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CASE LAW

 
 
 
 

Whether an accountants workings are within the power and possession of the taxpayer

J Quigley (Inspector of Taxes) v Maurice Burke

The taxpayer carried on a trade as an electrical contractor and appealed against an assessment for the tax year 1986/1987.

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He engaged an accountant to prepare accounts and subsequently employed an accountant to prepare and furnish to the Inspector of Taxes the necessary accounts and documentation. The Inspector was not satisfied with the documentation which he received and requested production of the nominal ledger prepared by the accountant as part of his working papers.

The issue which arose in the proceedings before the Circuit Court judge was whether a nominal ledger prepared by the accountant was in the power or possession of the taxpayer. The accountant maintained that the nominal ledger was part of his working papers, his property and was not in the power or possession of the taxpayer and that consequently, the taxpayer was under no obligation to produce to the Inspector of Taxes the nominal ledger. The Inspector of Taxes maintained that it was entitled to see all the accounting records of which the nominal ledger is an integral part, from which the accounts are prepared so as to be satisfied that the accounts reflected the full amount of the profits or gains for the relevant accounting period in accordance with TCA97 s65, s66, s67.

The Circuit Court judge held that the nominal ledger was the property of the accountant and the Inspector was not entitled to access to it or to insist that it be put in evidence. The matter was appealed to the High Court. The High Court decision of 18 April 1991 was appealed to the Supreme Court.r

Decision:

Hamilton J held that the documents were in the power or possession of the taxpayer in this case.

Basis for Decision:

The accountant was employed by the taxpayer to prepare and submit the accounts necessary in order to enable a proper assessment of his income tax liability to be made. The taxpayer was entitled to obtain the ledger from his agent, the accountant and consequently this ledger was in his possession or power within the meaning of TCA97. In his judgement he said that it was important to emphasise that the accountant was not engaged by the appellant for the purpose of preparing an audit of his business but rather as a tax agent for the purposes of preparing the necessary accounts and documentation to be used on behalf of the taxpayer in the appeal against the assessment to income made against the taxpayer for the year of assessment in 1986/1987. The question for determination was whether the taxpayer had the right to obtain from the accountant the said nominal ledger because if he had the nominal ledger was in his power and possession, he was obliged to produce it. In the case of Bula Limited v Tara Mines it is stated that “a document is within the power of a party if he has an enforceable legal right to obtain from whomsoever actually holds the document for inspection of it without the need to obtain the consent of anyone else.”

Decision:

Quotation at page 224

“It is important to emphasise that Mr. McElhinney was not engaged by the appellant for the purpose of preparing an audit of his business but rather as a tax agent for the purpose of preparing the necessary accounts and documentation to be used on behalf of the appellant in an appeal against the assessment to income tax —the appellant herein, was entitled to obtain this ledger from his agent, Mr. McElhinney and consequently this ledger was in his possession or power”.

Note:

The Supreme Court judgement was based on the alleged fact that the accounts had been prepared for submission to the Revenue by the accountant, acting as tax agent. This may not, in fact, have been the case.

Cases referred to in Judgement:

Bula Limited v Tara Mines Limited [1994] 1LRM 111. Chantrey Martin & Co. [1952] 2AER 691. Leicestershire County Council [I941] 2KB 205.

 
 

 
 

Issue: Residence and Domicile

Claire Proes v The Revenue Commissioner

The taxpayer carried on a trade as an electrical contractor and appealed against an assessment for the tax year 1986/1987.

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He engaged an accountant to prepare accounts and subsequently employed an accountant to prepare and furnish to the Inspector of Taxes the necessary accounts and documentation. The Inspector was not satisfied with the documentation which he received and requested production of the nominal ledger prepared by the accountant as part of his working papers.

The taxpayer was born in Ireland but became a British national and resided outside Ireland for approximately 42 years. In 1982 she returned to live in Ireland where she had visited for many years. The taxpayer was assessed under TCA97 s71(1) for payment of tax on income arising from securities outside the State. The taxpayer argued that the exemption (remittance basis) under sub-section 2 applying to people who are not domiciled in the State apply to her

At the Circuit Court, it was held that she was domiciled at all relevant times within the State. The taxpayer had lived in various countries throughout her life and had never permanently resided anywhere. Shortly before her husbands death they took up residence in the UK which they intended to be permanent. After her husband's death she had to vacate the house provided by his employers and she moved into a holiday home in Ireland which they had purchased. She considers the house in Kinsale to be a permanent home "for the time being". She had acquired

a UK house which was being refurbished for her use. The taxpayer intended to return to the UK at some later stage.

The Decision:

The correct question to ask is whether her English domicile of choice had been abandoned. No intention to abandon her English domicile can properly be inferred from the facts.

Basis for Decision:

Every person receives at birth a domicile of origin, but a domicile of choice may be acquired by the combination of residence and intention of permanent or indefinite residence. A domicile of choice may be lost by abandonment. This will occur when the person ceases to reside in the country of domicile and also ceases to have an intention to return to it as their permanent home.

When a domicile of choice is abandoned either (1) a new domicile of choice is acquired; or (2) the domicile of origin reverts.

