Tax Controversy 2022 Comparisons

In Romania, tax controversies arise as a result of tax assessments derived from tax audits conducted by the Romanian Tax Authorities (RTA). There is no possibility for taxpayers to challenge their own tax returns.

Tax controversies arise in relation to all Romanian tax obligations; however, the more frequent ones are the value added tax (VAT) and the corporate income tax (CIT, including transfer pricing). These are also the areas which involve the most significant values in terms of tax obligations assessed by the RTA following their audits. During recent years, the matters which gave rise to most tax controversies are as follows:

• the value of intra-group transactions (especially with related non-resident entities), from a transfer pricing perspective;
• the deductibility (both CIT and VAT) in relation to the expenses incurred with services received from related non-resident entities;
• the deductibility (both CIT and VAT) in relation to the expenses incurred from Romanian taxpayers who have failed to pay their tax obligations;
• various VAT issues in relation to real estate transactions (eg, imposing VAT on sales, imposing VAT adjustment on the initial deduction, etc);
• tax issues in relation to various promotional/marketing structures (eg, the granting of gift tickets assimilated to salary income, etc).

Tax controversy can be mitigated by trying to reduce, to the extent possible, the red flags which usually draw the attention of the RTA, such as the following:

• the existence of years with tax losses;
• a profitability level below the average for the respective industry/type of activity together with the existence of transactions with related parties;
• submitting multiple rectifying tax statements and/or with high value differences;
• the existence of reporting differences regarding the value of the transactions declared in relation to business partners (VIES reporting for intra-community transactions with goods/services and equivalent reporting for transactions subject to Romanian VAT).

Other ways of mitigating potential tax controversy include obtaining tax advice prior to performing new transactions of significant value, obtaining tax binding rulings or non-binding opinions from the RTA, etc.

Currently, it is difficult to estimate the impact of the BEPS recommendations and other recent EU measures to combat tax avoidance regarding the number of tax controversies in Romania. 

Additional tax assessments give rise to an obligation to pay the amount of tax assessed within a period of 20–30 days. There are some procedural means available for postponing this payment obligation: either by submitting a bank guarantee letter, or by starting a court action against the RTA stating that their assessment is not legally grounded, and that the payment of the respective amount is significantly disturbing the business of the taxpayer.

There are multiple reasons that can trigger a tax audit of the RTA, including:

• that the taxpayer has not been audited in the last five years and the previous tax audit led to tax assessments;
• the existence of years with tax losses;
• a profitability level below the average for the respective industry/type of activity together with the existence of transactions with related parties;
• submitting multiple rectifying tax statements and/or with high value differences;
• the existence of reporting differences regarding the value of transactions declared in relation to business partners (VIES reporting for intra-community transactions with goods/services and equivalent reporting for transactions subject to Romanian VAT);
• various target industries/activities (eg, during recent years there was an increased number of tax audits for transportation companies, distributors of medicines, trading companies, etc).

There are different types of tax audits, as follows.

• A regular tax audit (which can cover a single tax or multiple taxes) is announced within 30 days prior to its commencement and can last up to six months, depending on the size of the taxpayer. In practice, the RTA can extend this period up to double this amount without breaching legal provisions, and by even more than that by suspending the tax audit for specific periods.
• Unannounced tax audits, which are limited in extent and scope and can last up to 30 days. There is no pre-announcement, and usually these are used to identify tax risk areas and could lead to a subsequent regular tax audit. Tax assessment cannot be imposed by the RTA at the end of such audits.
• A recent type of tax audit is the "documentary check": this represents a very brief audit of a specific situation and can lead to a tax assessment on the respective topic.

The regular tax statute of limitation is five years, and can be extended to ten years in the case of tax criminal offences. The expiry of this period can prevent the assessment of additional tax obligations.

The relevant moment for the statute of limitation is the beginning of the tax audit. If the tax audit is started within the statute of limitation period, it doesn't matter when it will end.

The location of the tax audits can differ based on the size of the taxpayer and the duration of the audit: for small taxpayers and short tax audits, they can be conducted at the premises of the RTA. Otherwise, the premises of the taxpayer are used. The special circumstances of the last two years have increased the occurrence of transmitting data to the RTA through electronic means. Moreover, the current implementation of SAF-T reporting is likely to increase this during the coming years.

