Currently, complex direct tax (broadly, corporation, income and capital gains tax) cases are heard by the special commissioners, while indirect taxes are heard by the VAT and duties tribunal. From April 2009, their respective jurisdictions will be transferred to the new tribunal, which comprises the first-tier tribunal and upper tribunal. They will combine to form the tax chamber, one of five ‘chambers’ of the first-tier tribunal (the others being social entitlement; general regulatory; health education and social care; and land property and housing). The upper tribunal will be divided into three chambers: administrative appeals; finance and tax; and land. Each will have its own chamber president, reporting to the senior president, Lord Justice Carnwath, the head of the tribunal judiciary (who has sat in a number of leading tax cases, including the seminal tax avoidance case MacNiven v Westmoreland Investments). The president of the tax chamber is yet to be appointed.
Tax appeals
Most tax appeals will begin in the first-tier tribunal. Onward appeals will lie to the upper tribunal, normally only on a point of law, and only with the permission of the upper tribunal - representing a significant departure from the current position, where appeals from the tax tribunals to the high court/outer house of the court of session are as of right. Appeals from the upper tribunal will lie to the court of appeal in England and Wales and the inner house of the court of session in Scotland. Tax cases that raise an important point of law or are likely to reach the court of appeal may begin in the upper tribunal. Formal group litigation procedures are to be introduced in relation to tax appeals, perhaps similar to group litigation orders in the high court. Currently (except for national insurance contributions) similar cases can proceed independently and haphazardly, sometimes combining on appeal through the higher courts (e.g. Conde Nast and Fleming).
Probably the most contentious element of the MoJ’s proposals is the question of whether the loser should bear the winner’s costs. Currently, costs are only available in the VAT and duties tribunal (costs awards in the special commissioners are so exceptional as to be almost non-existent), although the HMRC in practice refrains from seeking costs in smaller cases. The MoJ states the current consensus in the stakeholder groups is that in most cases each party should bear their own costs - although this does not square with the fact that this proposal has been greeted with ire in many quarters.
A prospective litigant may be persuaded to bring an appeal since it removes an unknown and uncontrollable variable from the cost benefit analysis. However, a taxpayer might be dissuaded from appealing a strong case because the costs of pursing the appeal will compare unfavourably with the amount of tax at stake, and HMRC may be encouraged to take an aggressive position knowing or suspecting this to be the case. Furthermore, the risk of an adverse costs award can act as a check against overzealous action by HMRC or spurious appeals by the taxpayer. Perhaps recognising these points, the MoJ is seeking views on whether exceptions should be made in cases of unreasonable behaviour or where the case involves complex/substantial issues.
Tribunal reform has been on the agenda for more than a decade. The proposed group litigation rules should assist in the administration of justice but the removal of costs awards in VAT and duties cases may not be welcomed by all. Removing the appellate function from the high court and bringing it within the jurisdiction of the tribunals is innovative but may have its risks. The stated aim is that the upper tribunal will have a stature equal to that of the Administrative Court and the higher courts should be reluctant to interfere with its findings.
However the fact that special commissioners and VAT tribunal chairmen focus almost exclusively on tax cases can lead to a perception that they have become ‘case-hardened’ - as is levelled at magistrates from time to time. Sometimes it needs the fresh perspective brought to bear by non-tax specialist judges in the higher courts. Care must be taken to ensure that the upper tribunal is populated with judges blending specialist knowledge of tax with wider commercial experience, particularly in light of the proposed abolition of the automatic right of appeal of a first instance decision. Subject to these points, the tax chamber should be able to deal with the increasing workload it is seeing as HMRC cracks down on what it marks out to be the errant taxpayer.
Jason Collins i(pictured) s head of tax litigation at McGrigors.
