The Inland Revenue Department is examining its legal position and administrative procedures and seeking advice from the Attorney General following a court ruling last January which declared that the department was time-barred from issuing legal claims for payments due more than eight years after the tax base year, Inland Revenue Commissioner Adrian Chetcuti said in an interview.
The matter, legally, is a complex one. In 2004 the law was amended so as to give the department time until the end of 2005 to institute legal proceedings for the collection of outstanding tax balances and up to 2007 for issuing of assessments up to tax base year 1997.
In January 2007, however, the Court of Appeal said the department should have issued the judicial letters within eight years. The court found that it was not acceptable for the rule of prescription to be circumvented by subsequent legislation for no sound reason, just so that the IRD could issue claims for a longer period.
The department had also appealed against a 2004 ruling by the Board of Special Commissioners which ruled that the amendment could not be applied to circumvent the eight-year prescription for issuing assessments. This case is due to be heard soon. The decisions potentially could affect thousands of cases and mean that the department might not be able to collect millions in tax due.
However, from a quick examination of the pending claims in the light of the decision taken, it results that the vast majority of the issued claims are legally valid, he said.
He also insisted that prescription in itself did not imply that amounts that were due were no longer due but rather limited the right of collection.
"This implies that whatever the outcome of the proceedings in question the department is not liable to refund amounts which have been collected post-prescription period," Mr Chetcuti said.
"Since the matter is still under the judicial review process an extensive elaboration from my end is premature, " Mr Chetcuti said.
He explained that the pre-1999 assessment backlog, until some time ago consisted of more than 50,000 companies' and 300,000 individuals' returns. A number of the outstanding objections date back to the 1980s ex-officio assessments, some of which were declared illegal and had to be cancelled and issued anew.
By 2005, the department had sent out all payment advice notices but it has, according to legislation, until end-2007 to send out the assessments for this period, he said.
Although there may be subsequent objections, the assessments which are accepted mean the taxpayer is no longer left in limbo: According to the system payments deducted from an employee can be credited to their account for the year and any surplus could be used to pay off arrears. Companies can also close off their accounting records, rather than having tax provisions there, year after year.
"Once the assessments are worked out, we will at least have an idea of what is due and what is under appeal," Mr Chetcuti said.
Clearing the backlog has been a long and time consuming exercise. Whatever the legal outcome, the work will not have been entirely in vain. The exercise has helped to clean the database of companies that had long since closed down and individuals who had died, moved on or married. The total number of assessments pending has now been whittled down to a few thousands and will be issued within a few months.
In the meantime, the objections continue to pour in. At the end of last year, there were 8,777 objections outstanding from individuals - each of which can cover more than one year's returns. There are also 4,042 objections by companies from last year.
"Last year, over 8,000 objections were settled but 2,000 new ones came in. We are anticipating that the bulk of objections will be settled by this year, though," he said.
"The number of employees that have been deployed on the backlog had to be restricted for the reason that the work is complex and the personnel would need a good understanding of the business processes and the applicable legislation for the particular years. We tried to bring in former employees but only about three were interested and they are currently working on objections. It is not that easy. Believe me, if anyone wants to settle this backlog once and for all, it is me!"
The matter, legally, is a complex one. In 2004 the law was amended so as to give the department time until the end of 2005 to institute legal proceedings for the collection of outstanding tax balances and up to 2007 for issuing of assessments up to tax base year 1997.
In January 2007, however, the Court of Appeal said the department should have issued the judicial letters within eight years. The court found that it was not acceptable for the rule of prescription to be circumvented by subsequent legislation for no sound reason, just so that the IRD could issue claims for a longer period.
The department had also appealed against a 2004 ruling by the Board of Special Commissioners which ruled that the amendment could not be applied to circumvent the eight-year prescription for issuing assessments. This case is due to be heard soon. The decisions potentially could affect thousands of cases and mean that the department might not be able to collect millions in tax due.
However, from a quick examination of the pending claims in the light of the decision taken, it results that the vast majority of the issued claims are legally valid, he said.
He also insisted that prescription in itself did not imply that amounts that were due were no longer due but rather limited the right of collection.
"This implies that whatever the outcome of the proceedings in question the department is not liable to refund amounts which have been collected post-prescription period," Mr Chetcuti said.
"Since the matter is still under the judicial review process an extensive elaboration from my end is premature, " Mr Chetcuti said.
He explained that the pre-1999 assessment backlog, until some time ago consisted of more than 50,000 companies' and 300,000 individuals' returns. A number of the outstanding objections date back to the 1980s ex-officio assessments, some of which were declared illegal and had to be cancelled and issued anew.
By 2005, the department had sent out all payment advice notices but it has, according to legislation, until end-2007 to send out the assessments for this period, he said.
Although there may be subsequent objections, the assessments which are accepted mean the taxpayer is no longer left in limbo: According to the system payments deducted from an employee can be credited to their account for the year and any surplus could be used to pay off arrears. Companies can also close off their accounting records, rather than having tax provisions there, year after year.
"Once the assessments are worked out, we will at least have an idea of what is due and what is under appeal," Mr Chetcuti said.
Clearing the backlog has been a long and time consuming exercise. Whatever the legal outcome, the work will not have been entirely in vain. The exercise has helped to clean the database of companies that had long since closed down and individuals who had died, moved on or married. The total number of assessments pending has now been whittled down to a few thousands and will be issued within a few months.
In the meantime, the objections continue to pour in. At the end of last year, there were 8,777 objections outstanding from individuals - each of which can cover more than one year's returns. There are also 4,042 objections by companies from last year.
"Last year, over 8,000 objections were settled but 2,000 new ones came in. We are anticipating that the bulk of objections will be settled by this year, though," he said.
"The number of employees that have been deployed on the backlog had to be restricted for the reason that the work is complex and the personnel would need a good understanding of the business processes and the applicable legislation for the particular years. We tried to bring in former employees but only about three were interested and they are currently working on objections. It is not that easy. Believe me, if anyone wants to settle this backlog once and for all, it is me!"