The usual areas of interest for tax inspectors during their tax audits include the following:

• the reasons that led to tax losses;
• the compliance with the transfer pricing rules for the transactions with related parties;
• the existence of missing stocks/inventories;
• the existence of promotional schemes;
• the deductibility of services expenses (with special attention given towards intra-group services);
• the applicability of VAT exemption (especially for intra-community supplies of goods);
• withholding tax applicability on income derived from Romania by non-residents.

Information exchanges and tax verification procedures have increased between the RTA and other tax authorities. During recent years, we have assisted our clients in an increasing number of brief tax audits which have originated from requests received by the RTA from tax authorities in other jurisdictions.

In addition, the RTA are initiating such cross-border checks more often, an aspect which is visible in the tax audits which they are conducting at the level of Romanian taxpayers.

The recent practice of the RTA during tax audits has shown that in most cases taxpayers can avoid the risk of being imposed with additional tax obligations if the following conditions are cumulatively met:

• there are no clear tax issues in place;
• they proactively communicate with the tax inspectors during the tax audit;
• the involvement of tax advisors, which is recommended in most situations;
• all the known risk areas determined by the practice of the RTA are carefully addressed in due time.

In addition, taxpayers should proactively use any information/documents (eg, relevant jurisprudence) stipulating their position immediately after identifying that the tax inspectors have spotted a potential risk area.

After receiving a tax assessment, the administrative claim phase is mandatory before initiating the judicial phase.

The tax appeal must be submitted by the taxpayer within a maximum of 45 days following the date when the tax assessment was communicated by the RTA. Filing an administrative appeal cannot put the taxpayer in a worse position as compared to the tax assessment issued by the RTA.

The taxpayer can also request a formal meeting with the RTA to discuss its tax appeal.

Tax appeals are currently resolved at the level of the Ministry of Finance.

If the answer to the appeal is negative, the taxpayer has an extraordinary means of challenging such a decision, in addition to the regular court action. This is based on a request for revision of the decision and can be justified by various reasons, such as new decisions of the Court of Justice of the European Union, new decisions of the Romanian High Court of Cassation and Justice, etc.

There is no specific deadline provided by legislation for providing an answer to a tax appeal. The general deadline for the tax authorities to answer the requests of the taxpayer is 45 days.

If the answer to the tax appeal is not received within six months following its submission, the taxpayer has the legal right to lodge a court claim to force the tax authorities to provide an answer.

The decision on the tax appeal can be challenged in court by the taxpayer. The case shall be brought before the county court or the court of appeal where the taxpayer has its registered place of business, depending on the value of the disputed amount (amounts exceeding RON3 million change the competence to higher courts, ie, the court of appeal as first instance).

The legal action must be lodged within six months from the date when the taxpayer has received the answer to the appeal, and requires the payment of a fixed-fee stamp tax.

The payment of tax liabilities before bringing the case to court may not hinder the chances of the taxpayer to obtain a favourable court decision. Usually, taxpayers prefer to pay the principal additional tax obligations to stop the accrual of further late payment interest and penalties.

Tax cases before the courts are organised under a two-tier judgment system.

In the first-instance procedure, the taxpayer presents the reasons for which the tax decision has been issued in breach of the procedural or substantial provisions of the tax law. The legal action of the taxpayer must also include the evidence that maintains its arguments, and the proposed new pieces of evidence which must be approved by the court. The court is entitled to propose new evidence, as well.

The RTA responds with a statement of defence, usually confirming the initial arguments of the tax inspectors. The parties may be represented before the court by a lawyer during the entire procedure, including before the judicial experts that may be appointed by the first-instance court.

The law does not provide a maximum duration for the first-instance procedure, which may fluctuate depending on the pieces of evidence received by the court.

The taxpayer or the RTA may appeal the decision of the first-instance court. The appellant must follow the strict legal reasons for which the first-instance decision may be subject to appeal. The decision of the second-instance court is final.

The evidence proposed by the parties should be related to the statements made in the legal action/statement of defence. Depending on the tax issue, the written evidence may be accompanied by expert evidence. The taxpayer may also prepare and present an off-court expert report as evidence, such an approach being useful in the probable situation where the court does not approve on-court expert evidence.

