The Oireachtas Finance Committee is to order the Revenue Commissioners to pay interest on tax it has wrongly collected.
In a motion before the committee yesterday, the Revenue is compelled to accept the recommendation of the Ombudsman that where taxes had been raised due to maladministration on the Revenue's part, the taxes, plus interest on them, must be repaid.
For procedural reasons, the motion cannot be passed until the next finance committee meeting. However, the members of the committee voiced their full support of the motion yesterday.
The members criticised the Revenue's attitude and responses to the Ombudsman's report as inadequate, arrogant and threatening to the office of the Ombudsman.
This is the first time the Ombudsman has brought a report to the Oireachtas as a result of his recommendations being refused by a public body.
Addressing the committee yesterday, the Ombudsman, Mr Kevin Murphy, said the excuse given by the Revenue - that it lacked the statutory authority to repay the interest - had no basis.
Under the Ombudsman's Act, Mr Murphy said, his recommendations carried the power of statute.
"The statutory authority on which my recommendations are based provide a legitimate basis for implementation." This power was vital to the credibility of his office, he said.
The Revenue had stated, he said, that they were also rejecting his report because of the cost implications of compensating tax payers.
"In my view, where an injustice has occurred, failure to rectify it is itself a further injustice," he said
The dispute originates from a 1988 High Court case taken by the widows of public service workers who were taxed on the portion of their pensions relating to their children. Following the success of the widows' case, the Revenue agreed to refund the tax, but has refused to pay interest on it.
Mr Murphy said it was "ridiculous" that the Revenue was refunding tax wrongly paid, but only in 1980s money values. Other bodies had been paying interest in cases of wrongly collected or withheld monies for years.
"What has been bugging us is why the Revenue thinks it is so different."
The chairman of the Revenue Commissioners, Mr Frank Daly, told the committee that the dispute between the Revenue and the Ombudsman "boiled down to a conflict of legal advice".
It was the Revenue's view that it was "neither legally possible or appropriate" to pay interest on the tax refunded.
Mr Daly said that until yesterday's meeting, he had not been made aware of any statutory basis for the Ombudsman's recommendations. "It is something not mentioned in the Ombudsman's report, if he believes his Act gives him a statutory basis ... we have not considered this."
Mr Daly said that while the Revenue had no difficulty in finding a way to pay widows, to be able to "ring-fence" widows "seems to me very difficult to do".
"Where do we draw the line? Paying widows interest and not paying interest to the 5,500 people who are owed tax back for professional services?"
Costs to repay the widows, without interest, would run in the region of €3.8 million, he added.
Mr Daly said the Ombudsman's comparison with other public service organisations was "not particularly helpful".
Labour deputy Ms Joan Burton said she was "shocked" at the tone and content of Mr Daly's address.
"I find the attitude of the Revenue Commissioners extremely arrogant. It's going to leave people seeking redress feeling without remedy."
Sen Joe O'Toole said the Revenue's refusal to adopt the Ombudsman's recommendations had put the office of the Ombudsman under threat, "not in the sense of being abolished, but of being left powerless".
