Given the enormous expansion of Revenue’s powers and technology, it is imperative that tax practitioners and accountants are mindful of their legal obligations, writes Setanta Landers.
In Revenue’s 2014 Code of Conduct, the mission statement outlines the organisation’s intention to “serve the community by fairly and efficiently collecting taxes and duties and implementing Custom controls”. However, often what is efficient might not be fair and what is fair might not be efficient.
Revenue audits and investigations are criminal procedures – a fact that is often overlooked. An accountant or tax consultant will not have formal training in defending criminal actions and often, with the best of intentions, can make admissions that prove to be damaging at a later stage. This is understandable where Revenue have codified a penalty system, which is presented to mitigate penalties for taxpayers that are upfront and cooperative.
The 2014 Code of Conduct deals with three types of Revenue interventions:
- Revenue non-audit compliance interventions: these are assurance checks, aspect queries and profile interviews. A taxpayer is entitled to make an “unprompted qualifying disclosure” on notification of these interventions;
- Revenue audit: a “revenue audit” is an examination of a tax return, a declaration of liability or a repayment claim, a statement of liability to Stamp Duty or the compliance of a person with tax and duty legislation. A taxpayer is entitled to make a “prompted qualifying disclosure” before examination of the books and records starts; and
- Revenue investigation: this is defined as an examination of the taxpayer’s affairs where Revenue believes, from an examination of the available information, that serious tax or duty evasion may have occurred or a Revenue offence may have been committed.
It is also noted that a Revenue investigation may lead to criminal prosecution. Where a Revenue investigation has already started, the option of a qualifying unprompted disclosure is not available. The penalty tables should be consulted at all stages of an intervention, audit or investigation. These are set out in the Code of Conduct.
Mechanics of a revenue audit
Revenue audits are normally carried out at the taxpayer’s place of business. The Revenue officer will attend and is required to produce evidence of identity. The taxpayer’s agent is also expected to attend.
It is important for practitioners to satisfy themselves as to the scope of the audit and the statutory powers on which Revenue are relying, and seek copies of the written authorisations. Where documentation is sought that is outside the scope of the officer’s written authorisation, it should be brought to the inspecting officer’s attention and may be resisted.
Revenue powers
Properly authorised Revenue officers have exceptionally wide powers, similar to those of the Gardaí investigating a crime. A person is investigated, has a right of appeal and the sanctions may ultimately be penal.
Appeals
The new tax and duty appeals process came into operation on 21 March 2016. The revised Finance (Tax Appeals) Act 2015 (Appeals Act) applies to appeals raised from that date. In general, appeals can be made in writing within 30 days of the date of the notice of assessment. The appeal must now be provided to the new Tax Appeals Commission (TAC) and not directly to Revenue. Another significant change is the ending of the appellant’s right to a rehearing before a Circuit Court judge. This means that the appeal must be properly constituted at the first stage. The written submissions at that initial appeal will be used in any court appeal. You will have no opportunity to mend a poorly drafted appeal.
The procedure for appealing to the High Court on a point of law has been revised. The statement of case for the High Court must now be prepared by the Appeal Commissioners within three months. Hearings are also heard in public, but private hearings may be facilitated on request.
Revenue enforcement
Revenue’s enforcement powers were enhanced by Finance Act (No 2) in 2008. This centralised Revenue’s enforcement powers in the revised sections 960A-960P TCA 1997. Revenue maintains a dedicated enforcement unit and updated its collection manual in relation to referring cases to the dedicated enforcement unit in January 2015. The main dedicated measures are:
- Bankruptcy: bankruptcy in Ireland has been reduced to one year with effect from January 2016. The official assignee is appointed to handle the bankrupt’s affairs. The taxpayer’s assets are transferred in whole to the official assignee, who will sell them to discharge the debts owed;
- Forced sale: a court application is made to force the sale of specified property;
- Committal to prison: this may be ordered where the debtor is not meeting her or his obligations under an instalment order;
- Mareva injunctions: this is an application to freeze particular assets of a defendant. The balance of convenience must lie in favour of granting the injunction;
- Garnishee order: this is an application to the court, where monies are owed to the debtor by a third party, to order that those monies be paid directly to the debtor instead; and
- Receiver by way of equitable execution: here, a receiver is appointed to administer or sell assets on behalf of the debtor.
Publication of defaulters
Revenue has an obligation to publish a list of defaulters pursuant to Section 1086TCA within three months of the end of each quarter, unless a qualifying disclosure is accepted or where the sum does not exceed €33,000 or 15% of the tax ultimately due.
Enforcement against property assets
Section 116 of the Land and Conveyancing Reform Act 2009 allows a creditor who has obtained a judgment against a person to apply to the Property Registration Authority to register a judgment mortgage. The ultimate consequences of registration of a judgment mortgage are that the person in whose favour it is registered can sell the property without the consent of the owner in satisfaction of the debt.
The court may make an order for partition of the property where it is owned jointly, and order the sale of the debtor’s interest. Revenue will only be entitled to the proceeds of the sale that belong to that debtor.
Conclusion
Revenue investigations are penal. Revenue prosecutions are penal. Practitioners should therefore adopt the approach that audits are the first step in this penal process.
In criminal proceedings, defendants have the benefit of legal aid and a strict interpretation of criminal statutes. We are all familiar with the criminal concept of innocent until proven guilty. In taxation proceedings, however, defendants have no such automatic rights.
Revenue has exceptionally wide powers of enforcement. Outstanding returns, tax and interest must be returned until the determination of appeals is finalised. In short, it is arguable that the burden has shifted – in taxation matters – to the position that you are guilty until proven innocent.
Setanta Landers is a Solicitor in the Litigation Department at Reddy Charlton Solicitors and an AITI Chartered Tax Advisor.