Article 8 of the Universal Declaration of Human Rights provides:
Everyone has the right to an effective remedy by the competent national tribunals for acts violating the fundamental rights granted him by the constitution or by law.
Article 10 of the Declaration provides:
Everyone is entitled in full equality to a fair and public hearing by an independent and impartial tribunal, in the determination of his rights and obligations and of any criminal charge against him.
Recognition of these rights, and elementary fairness, require that contested assertions by tax authorities as to the liabilities of taxpayers should be the subject of independent review.
Typically, tax systems provide for various modes of review. A distinction is often made between administrative review (where the review authority has the right to substitute its view of the correct decision for that of the tax officer) and judicial review (where decisions of the tax authority can be challenged on legal grounds through courts).
The advantage of administrative review is that in many jurisdictions the review authorities are specialist tribunals or departments with knowledge of the workings of the tax system, whereas judicial review is often to the ordinary courts (although some jurisdictions have specialised tax courts).
A distinction is appropriately drawn between best practice in this area, and the minimum necessary in order to comply with the human rights provided for in the Declaration. The requirements of the Declaration are satisfied provided there is one level of external review, capable of reviewing independently and objectively the matter and its conclusions as to fact and law.
Best practice would go further, and provide, consistent with the legal system of the jurisdiction in question, further rights of appeal identical to those in other civil disputes. Typically, that might involve one appeal to a higher court as of right, with further appeals by leave of an ultimate court of appeal.
The right of appeal is illusory unless the tribunal or department to which the appeal is directed has the right either to itself exercise all of the powers of the tax authority, or, alternatively, to remit the matter back to the tax authority for it to apply the law and facts as determined by the reviewer. A review by the tax authority is of little use if it is not impartial. Where the tax authority has adopted an interpretation or administrative provision, it is unreasonable to expect that another branch of the tax authority will, on appeal, adopt a different position unless specifically empowered to do so. This inherent limitation means that in many cases an independent body must hear a taxpayer dispute if a taxpayer so requests.
There is a trend towards limiting a taxpayer's right to appeal which is disturbing. This takes many forms, among them being:
- Negotiation to settle a dispute of several items on the basis that none of the issues will be appealed. Here the taxpayer is forced to surrender the right of appeal of certain matters in order to "conclude a deal".
- Legislation drafted distinctly in the favour of the tax authority. For example, a taxpayer may have to prove that "none of the main reasons" for an action was due to something specified. Another approach is to give the tax authority discretion, such as "where in the opinion of the Minister of Revenue...".
- Onus of proof. The taxpayer has to prove a fact to the satisfaction of the tax authority and not on a balance of probability.
- Complex and unduly burdensome procedural issues. The taxpayer must provide all arguments at the stage of lodging an objection and cannot advance other arguments at a later stage, say in a court hearing, while the tax authority can.
- Being forced to file an objection without the tax authority's audit report and findings.
- Open ended statutory limitation periods for certain transactions.
- Denial of deductions for technical and procedural reasons. For example, if a structure is found to be a tax shelter, as it may be defined, and it was not registered at inception, all deductions and losses are denied for all periods.
- Multiple assessments of the same income. Uncertain of which step in a sequence of transactions might be the weakest, each step is reassessed independent of the other. The taxpayer must fight multiple reassessments of which only one (at the most) may be correct. Also paying the tax may be impossible.
- Lengthy proceedings over many years which are very costly and a huge distraction, so that in the end it is "late justice, no justice". If the tax is unpaid, the interest may become unaffordable. Cost and delay often force a taxpayer to give up and settle.
These practices should be discouraged and curtailed.
These matters are addressed as important elements in the Model Taxpayer Charter. To the extent that adopting the provisions of the Charter restrict or limit the powers of the tax authority in this regard, this is intentional, in our view appropriate and perhaps in some cases long overdue.