Before the court, the oral examination of witnesses rarely occurs in practice.

The judge is entitled to assess the weight of the evidence that is presented by the parties. If the judge considers that only the interpretation of tax law is needed, additional evidence may be rejected.

As a rule, the burden of proof remains with the party making a statement, which is the taxpayer. The burden may be shifted depending on the matter of the tax dispute and the facts that need to be proven. The taxpayer may ask the court to order the submission of written evidence held by the RTA or by third parties.

Strategic options are not provided by law, and their applicability depends on a case-by-case analysis. Such options include asking a tax expert or a technical expert, referring preliminary questions to the Court of Justice of the European Union, etc.

The courts consider the OECD guidelines related to transfer pricing and the OECD Model Convention, these documents serving as a legal basis under the Romanian Fiscal Code.

The courts also observe CJEU and ECHR case law, and may refer cases to the CJEU with preliminary questions.

The jurisprudence of local Romanian courts on similar cases is not binding.

A taxpayer or the RTA may appeal the decision of the first-instance court to a higher court. The cases judged in the first stage by the county courts are handled in the second stage by the courts of appeal. For cases with disputed tax amounts exceeding RON3 million, the first instance is the court of appeal, and the appeal is further judged by the High Court of Cassation and Justice located in Bucharest.

The appeal against the decision of the first court must be based on the limited reasons provided by the Romanian Civil Procedure Code, such as the breach of substantial or procedural law or the absence of the rationale of the first court.

The Romanian Civil Procedure Code also provides extraordinary appeals which may be admissible only on the basis of strict limited legal conditions (eg, lack of competence of the courts, existence of contradictory decisions issued by the courts in relation to the same matter, issuance of relevant ECHR/Constitutional Court decisions).

The procedure before the second-instance court is similar to the procedure before the first-instance court (referred to in section 4.2 Procedure of Judicial Tax Litigation). The interested party files the appeal, and the other party responds through a statement of defence.

In the appeal stage, the parties may present only written evidence, as other types of proof are not admissible.

The court can declare the appeal as founded or unfounded. In case the appeal is approved, the case may be returned once to the first-instance court for a retrial.

In the first-instance court, the tax case is decided by a single judge, irrespective of the court or the complexity of the case. In the appeal stage, the tax case is decided by three judges. The judges are randomly allocated to the respective cases by the courts.

In Romania there are no ADR mechanisms available to solve tax litigations. There is only a specific mediation procedure which can facilitate the postponement of the payment of additional tax obligations.

See 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction.

In Romania, no mechanisms that can generate an agreement (to reduce the tax assessment, the interest due or the penalties) are available. There are amnesty periods that have been introduced through new legislation, allowing the waiver of interest and penalties subject to the fulfilment of certain criteria by the taxpayers.

Legislation provides for a specific procedure of obtaining binding tax rulings. Obtaining such a ruling involves securing the tax treatment for the respective situation. In recent years, the issuance of binding rulings has been significantly delayed by the RTA.

During the term of an advance pricing agreement (APA), provided that the taxpayer files annual reports containing data regarding the application of the APA, and the terms of the APA are complied with by the taxpayer, the Romanian tax authorities should not request the Local Transfer Pricing file for the transactions covered by the APA, and no transfer pricing adjustments should be imposed.

See 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction.

See 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction.

A criminal case can be opened either ex officio by the criminal prosecution bodies, or following the notification of any person, including the notification of the RTA, when it considers that there are elements that outline a criminal activity and the intention of the taxpayer to evade the payment of taxes, and not just negligence. Thus, the mere non-payment of taxes, or non-payment in full when the taxpayer acts in good faith or in error, does not automatically constitute an offence.

Assuming that there is an administrative procedure, as well as a criminal procedure in progress regarding the same factual situation, the RTA do not usually suspend the procedure regarding the issuance of administrative acts imposing additional tax amounts to be paid.

To the extent that the taxpayer challenges the acts issued by the RTA, the latter has the possibility to suspend the procedure for resolving the tax appeal until the resolution of the criminal case, issuing a decision in this regard – a decision which can be challenged before administrative and fiscal courts.

The tax amounts are not necessarily relevant from the perspective of generating/removing criminal liability, but are important for individualising punishments, pronounced solutions, or applying causes of impunity in case those amounts are paid.

