Issue
Can taxpayers submit an amended tax return to the Board of Inland Revenue (the “Revenue”)? If so, what are the conditions to be met and procedure to be followed? If not, by what other means (if any) may a taxpayer correct a previous filing?
Intro/Abstract
Although the Revenue has the right to re-assess a taxpayer if it considers, inter alia, that a taxpayer has been under-assessed or not assessed whether the taxpayer has filed a tax return or not, the Income Tax Act, Chap. 75:01 (ITA) does not expressly give a taxpayer the equivalent privilege to file an amended tax return in order to rectify an error in its previous filing which may have given rise to an over-assessment. Conversely, the ITA does not expressly state that a taxpayer cannot file an amended tax return either.
It is intuitive that a taxpayer ought to be able to file an amended return, given that the taxpayer is under a statutory obligation to file an accurate return in the first place. It is logical, therefore, that if a taxpayer subsequently discovers an inaccuracy in its initial tax return, that its implicit statutory duty ought to be to rectify it. For example, if the taxpayer incorrectly omitted to include a zero on its gross revenue line and thereby inadvertently filed a return with a $300,000 figure when it was meant to be $3,000,000 – is the taxpayer meant to remain silent and wait for the Revenue to notice the error? To extrapolate this example, suppose the taxpayer says nothing, the Revenue observes the mistake that resulted in a gross underpayment of taxes and decides to lead evidence in Court that the taxpayer was aware of this mistake and did nothing about it. Will the Court accept the taxpayer’s defence that there is nothing in the ITA that specifically says it must correct an error of this nature? Furthermore, given that the Revenue inherently has a right to re-assess a taxpayer three years after a tax return is filed, what prejudice is there to the Revenue if the taxpayer re-files its Return?
Let us now look at the statute. The ITA stipulates that the Revenue will serve upon each taxpayer a Notice of Assessment which states the amount of his chargeable income and the amount of tax payable by him (s.86(1) ITA). The ITA identifies two instances where a taxpayer’s quantified liability to tax, as expressed in its tax return, may be subsequently revised:
(i) via an assessment pursuant to s.83 and s.89 of the ITA; or
(ii) pursuant to a repayment of tax application under s.90 of the ITA.
Section 89(1) of the ITA contemplates the instance where a taxpayer has not been assessed or has been assessed at a lesser amount than he ought to have been charged. Section 90(1) anticipates the circumstance where a taxpayer has paid tax in excess of what he should have paid and seeks a repayment.
If a taxpayer disputes his tax assessment by the Revenue, s.86 of the ITA identifies the following procedure must be followed:
1. He may apply to the Revenue by Notice of Objection in writing for the Revenue to review and revise the assessment made. The application must state the grounds of his objection and must be made within 15 days of the service of the Notice of Assessment.
2. This application may be made outside of the 15 days if the Revenue is satisfied there was a reasonable excuse for not making the application within the time limit and if the application was therefore made without unreasonable delay.
3. If the Revenue disallows the objection to be made under this ground, the taxpayer may appeal to the Appeal Board.
Two recently decided Trinidadian cases treat with this issue of reassessment, specifically in the context of a corporation tax return. In giving its ruling in these cases: A Ltd. v. The Board of Inland Revenue, I 36 of 2014 and SG Inc. v. The Board of Inland Revenue, I 97 of 2013, the Tax Appeal Board had to determine the issue of whether a statutory right to file an amended return exists. In both cases, the Tax Appeal Board acknowledges that application of the procedure identified under s.86 is the source of great confusion for both the taxpayer and the Revenue and sought to clarify the statutory requirements in its rulings.
“… Given that the two cases have substantially similar facts, and were issued by the same Court no more than five days apart, on a superficial level one would expect a substantially similar result with substantially similar reasoning … [O]n the face of it, the cases have materially different results and apparently inconsistent reasoning … On a closer read of the decisions, however …”
What follows is an examination of both cases, with an analysis of the efficacy of the rulings in addressing this identified problem and clarifying the statutory procedure. In accordance with the Caribbean’s common law tradition, we look at these recent cases to determine what precedent the court may have established regarding this area of tax law by summarising the material facts of each case and analysing the decisions handed down.
The guidelines handed down by the court in these two rulings will no doubt prove useful in future. In fact, it is suggested that the attorney’s role in the development of tax law through the courts could only be aided by publication of the decisions of the court, as this facilitates the examination and discussion that leads to growth and advancement. We at caribbean-tax.com look forward to further elucidation regarding the re-assessment of a taxpayer and the procedures relevant in each circumstance.
CAVEAT
The views expressed in this article are the views of the authors only and shared for discussion and information purposes only; they are not intended to constitute legal advice. Readers are encouraged to consult with their professional advisors for advice concerning specific matters.
DISCUSSION FORUM
Your opinion is very important to us! What are your thoughts on this issue? Please share your comments below.
