Res Judicata in Tax Matters

Does a decision in one year’s tax assessment bar the Revenue or court from considering the same or similar issue in a subsequent year?

Issue

It is not uncommon for taxpayers to make decisions to treat with certain items of income and / or expense in a manner that can have tax implications spanning over a number of Years of Income. For example, if a taxpayer consistently treats certain purchases required in the furtherance of his business venture as “revenue” as opposed to “capital” expenditure – or certain property related expenses as “repairs” instead of “improvements” – then this is a potential tax exposure in successive years if the Revenue disagrees with the taxpayer’s initial classification.

In these circumstances, a question that is often raised is whether the Revenue is precluded from raising an issue in an assessment that was previously determined in favour of the taxpayer by the Court in respect of a prior year of assessment? Specifically, does the public policy and common law doctrine of res judicata, also known as estoppel per rem judicatam (or “claim preclusion” in English), which holds that a matter that has been adjudicated by a competent court may not be relitigated by the same parties, preclude the Revenue from raising the same issue on identical facts in subsequent years?

Against this background, it is noteworthy that the Tax Appeal Board is a Superior Court of Record and is subject, caeteris paribus, to the Civil Proceedings Rules, 1998 (the “CPR”). As such, the arsenal of procedural sanctions contained in the CPR that can facilitate the determination of an Appeal or issue without a trial are at its disposal.1

Background to the Doctrine

The doctrine of estoppel per rem judicatam is based upon the following Latin maxims:

(i)     interest rei publicae ut sit finis litium (“in the interest of society as a whole, litigation must come to an end“); and

(ii)    nemo debet bis vexare pro una et eadem causa (“no man ought to be twice troubled or harassed if it appears to the court that it is for one and the same         cause“)2

The rule – as is evident from the passage above – operates to bar a party to an action from subsequently relitigating the same cause of action or issue incidental to the cause of action where a prior decision was decided upon its merits by a court of competent jurisdiction (save by way of appeal).3

Estoppel per rem judicatam has been described as a “portmanteau doctrine” as it combines cause of action estoppels and issue estoppels. Cause of action estoppel operates where there is a complete bar to a duplicitous cause of action, and issue estoppel operates where the litigant is seeking to raise the same issue from prior final decision involving the same parties.4

Applicability of the doctrine in tax matters

The Trinidad and Tobago Court of Appeal in Phoenix Park Gas Processors Limited v The District Revenue Officer Couva/Caroni5 (“Phoenix Park”) considered the scope of doctrine in tax matters. The Court referred to the Privy Council case of Caffoor v Commissioner of Income Tax, [1961] AC 584 (P.C). prior to concluding that: “the Revenue (is not) precluded from accepting a particular interpretation of a taxing statute since neither issue estoppel nor res judicata applies to assessments to tax in different tax years” (the “Caffoor Principle”).

The Caffoor principle applied

More recently, in the case of R. v Board of Inland Revenue (“R v. the BIR”) the Tax Appeal Board gave further consideration to the question of whether the doctrine of res judicata is applicable in tax matters. On the specific facts, the issue was whether the taxpayer was entitled to claim capital allowances on the costs of assets, inclusive of the stamp duty. By way of background, the Court had previously held, in respect of prior years, that accounting standard IAS 16 was instructive in determining that the Stamp Duty incurred by the Appellant was an essential facet of the acquisition costs of the assets, and properly included in the capital allowance calculation. In the instant appeal, an issue for determination was whether the doctrines of res judicata and/or abuse of process precluded the Revenue from relitigating the same issue in the current year of income. Concerning this, the court remained pellucidly clear about the inapplicability of issue estoppel to tax proceedings: –

“having considered the totality of the factors….against the background of the applicability of res judicata and issue estoppel principles in taxation      matters….we therefore hold that the Respondent was not bound in the years of income 2006 to 2008 by the previous decision of this Court concerning the year of income 2005 in the exercise of its assessment of the liability to tax of the Appellant for those years of income. For this reason, we also hold that there is also no justification to conclude that there has been an abuse of process in the actions of the Respondent in it raising an assessment on the Appellant for the years of income 2006 to 2008 despite the correlation of the underlying facts between those years with that in the previously decided matter involving the year of income 2005.”6

The implications of the decision

On the basis of Phoenix Park and R v. the BIR it is clear that the doctrines of res judicata and/or abuse of process cannot found the basis of a “strike out” type Application in circumstances that the taxpayer is relying on a decision of the Tax Appeal Board in respect of a prior year of income.

It is the view of the writer, however, that the taxpayer may have had more success if it sought to obtain summary judgment pursuant to 15.2 (a) of the CPR whereby the Revenue (respondent) had no realistic prospect of success on the basis that:-

(i)      The instant appeal fell square and centre within the precedent established in respect of the prior years; and

(ii)     The factual matrix in the instant appeal was identical to that in prior years which were subject to the earlier decision.

Specifically, whilst the court in R v. the BIR was reluctant to depart from the deeply engrained Caffoor principle, it is noteworthy that the Court also refused to depart from the rationale that formed the basis of its decision in respect of prior years, and applied the same reasoning in order to grant the taxpayer ultimate success in the instant appeal. In short, the fundamental doctrine of stare decisis et non quieta movere, which translates to “stand by decisions and not to disturb settled matters” or, more simply, cases must be decided the same way when their material facts are the same remains inviolate – no matter the area of law, or the year of assessment.

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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

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  1. Jimdar Caterers Limited v Board of Inland Revenue, Civil Appeal No. P256 of 2016
  2. Sopinka, John and others, The Law of Evidence in Canada, 2nd ed. (Toronto: Butterworths, 1999), page 1068
  3. Carl-Zeiss-Stiftung v Rayner & Keeler Ltd (no 2) [1966] 2 All ER 536 at 564-565, HL, per Lord Guest
  4. See Thoday v Thoday [1964] P 181, [1964] 1 All ER 341, CA
  5. (unreported) Civil Appeal No. 13 of 2004
  6. Tax Appeals Nos. I 133-144 of 2014; I 83-86 of 2015

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