Usually, the RTA notify the criminal prosecution bodies when they consider that there are elements from which a conduct described by the criminal law and a criminal intent follow, ie, the intent of the taxpayer to evade the payment of tax obligations by certain actions/omissions.

The existence of an administrative procedure does not automatically imply the formulation of a criminal complaint, just as the existence of a criminal procedure does not automatically require the initiation of an administrative procedure (if it has not already been initiated), given that the prosecution may be opened ex officio or at the notification of any person, and not only of the fiscal bodies.

The criminal process consists of three phases, as follows.

• The prosecution phase, conducted by a prosecutor, where evidence is gathered to prove the existence/non-existence of the offences and of the responsible persons.
• The preliminary chamber phase, led by a preliminary chamber judge, who verifies the legality and fidelity of the prosecution and administration of evidence by the prosecutor. The preliminary chamber takes place in two stages: merits and challenge before a higher court.
• The trial phase, conducted by a panel of judges, where the merits of the allegations are verified. The trial takes place in two stages: merits and appeal (ordinary appeal).

There are also extraordinary appeals which can be formulated against the decisions on appeal, such as the appeal in annulment, review or appeal in cassation.

The payment of the additional tax amounts may have an effect on the criminal proceedings, depending on the amounts at stake.

If the damages do not exceed EUR100,000 and are paid in full during the criminal prosecution or trial, the court may apply the punishment of a criminal fine (having also the possibility to impose a prison sentence).

If the damages do not exceed EUR50,000 and are paid in full during the criminal prosecution or trial, the court must impose a criminal fine (not having the possibility to impose a sentence to prison).

In any case, the payment of the damages can be relevant from the perspective of the individualisation of the punishments by the court, usually as a factor in reducing the sentence.

Currently, if the damages from tax evasion do not exceed the value of EUR100,000 in the equivalent of the national currency, and even if during the criminal prosecution or the trial until a final judgment is pronounced this amount increases by 20% (to which are added the interests and penalties), the deed is not punishable.

Prior to 18 December 2021, the cause of impunity was applicable regardless of the amount of damage from tax evasion, the previous legal provisions still being applicable to ongoing criminal proceedings concerning acts committed prior to this date.

An appeal may be formulated against a judgment in a criminal case pronounced by a court regarding a tax evasion offence within ten days from the communication of the judgement, which shall be judged by the court of appeal in whose district the court is located (as a first-instance court).

Extraordinary appeals may be brought only against final judgments pronounced on appeal (in principle, only after the exhaustion of remedies of the appeal).

In principle, in such cases, civil/fiscal liability is incidental, but initiation of a criminal investigation (subsequent or in parallel) is not excluded, as such situations are found in practice. However, the prosecutor usually examines elements specific to a criminal prosecution (material actions which are intended, intentionally, to evade the payment of tax obligations), and not a mere non-compliance with tax law.              

In case a double taxation situation occurs due to a tax adjustment performed by the RTA, both domestic litigation to challenge the position of the RTA and the available mechanism under the double tax treaty (eg, the mutual agreement procedure) are used. The option will very much depend on the specifics of the case at hand.

The MLI and the EU Tax Disputes Directive were only recently introduced into Romanian legislation, so have not yet had an impact in this domain. However, we expect the number of taxpayers challenging tax adjustments in cross-border situations based on the EU Tax Disputes Directive to increase in the future.

The GAAR and SAAR apply in cross-border situations covered by bilateral treaties. Case law provides no clear guidance in this respect.

Romania ratified the MLI in January 2022, and the convention will enter into force for Romania on 1 June 2022. Thus, it is too early to anticipate how the PPT test introduced by the MLI and the amendment of the DTT preamble will affect the way tax authorities combat BEPS in cross-border situations.

Usually, the international transfer pricing adjustments are challenged under domestic tax courts. In recent years, the number of transfer pricing local disputes and related resolutions has registered a significant increase. The existing double tax treaties mechanism and the multilateral transfer pricing convention are also used, but at a considerably lower level. Taking into account the implementation of the Tax Dispute Resolution Mechanisms Directive, we expect the number of taxpayers challenging international transfer pricing adjustments based on this mechanism to increase.