On the whole would agree.
I question the relevance of SG case, with regard to whether a return should be accepted or not. Having read it, there was substantial to-and-froing over the issue of the acceptance of returns. However, the tax appeal board jumped to the issue of whether an amended return would be an acceptable mode of requesting a refund under Section 90.
I would imagine that the substance of filing of an amended return and section 90 procedure are quite distinct from one another, even though the latter may be achieved by the former.
Due to lack of express comment in the ITA, I think the problem that exists (and is evident from the A Ltd ruling), is the question as to whether amended returns should be filed on the basis of BIR procedure or on the basis of legislative intent.
From a purely legal perspective, all parts of me think that the latter should prevail. For example, I think it unconscionable that BIR dictated procedure under Section 3(4) of the ITA should oust statutory obligations (such as filing accurate returns under Section 119).
However, a clear failing of the ITA is not extending Section 76 and 83 of the ITA to amended returns. Returns should not be limited in the legislation to the initial return but to all forms of return, subject to certain time limits (e.g. the amended return should be submitted within the statutory assessment period).
As the ITA does not stipulate a procedure and the cases cited in the article are inconclusive on the matter, I think we are left to having to use some semblance of common sense which underlies parliamentary intention and hope that the BIR understands the merits of that common sense and accepts it.
Thanks for your comment jg1985. My views are virtually identical to yours on every point you have made. In short, though these cases answer “some” questions, they leave unanswered a whole lot more. That said, I disagree with your comment that the ITA did not extend section 76 and 83 to amended returns. My personal view on statutory interpretation, based on cases such as Whitney v IRC (wherein it was stated that “A statute is designed to be workable, and the interpretation thereof by a Court should be to secure that object ..”) is that it is obvious that sections 76 and 83 of the ITA should apply to amended returns. Specifically, if one looks at the ITA as a harmonious whole (i.e. ‘workable statute’) it should be apparent that (i) whenever a taxpayer files a return (amended or not) the BIR has an additional 3 years to re-assess it; (ii) taxpayers have a legal obligation to ensure their tax filings are “correct” (which should be construed to be a dynamic obligation, not one limited to the date of the initial filing). In light of that, there is absolutely no good reason in law to question whether a taxpayer should be permitted to file an amended return.
The issue in practice is that the BIR’s computer system isn’t programmed to accept multiple taxpayer filings. It is because of this systemic/institutional limitation that the BIR’s practice of denying amending tax returns has developed. However, as a student of the law, I think the BIR’s computer systems should be made to conform to the law, it is not for the law to conform to the BIR’s computer system.
Predominantly agree on your sentiments on amended returns, even if you had to refer to Whitney to rationalise!
As indicated in previous response, there is little justification (even without express reference) that amended returns have no presence within the ITA. The basis for this is that otherwise the ITA should be interpreted as contemplating complete perfection in the submission of returns, which is highly unrealistic. Furthermore, there has to be an amendment mechanism within the Act, otherwise accuracy requirements would regularly be breached.
The question at the heart of this is whether the BIR is obliged to accept the amended return. This is fundamentally a question of statutory interpretation. Is the intention that amended returns be accepted or that amended returns be submitted through an objection? I prefer the concept of the former- it is more precise and is not unduly burdened by time constraints (i.e. 15 day rule).
However, if I look to the legislation- I see no express sign of intention to incorporate amended returns. Parliament has expressly chosen to define certain terms; for example, an assessment is extended to re-assessment. Return is not extended to amended return. If Parliament has chosen to define certain terms and not the others, should the latter terms be expanded and should additional meaning be implied within the term? Additionally, if you look at the term return within section 76, it seems to be contextually clear that the return being referenced is the initial return and not an amended return.
A natural principal of statutory construction of tax legislation is that there is no intendment or implication within a tax act. In this regard, and given that there is such substantive reasoning for the inclusion of amended returns, what would need to be assessed is whether the non-express reference produces such an absurdity within the functionality of the Act that it ought to be included within the interpretation of a return. Part of me thinks that although this may be the case, a Court might side with the fact that amended returns can be submitted by way of an objection and as such, non-acceptance of an amended return does not frustrate the essence of the Act, even if it becomes procedurally more complicated for the taxpayer.
There is not a huge amount which leads me to think that reference to returns in the Act incorporates amended returns. There is certainly an underlying theme of amended returns within the ITA so to give full effect to the provisions of the Act (or as you say, to make the Act workable), but procedurally the Act is lacking precision, which is why I stated we can only hope the BIR adopts an approach that is backed by common sense. But I think greater clarification is needed (though amended legislation or firm BIR procedure)- maybe the case of A Ltd (which advocated the process of submitting amended returns to the Chairman) noticed this lacuna within the legislation and thus decided to encourage/suggest a more practical procedure, without (as always) making a definite precedent for procedure which may not be substantiated by legislation.