The Tax Appeal Commission, and indeed members of the judiciary, are fundamentally aware that impartiality is essential to the proper discharge of their duties, and that those duties should be performed without fear or favour, affection or ill-will, bias or prejudice.
With the best of intentions taken as a given, those decision-makers must also be acutely aware of the significance of unconscious bias and its influence over the outcome of their decisions and judgments.
In the regularly cited judgment concerning judicial bias, In re Medicaments and Related Classes of Goods (No 2) ( WLR 700), the Court of Appeal of England and Wales cautioned: “Bias is an attitude of mind which prevents the judge from making an objective determination of the issues that he has to resolve. A judge may be biased because he has reason to prefer one outcome of the case to another. He may be biased because he has reason to favour one party rather than another. He may be biased, not in favour of one outcome of the dispute, but because of a prejudice in favour of or against a particular witness, which prevents an impartial assessment of the evidence of that witness. Bias can come in many forms. It may consist of irrational prejudice or it may arise from particular circumstances, which, for logical reasons, predispose a judge towards a particular view of the evidence or issues before him.”
This article focuses on the types of biases affecting the outcome of tax disputes – and the steps that practitioners should take to assist decision-makers to deliver an objective determination.
Types of bias
Types of bias evolve over time, with gender,age, race, and sexual orientation receiving most media attention.
The following forms of bias are relevant to decision-makers in resolving tax disputes:
1) Anchoring bias – caused by initial impressions and discounting the significance of new information as it becomes available,
2) Safety bias – the tendency to rule against a taxpayer where there is some doubt over the credibility of a taxpayers’ portrayal of the facts or their understanding of the law,
3) Positive bias or ‘halo effect’ – refers to a type of cognitive bias whereby our perception of someone is positively influenced by our opinions of their personal traits, qualifications, or social standing,
4) Confirmation bias – places disproportionate weight on existing beliefs, and
5) Overconfidence bias – the overestimating by decision-makers of their own experience or expertise.
Decision-makers are more likely to listen to and consider the submissions and arguments of practitioners who have a reputation for honesty, integrity, and competency.
While there is no questioning the honesty and integrity of the vast majority of accountants, tax agents, and lawyers, issues of competency can undermine a practitioner’s credibility.
If known to the Tax Appeals Commission or the courts, the first-impression hurdle will be overcome. However, one must not be complacent, and due care and attention must be given not only to the initial submissions, but also to the subsequent carriage of the proceedings.
Anything that undermines the perception of decision-makers requires greater effort in attempting to restore their confidence.
Those practitioners who are new or are infrequent visitors to the Tax Appeals Commission or courts should be conscious of the importance of demonstrating their professionalism and competency to ensure that they give a good initial impression.
As part of the system of checks and balances in the legal process, a decision
from the Tax Appeals Commission can be appealed to the High Court on a point on law, with a further right of appeal to the Court of Appeal.
This review mechanism is an important focal point for decision-makers to ensure that their decisions are objective, fair and well-reasoned.
As in all disputes, it is essential to identify the issues in dispute, the goal to be achieved, and the steps required to achieve that goal.
In advance of the hearing, a document should be prepared that identifies all the facts to be proven and the manner in which they must be proven, with reference to the rules of evidence.
While the practitioner can only do so much, the evidence must be given by their clients and/or nominated witnesses.
Any omissions in fact, discrepancies, or proven contradictions in their evidence undermines credibility. Any doubt over the evidence or legal submissions will make it harder to steer the appeal commissioner or judge away from the safety bias.
The appeal commissioners and judges are general practitioners and heavily rely on the expertise and knowledge of the practitioners appearing before them.
When an experienced barrister appears on behalf of Revenue against a lay litigant or a solicitor from a small firm, there is an unconscious tendency to attribute a positive bias to the barrister.
While barristers are specialist advocates, there are many competent solicitors and tax practitioners who possess a greater knowledge and experience of the law in dispute. To underestimate their competence is a mistake.