In Romania, taxpayers can apply for unilateral, bilateral and multilateral advance pricing agreements (APAs). Although the number of taxpayers applying for APAs has increased in recent years, they cannot be considered a commonly used mechanism to avoid or mitigate litigation in transfer pricing matters. Based on our experience, taxpayers usually decide not to use such mechanisms due to the related costs and the extended periods of time in which the RTA issue the APA (which are usually longer than the deadlines imposed by the legislation).

The main stages of the procedure are as follows:

• preliminary discussion with the RTA (optional) – if requested, this should be accompanied by a preliminary request;
• filing for the APA – the request should include the proposed arm's length methodology for the intra-group transaction subject to the requested APA and the analysis performed in order to derive this methodology;
• evaluation of the request – in this stage, the RTA can request additional documents/information/explanations from the taxpayer;
• preliminary resolution – before issuing a final decision, the RTA will issue a preliminary project, in relation to which the taxpayer has the right to present its point of view;
• final resolution – the RTA can approve or reject the proposal of the taxpayer, and the taxpayer has the right to reject the final resolution of the tax authorities.

The cross-border matters which have traditionally generated the most litigation are transfer pricing issues. Furthermore, in recent years, withholding tax issues have significantly increased, with many consequences of this being closely related to transfer pricing issues (the focus being the application of the domestic withholding tax rate in connection to interest and royalty payments performed intra-group and exceeding the market level). Last, but not least, the presence of non-residents in Romania which triggers PE is also a current topic generating litigations.

A prerequisite for taxpayers to safeguard their transfer pricing position and, as such, to mitigate the risk of litigations, is to prepare the Local Transfer Pricing file on an annual basis, in accordance with local requirements. Where deviations from the arm’s length principle are identified during this process, compensating transfer pricing adjustments may be considered. Going further, the safest measure that taxpayers can take to safeguard their transfer pricing position for future intra-group transactions is to apply for an APA.

The case law of Romanian courts is not yet transparent in terms of access to all solutions issued by the courts. A state aid dispute involving taxes is possible and applicable under Romanian law. However, statistics on such case law would not be accessible.

The general legal framework regarding national procedures on state aid is represented by the Government Emergency Ordinance No 77/2014 (GEO 77/2014). Based on this, depending on who enforces the recovery of the aid (the European Commission or the supplier of the measure), the procedure may vary, as detailed below.

Recovery of Unlawful/Incompatible Aid Enforced by the European Commission

The beneficiary of a state aid measure, in connection to which the European Commission has decided on the recovery, must repay the amount of the aid plus an interest established based on the applicable state aid recovery norms.

Once the Romanian Competition Council receives a recovery decision from the Commission, such a decision is sent to the local body acting as aid supplier within five business days of receipt of the Commission’s decision. The supplier, in turn, has five business days to inform the beneficiary of the obligation to reimburse the state aid.

In case the suppliers of the state aid do not benefit from their own enforcement body, or there are several public authorities acting in the capacity of suppliers/administrators, they may send the Commission a decision within 20 business days of the issuance of the Commission’s decision. The suppliers/administrators may submit the decision to the competent fiscal bodies, together with the acknowledgement of receipt by the beneficiary.

If the beneficiary does not repay the aid to be recovered, the authorities should start recovery procedures based on general national norms. During the recovery procedure, the beneficiary may not access any further state aid measures.

Recovery of Unlawful/Incompatible State Aid Enforced by the Administrator of the Measure

The reimbursement/recovery of unlawful or incompatible state aid is initiated if:

• the criteria for granting the state aid were not met;
• an unlawful state aid was granted without the compatibility criteria provided for in the applicable European legislation being met.

Within five business days of the issuance of a state aid recovery issue, the suppliers must inform the Romanian Competition Council of a decision. The suppliers of aid have the obligation to submit to the Romanian Competition Council an informative notice on the final court decision on the recovery of aid. Such a notice must be sent within five business days of the date a final court ruling was issued regarding the measures for recovering state aid.

In case the suppliers of the state aid do not benefit from their own enforcement body or there are several public authorities acting in the capacity of suppliers, the same principles discussed above in the case of aid recovery decisions issued by the Commission apply.

If the beneficiary does not repay the aid to be recovered, the authorities should start recovery procedures based on general national norms. During the recovery procedure, the beneficiary may not access any further state aid measures.

