Possible defence against prejudiced expert witnesses
The Supreme Administrative Court (SAC) previously ruled that if the tax administration doubts the nature of activities for claiming an allowance for research and development, it should obtain an expert’s opinion. In the court’s view, only an expert is able to adequately assess the nature of the activities. But what if the tax administrator appoints an expert who taxpayers deem to be prejudiced? SAC judgement 1 No. 10 Afs 128/2016-68 suggests a possible defence.
The recent SAC judgement is yet another decision in a pending dispute between a taxpayer and a tax administrator regarding the entitlement to an allowance for research and development. The tax administrator had been obliged to appoint an expert witness with a sufficient expertise able to determine whether the activities carried out by the taxpayer qualified as research and development.
The taxpayer objected that the appointed expert held a managerial position with the taxpayer’s direct business competitors, which gave rise to serious doubts as to the expert’s objectiveness. At the same time, the taxpayer was concerned that their know-how and production or trade secret may be revealed and possibly misused, with a possible consequence of irreparable harm. The tax administrator rejected the taxpayer’s complaint and did not exclude the expert from the tax proceedings. The taxpayer contested the decision by an administrative action filed with the regional court. The regional court held the action inadmissible; in its view, an administrative action could only be used to contest a decision on the merits of the case, not a (merely procedural) decision not to exclude an expert.
The SAC disagreed with this conclusion, stating that an expert’s activity involves obtaining detailed knowledge of production plants and processes to properly assess whether elements of novelty and technical uncertainty are present. In the case in question, reasonable doubt existed as to the expert’s objectiveness, and the taxpayer’s right to the protection of their business and trade secret could potentially be breached. The SAC thus concluded that in situations where a taxpayer’s constitutionally protected rights could potentially be breached by the very act of an expert carrying out an assessment, an action against the decision not to exclude such expert is indeed admissible.