1077E Penalty for deliberately or carelessly making incorrect returns, etc.

CHAPTER 3B

Income Tax, Corporation Tax and Capital Gains Tax: Penalties for false returns, etc.

Overview

This Chapter provides for penalties for deliberately or carelessly submitting an incorrect return, declaration, statement or accounts, or for deliberately or carelessly failing to submit a return or statement, as appropriate. It provides for a specific level of penalty to apply depending on the category into which the person’s tax default falls.

Summary

This section, which applies up to the passing of the Finance Act 2021, puts the practices as regards the level of tax-geared penalties sought in Revenue audits and investigations on a statutory footing. These practices are broadly along the same lines expressed in the Code of Practice for Revenue Auditors. The section also provides for the removal of the words “fraud” or “neglect” to be replaced with words such as “deliberate” and “careless”.

Details

(1) Subsection (1) defines various terms used in the section.

“the Acts” means the Tax Acts, the Capital Gains Tax Acts, Parts 18A, 18B, 18C and 18D of this Act and the Finance (Local Property Tax) Act 2012;

“carelessly” means failure to take reasonable care;

“liability to tax” means a liability to the amount of the difference specified in subsection (11) or (12) arising from any matter referred to in subsection (2), (3), (5) or (6);

“period” means a year of assessment, an accounting period, a return period as defined in section 530 or an income tax month as defined in section 983, as the context requires;

“prompted qualifying disclosure” in relation to a person, means a qualifying disclosure that has been made to the Revenue Commissioners or to a Revenue officer in the period between—

1. the date on which the person is notified by a Revenue officer of the date on which an investigation or inquiry into any matter occasioning a liability to tax of that person will start, and
2. the date that the investigation or inquiry starts;

“qualifying disclosure” is a disclosure of complete information in relation to, and full particulars of, all matters occasioning a liability to tax that gives rise to a penalty made in writing and accompanied by —

1. a declaration, to the best of that person’s knowledge, information and belief, made in writing that all matters contained in the disclosure are correct and complete; and
2. a payment of the tax and duty and interest on late payment of that tax and duty.

In addition—

• all qualifying disclosures (prompted and unprompted) in the ‘deliberate behaviour’ category of tax default must state the amounts of all liabilities to tax and interest, in respect of all tax-heads and periods, where liabilities arise, as a result of deliberate behaviour, that were previously undisclosed; and
• in the case of a prompted qualifying disclosure in the ‘careless behaviour’ category of tax default, the disclosure must state the amounts of all liabilities to tax and interest within the scope of the proposed audit or audit inquiry.

“Revenue officer” means an officer of the Revenue Commissioners;

“tax” means income tax, corporation tax, capital gains tax, domicile levy, income levy, parking levy, universal social charge or local property tax;

unprompted qualifying disclosure in relation to a person, means a qualifying disclosure that the Revenue Commissioners are satisfied has been voluntarily furnished to them before any investigation or inquiry had been started by them or by a Revenue officer into any matter occasioning a liability to tax of that person.

(2) Subsection (2) provides that where a person deliberately makes an incorrect return, declaration, claim, statement or accounts to Revenue, that person will be liable to a penalty. This includes a deliberate understatement of income tax due by an employer under the PAYE system.

(3) Subsection (3) provides that where a person deliberately fails to make a return or statement, when required to do so, that person shall be liable to a penalty.

(4) Subsection (4) outlines the penalties which apply to the circumstances outlined in subsections (2) and (3). In both cases, the maximum penalty is equal to the amount of underpaid tax, and this applies where the person subject to the penalty has not co-operated with Revenue. For subsection (2), that maximum is the difference between the tax the person should have paid if the return was correct, and the tax payable on the basis of the incorrect return. For subsection (3), that maximum is the difference between the tax the person should have paid if that person had filed a return which was correct and paid the tax due per the correct return, and the tax, if any, the person paid in the absence of the return.