TCA97 s71(2) imposes the burden of proving that domicile is not in Ireland on the taxpayer and on the facts of this case require her to establish that she did not abandon her English domicile.

 
 

 
 

Contract of service or for services?

Henry Denny & Sons (Ireland) Ltd v Minister for Social Welfare

The taxpayer was employed by the company to provide demonstration services for the company's products at various supermarkets

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The written contract of engagement was for a duration of one year after which it was to be renewed. The taxpayer was not subject to direct supervision but she was required to abide by directions and regulations in the supermarket. She was not paid for holidays or sick leave and she was free to refuse work. She could not engage people to work for her except in exceptional circumstances and even then only with the approval of the company. The decision of the Circuit Court in the Cronin case held that an individual similarly employed to provide services was not an employee under the terms of the Unfair Dismissals Act. Issues

Is the taxpayer an employee of the company or an independent contractor? Held

The Supreme Court ruled

That the High Court was correct in ruling that the taxpayer was employed under a contract of service i.e. was an employee. Applying the control, integration, economic reality and entrepreneurial tests from a number of cases the court came to the conclusion that the decision should stand. Despite the terms of the contract, the Appeals Officer was correct in his consideration of the actual substance of the transactions rather than the legal form of the contract i.e. the facts and realities underlying the written agreement indicated that the taxpayer was actually an employee. "It is, accordingly, clear that, while each case must be determined in the light of its particular facts and circumstances, in general a person will be regarded as providing his or her services under a contract of service and not as an independent contractor where he or she is performing those services for another person and not for himself or herself. The degree of control exercised over how much work is to be performed, although a factor to be taken into account, is not decisive. The inference that the person is engaged in business on his or her own account can be more readily drawn where he or she provides the necessary premises or equipment or some other form of investment, where he or she employs others to assist in the business and where the profit which he or she derives from the business is dependant on the efficiency with which it is conducted by him or her."

 
 

 
 

Issue: Whether food & accommodation expenses are tax deductible

Bentley, Stokes and Lowless v Beeson (Inspector of Taxes) [1952] 2 All ER 82

While this case involves the issue of whether or not a deduction can be taken for client lunches which is now specifically disallowed by section 840 TCA 1997, it is instructive in arriving at the principles of deductibility

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A firm of solicitors met with clients over lunch to discuss business. Fees were raised for this advice in the same manner as for advice given in the firm’s offices and the client was not charged for the lunch. If the firm had insisted that all meetings take place at their offices, certain clients would have been lost as that would not have been convenient to them.

Romer LJ held that:

if, in truth, the sole object is business promotion, the expenditure is not disqualified because the nature of the activity necessarily involves some other result, or the attainment or furtherance of some other objective, since the latter result or objective is necessarily inherent in the act.

He further noted that it would be absurd if the presence of an element of hospitality, in however small and subordinate a degree, was fatal to a claim.

 
 

 
 

Issue: Travel expenses to and from home

Newsom v Robertson (Inspector of Taxes) [1953]Ch 7

This case considered the situation of a barrister, Mr Newsom, whose chambers were in London but who lived in Whipsnade, which is some distance from London.

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Mr Newsom had a fully stocked library in his home and during holiday periods, even though his London chambers remained open, he had papers sent to him at his home. It was not disputed that he worked from his home. The issue was whether or not the expense of journeys from his home to London, either to attend court or his chambers, was wholly and exclusively for the purposes of his profession.

The High Court held that Mr Newsom:

“… had chosen to live at Whipsnade because he liked living in the country and wished to enjoy its amenities. On any view, therefore, travelling between Whipsnade and [his chambers] was due partly to the calls of his profession and partly to the requirements of his existence as a person with a wife and family and a home. It followed that the expenses of that travelling were not incurred wholly and exclusively for the purposes of his profession.”

The Court of Appeal decided:

“Mr Newsom’s purpose in making the journeys was to get home in the evenings or at weekends. The fact that he intended to do professional work when he got there, and did so, does not makes this even a subsidiary ‘purpose’…” Sommervell LJ

The Court further held that:

“… it cannot be said even of the morning journey to work that it is undertaken in order to enable the traveller to exercise his profession; it is undertaken for the purpose of neutralizing the effect of his departure from his place of business, for private purposes, on the previous evening. In other words, the object of both journeys, both morning and evening, is not to enable a man to do his work but to live away from it” Romer LJ. It was found that Mr Newsom carried out his profession in his chambers in London. The fact that he had a law library in his home, for which he was entitled to claim tax deductions, did not change the purpose of his journeys between London and Whipsnade.

“Even busy barristers occasionally have an evening free from legal labour, and I feel sure that if Mr Newsom were lucky enough to have one he would not remain in London on the ground that there was no work to take him to Whipsnade.” Romer LJ.

This is an important case in illustrating that the mere fact that some work is carried on from home does not mean that the journeys to that location are undertaken wholly and exclusively for the purposes of the trade or profession.

Case Law Whether an accountants workings are within the power and possession of the taxpayer Issue: Residence and Domicile Contract of service or for services? Issue: Whether food & accommodation expenses are tax deductible Issue: Travel expenses to and from home