As indicated above, the case law of the courts is not fully transparent and relevant statistics on this matter are not available.

More generally, in Romania, the case law regarding class action lawsuits is not quite developed. However, we are aware of case law where third parties were challenged regarding court state aid (not necessarily in the tax sector) granted to the benefit of another market player.

In theory, it is possible for refunds to be granted as a result of subsequent litigation against the state based on extra-contractual liability principles, if there is a fault of the state. Such cases would be judged based on national law principles.

Unexpectedly, Romania did not opt for mandatory binding arbitration according to Article 18 of the MLI. We are not aware of the reasons for which the authorities embraced this option.

As mentioned, Romania has not opted for mandatory binding arbitration according to the MLI.

This is not applicable in Romania.

Romania has transposed EU Directive 2017/1852 on tax dispute resolution mechanisms in the European Union into its regulatory framework.

These international and EU legal instruments to settle tax disputes were only recently introduced into Romanian legislation; therefore it is too soon to judge their effectiveness and will probably take some time for their applicability to increase significantly.

Regarding Pillar One, no developments on this topic were discussed recently, but Pillar Two has received attention, being topical in the recent period.

Romania has joined the plan to reform international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate, and has agreed with the decision to have a uniform system for the EU when implementing Pillar Two.

Moreover, at a legislative level, this topic has been discussed in order for the Romanian Fiscal Code to be updated accordingly.

However, a significant impact of Pillar Two for Romania is not expected, considering the existing corporate income tax rate of 16% and the fact that Romania is not a common country for locating holding companies.

Currently, the agreements reached by competent authorities in Romania are not published, being covered by confidentiality and fiscal secrecy provisions.

Currently, international tax disputes are generally settled in accordance with domestic procedure rules and under mutual agreement procedures.

Regarding the MLI, since Romania only recently ratified the convention (January 2022), with the MLI entering into force in Romania on 1 June 2022, there is no practical experience in using the MLI in order to settle tax disputes.

Taxpayers involve lawyers/tax consultants in the early stages of a dispute in order to better deal with a potential contingency, and many times during the tax audit, before a dispute has emerged.

Tax disputes in the administrative phase do not give rise to any fees payable to the RTA. However, they do involve professional/advisory fees, and significant amounts of management time and expenses, depending on the economic activity of the taxpayer, the tax amounts at stake, and the complexity of the issues.

The fees are relatively low (usually less than EUR100) and are due at the start of proceedings. They are initially split between the parties but are recoverable by the party who succeeds in the litigation.

The indemnities that can be obtained are the legal fees and the judicial court fees. Other pre-litigation costs incurred by the taxpayer cannot be recovered.

If the additional tax obligation has been paid by the taxpayer, they are entitled (after winning the case in court) to ask for interest for the period when the respective amounts have not been in their possession.

See 6.1 Mechanisms for Tax-Related ADR in this Jurisdiction.

There are no publicly available statistics on pending cases.

There are no publicly available statistics on the number of cases relating to different taxes. Based on the information provided by the RTA in their activity reports, on average there are 1,200 tax court cases initiated annually by taxpayers. 

Based on the information provided by the RTA in their activity reports, the RTA is winning 60–70% of tax cases in court, the taxpayers have a success rate of 20–30%, and approximately 10% of cases end in a different solution (eg, retrial).

Generally, it is advisable to use all the procedural means available as some of them can lead to a positive turnaround during a tax litigation.

Our team has in recent years extensively used different means as listed here, and this list is not exhaustive:

• providing written opinions to the RTA during the tax audit (even if not requested), to demonstrate the position of the taxpayer, accompanied by supporting documentation and relevant jurisprudence;
• making use of a written point of view, which can be submitted at the end of the tax audit;
• using the opportunity to request a formal meeting with the RTA to discuss the tax appeal;
• introducing third parties in the tax appeal procedure, if relevant;
• making use of the revision procedure in case of a negative answer to the tax appeal;
• during court litigation, it is highly recommended to ask for judicial tax expertise (an important part of cases won by taxpayers is based on favourable judicial tax expertise);
• in the case of VAT matters, it is recommended to try and refer preliminary questions to the Court of Justice of the European Union (until now, approximately 90% of VAT cases referred by Romania have been ruled in favour of the taxpayers).