn for the Comptroller argued that the Commissioners had no power to abate or reduce a surcharge imposed under Article 41I of the Income Tax Law. The position the Commissioners took resulted in an absurdity because it had the effect that the Comptroller could not reduce or abate a surcharge, but the Commissioners could.
27. In the alternative, if Article 29(4) and the power to reduce or abate was engaged, it only applied to errors in calculation. The power did not extend to reducing a power where the Income Tax Law had charged a specific fixed percentage.
28. In relation to the waiver under Article 41I(2), the Comptroller may waive the surcharge.
29. The Comptroller's primary position was this power to waive was a binary choice i.e. the surcharge was either payable in full or it could be waived completely but there was no power to waive part of the surcharge. This was firstly because waiver meant a total release. Secondly, Advocate Meiklejohn contrasted the use of the word waive in Article 41I(2) with the power in Article 41AA vesting the Comptroller to reduce the amount of an instalment where the relevant section referred to "waive or reduce".
30. He accepted however it was possible to construe Article 41I(2) as giving the Comptroller a more flexible discretion, albeit that was not how the Comptroller had applied the power to date. If the Comptroller did have a more flexible power, he also fairly accepted that that was when the Commissioners might have a discretion under Article 29(4). Ultimately, that was a question of construction for the Court to determine.
31. Finally Advocate Meiklejohn was critical of the Commissioners if they did possess a power to reduce because there was no evidence before them to justify how they arrived at a figure of £[redacted].
32. The short answer to the Comptroller's appeal is that the power in the Comptroller to waive payment under Article 41I(2), whatever waive might mean, only arises if one of the three gateways set out in Article 41I(2) is met. As none of the gateways were met, then the Comptroller did not have power to waive payment of the surcharge.
33. The power contained in Article 29(4) could not therefore be exercised because the pre-condition for it applying was that a taxpayer had to be "overcharged". As none of the gateways contained in Article 41I(2) were made out, as the Commissioners found, there was no basis to conclude that there was any overcharging by the Comptroller requiring the Respondent to pay the surcharge. Accordingly, the power in Article 29(4) could not apply. Whatever Article 29(4) is, it is not a general power giving the Commissioners the ability to reduce a surcharge and the Commissioners do not otherwise possess a general discretion to reduce any such surcharge.
34. I have referred to surcharge because the power in Article 29(4) has to be read with any necessary modifications where there is an appeal under Article 41I(7). In my judgment, the way to read Article 29(4) is to replace the word 'assessment' with 'surcharge' so that it reads "if on any appeal it appears to the majority of the Commissioners present at the hearing by examination of the appellant on oath or by other lawful evidence that the appellant is overcharged by any surcharge, they should direct the surcharge to be abated or reduced accordingly but otherwise every such surcharge shall stand good."
35. The above conclusion was sufficient to allow the appeal. However, given the submissions made by Advocate Meiklejohn, I proposed to set out my views on the extent of any discretion vested in the Comptroller should a taxpayer persuade the Comptroller that one of the three grounds set out in Article 41I(2) are made out.
36. In my judgment, the use of the word "may" in Article 41I(2) gives the Comptroller a discretion to waive payment of the surcharge. I do not consider that that discretion is all or nothing. Such a construction would lead to the result that while the Comptroller had a binary discretion, the Commissioners would under Article 29(4) have more flexibility than the Comptroller. I say this because if the Comptroller refused to waive the surcharge as permitted by Article 41I(2), and a taxpayer appealed, Article 29(4) in my judgment gives the power to the Commissioners, if they are satisfied that the refusal to waive the surcharge means that a taxpayer has been overcharged, they can then abate or reduce the amount of the surcharge.
37. By contrast, if the discretion to waive means to waive in part, contrary to the current practice of the Comptroller, as well as in whole, this leads to the Comptroller and the Commissioners having the same power. The Comptroller can exercise the power to waive as he sees fit which can be reviewed by the Commissioners if they are satisfied that the manner in which the Comptroller has exercised a discretion amounts to overcharging.
38. I also considered that this construction is consistent with Article 1 Protocol 1 of the European Convention on Human Rights and the right of individuals to the peaceful enjoyment of their possessions. Article 1 however recognises that a state has a right to enforce laws to secure the payment of taxes. European jurisprudence under Article 1 Protocol 1 also refers to legislation affecting property rights striking a fair balance between the demands of the general interest of the community and the requirements and protection of the individual's fundamental rights.
39. An interpretation of Article 41I(2), as long as one of the gateways is met, to give the Comptroller a general discretion which the Commissioners then have a more limited power to review is consistent with such a balance whereas a binary approach by the Comptroller means that a taxpayer would have to appeal to the Commissioners if there was a refusal to waive the surcharge, one of the grounds having been met for a more general discretion to be exercised. The latter approach runs into the same concern of a taxpayer having to appeal to the Commissioners that Advocate Meiklejohn expressed in relation to the Commissioners having a general power to review a surcharge when the Comptroller did not possess such a power. I accept that this conclusion may be a departure from the current practice of the Comptroller. However, the conclusions set out in this judgment should not provide a significant change because any taxpayer still has to establish a gateway before the discretion can be exercised as the gateways are tightly drawn.
40. I also do not accept the submission that because in one other section of a very lengthy statute the word "waive" is followed by the words "or reduce", that the word "waive" when appearing on its own (following the word "may") means that the Comptroller only has a binary discretion. The Income Tax Law is one that has been developed over many years with many, many amendments. In such circumstances, it is possible for different approaches of drafting to be taken. In some cases such differences may assist with construction, but it does not in this case when looking at Article 41I(2) on its face. In my judgment the Article is clear and creates a discretion to reduce or waive a surcharge if one of the limited grounds set on in Article 41I(2) is established. How waive might appear in another Article does not override the obvious meaning of waive; it also gives rise to the anomaly I have explored in the previous paragraph.
41. Finally, in relation to the actual exercise of discretion by the Commissioners, had it been necessary to decide this question, this part of the decision would have been set aside and remitted to the Commissioners as there was no evidence to justify the reduction, adopting the approach in Comptroller v B [2023] JRC 052. However the question did not arise because, for the reasons set out in this judgment, the Commissioners had no power to reduce the surcharge when the Respondent had not established any gateway under Article 41I(2).
Authorities
Income Tax (Jersey) Law 1961.