Confirmation bias involves the perception and interpretation of facts that underlie existing beliefs. Confirmation bias can lead to a distorted understanding before properly examining any alternative.
It is very easy to fall into the overconfidence bias trap. In Bookfinders
Ltd v Revenue Commissioners ( IESC 60), the Chief Justice magnanimously admitted that: “My observations on the issue of statutory interpretation in the O’Flynn case were obiter. On reflection, they were, I think, unnecessary, incautiously expressed, and made without the benefit of opposing arguments. In particular, I think it was wrong to use the loaded word ‘purposive’ and to further suggest that the Interpretation Act mandated such an approach in respect of taxation legislation.”
Any successful entrepreneur would not have made the commercial breakthrough without overconfidence.
Therefore, while overconfidence bias does not always lead to poor decisions, an element of restraint and self-reflection is required.
The Tax Appeals Commission had a busy year in 2022, having resolved 2,600 tax disputes and issued 166 written determinations.
The standout headline from those statistics is that over 90% of cases settled before hearing. This is significant, and could reflect the decision of practitioners to reconsider their client’s position if there is any issue with evidence or the legal foundations of the case.
Other than the tax-repayment type of appeals, whereby the basis for the decision is binary – either a valid claim has been made within four years or it has not – most cases concern evidential issues.
In 80% of those cases, there was a failure to provide evidence or the wrong type of evidence to enable the appeal commissioner to overturn the Revenue assessment, leading to a finalisation of the taxes due.
Therefore, the absence or the credibility of the evidence was instrumental in losing the confidence of the appeal commissioner.
On many occasions, there will be facts that undermine a taxpayer’s position. In those types of situations, it is advisable to address them head on and thereafter attempt to ameliorate their effect.
Doing so enhances credibility, honesty, and integrity, and also reduces the potency of the unfavourable evidence to be adduced against the taxpayer at
a later stage.
Expert evidence is also crucial in convincing a court or an appeal commissioner. In many of these cases, there is no real issue about the interpretation and application of the law. Obvious examples include share valuations or transfer-pricing disputes.
Therefore, the capability of the expert is paramount.
Taking time to research the legislation governing the transaction, together with the supporting case law, is a prerequisite to ensuring that the case is well presented and gives a taxpayer the best opportunity in succeeding to get a decision-maker comfortable with ruling favourably.
The more capable the presentation, the greater the confidence instilled in the decision-maker.
In many disputes, Revenue will have formed an interpretation of the legislation contrary to the taxpayer’s submission, which should be countered by well-balanced and reasoned arguments.
Similarly, there will be case law that undermines the taxpayer’s submissions. In such a situation, the adverse judgments should be addressed and ideally
distinguished for the purposes of reducing their potency.
When presenting their cases, some practitioners use spurious arguments or
arguments that possess little legal merit.
Those arguments tend to undermine all of the good arguments and cause a judge or an appeal commissioner to question the practitioner’s professional competence and technical ability.
It also persuades the decision-maker to rely on a submission or argument whose provenance is more reliable or less risky.
Decision-makers strive to maintain impartiality and uphold the principles of
justice and fair procedures. However, biases can unwittingly influence the decision-making process.
Proper training for decision-makers and the need for vigilance regarding unconscious bias will lead to an improvement in decision-making and ensure that the correct legal interpretation is applied to presented evidence.
Furthermore, the system of checks and balances, such as appeals and judicial
review, help mitigate the impact of bias and promote fairness in the tax-appeals and judicial system.
Therefore, in advance of a hearing, practitioners should prepare well and identify and be able to present all of the evidence. Well-balanced and logical legal arguments will thereafter enhance credibility and competency.
Finally, be aware that unconscious bias can influence all of our decisions and,
therefore, giving a good initial impression and maintaining professionalism and competence throughout the dispute process will greatly assist a decision-maker.
Conor Kennedy is a barrister and head of tax strategy and disputes at EY Law.
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