TAXPAYERS LOOKING to challenge the outcome of a Revenue audit could have to defend themselves in the High Court under new rules.

Under the Civil Penalty Regime, introduced in the second Finance Act late last year, a new court process was introduced to resolve disputes between the Revenue and individual or corporate taxpayers.

Until now, the outcome of an audit would be the subject of negotiation between the tax authorities and the taxpayers’ representatives. The new, formal regime now in place allows the Revenue to set down its view of the liability in a Notice of Opinion. The only way to challenge this will be in open court.

“As a result of this, when a dispute arises that involves a penalty of €38,092 or higher, the dispute will be aired in the High Court in public, with possible costs of over €100,000 to the taxpayer [defending their position],” says Sonya Mazor, a partner with law firm William Fry.

She says the new legislation does not contain sufficient checks and balances to protect the compliant taxpayer who makes a mistake that is picked up by Revenue audit. “The compliant taxpayer now faces a catch-22 – pay the penalty and suffer or challenge it in open court and face significant costs and publicity.”

A spokesman for the Revenue said the new penalties legislation was introduced at the end of last year, following advice received from the Attorney General, to ensure compatibility with the European Convention on Human Rights and the Constitution. That, Revenue says, states that taxpayers should have recourse to appeal to an independent party and it has been decided that the courts are best positioned to provide that forum.

Mark Redmond, chief executive of the Irish Taxation Institute, said there had been no consultation on the introduction of the new regime and it was causing a lot of concern among tax practitioners. “We believe this is a step backward. It is expensive and cumbersome,” he said.

A particular disadvantage, from the point of view of the Institute of Taxation, is that such court proceedings will be held in open court. “We would have preferred that these notices could have been appealed via the Revenue’s Appeals Commissioners, hearings that are heard in private.”

Tax practitioners note that one of the main deterrents the Revenue has in its armoury is the prospect of publication of the names of taxpayers forced to settle outstanding liabilities. They argue that forcing taxpayers to face publication merely for challenging a Revenue audit opinion is a major change in procedure and one that could be used to pressure taxpayers to agree settlements that are higher than they believe they should be.

The additional matter of the costs of such court cases – considerable in the case of High Court actions where any matter involving sums of more than €38.092 must be heard – is a further issue. “This is a particular concern in the current climate where taxpayers are under huge cashflow pressure,” said Mr Redmond.

Revenue carried out 13,400 audits of taxpayers last year, netting €570 million in unpaid tax, interest and penalties.