For both subsections (2) and (3), where the person co-operates fully with Revenue but does not make a qualifying disclosure, the penalty will be reduced to an amount equal to 75% of the tax underpaid; where the person co-operates fully with Revenue and makes a prompted qualifying disclosure (for example, after receiving an audit letter from Revenue), the penalty is reduced to an amount equal to 50% of the tax underpaid; and where the person co-operates fully with Revenue and makes an unprompted qualifying disclosure (that is, before the person has been contacted by Revenue, in circumstances where the person has no reason to believe Revenue has commenced an inquiry or investigation into the person’s tax affairs) the penalty is reduced to an amount equal to 10% of the tax underpaid.

(5) Subsection (5) provides that where a person carelessly but not deliberately delivers an incorrect return, makes an incorrect statement, claim or declaration or submits incorrect accounts, that person will be liable to a penalty.

(6) Subsection (6) provides that where a person carelessly but not deliberately fails to make a return or statement when required to do so, that person will be liable to a penalty.

(7) Subsection (7) outlines the penalties that apply to the circumstances outlined in subsections (5) and (6).

(7)(a) In the case of subsection (5), the penalty is the difference between the tax the person should have paid if the return was correct and the tax payable on the basis of the incorrect return, referred to as the tax underpaid.

In the case of subsection (6), the penalty is the difference between the tax the person should have paid if that person had filed a return which was correct, and the tax, if any, paid in the absence of the return. This difference is also referred to as the tax underpaid.

Where the penalty due exceeds 15% of the total correct tax due, it is reduced to 40% and to 20% in other cases.

(7)(b) Where—

• the penalty exceeds 15% of the underpayment and the person liable cooperated fully with any investigation, the penalty is reduced to 30% of the tax underpaid, to 20% of the tax underpaid where a prompted voluntary disclosure is made and to 5% of the tax underpaid where an unprompted voluntary disclosure is made, or
• the penalty due is less than 15% of the total correct tax due and the person cooperated fully with any investigation, the penalty is reduced to 15% of the tax underpaid, to 10% of the tax underpaid where a prompted qualifying disclosure is made and to 3% of the tax underpaid where an unprompted qualifying disclosure is made.

(8) Subsection (8) provides for a penalty where a person deliberately or carelessly furnishes, gives, produces or makes any incorrect return, information, certificate, document, record, statement, particulars, account or declaration of a kind mentioned in column 2 or 3 of Schedule 29. The penalty in the case of carelessness is €3,000 and, in the case of deliberateness, is €5,000.

(9) Subsection (9) provides that where a person submits a return, statement, declaration or accounts, neither deliberately nor carelessly, and it subsequently comes to the person’s notice that the submission was incorrect, then the person must remedy the error without unreasonable delay and, failing that, the incorrect return, statement, declaration or accounts will be treated as having been deliberately made.

(10) Subsection (10) provides that apart from section 1077D(2) (the time limit relating to deceased persons), proceedings or applications for recovery of any penalty may exceed the general time limit of six years.

(11) Subsection (11) provides for the amount on which the penalty is based for a person who has made a return. This is defined as the difference between the amount of tax payable on the basis of the incorrect return, statement, declaration or account and the amount so payable if the submission had been correct.

(12) Subsection (12) provides for the amount on which the penalty is payable for a person who has not made a return of income. This is defined as the difference between the amount of tax paid before the start of any enquiry or investigation by the Revenue Commissioners and the amount of tax that would have been payable on the basis of a correct return for the period.

(13),(13)(a) Subsection (13) provides that where a second qualifying disclosure is made by a person within five years of that person’s first qualifying disclosure in the circumstances outlined in subsection (2) or (3) and where a person cooperates with Revenue and makes a prompted qualifying disclosure, the penalty is reduced to an amount equal to 75% of the tax underpaid; and where the person cooperates with Revenue and makes an unprompted qualifying disclosure, the penalty is reduced to 55% of the tax underpaid.

(13)(b) Where, in the circumstances outlined in subsection (5) or (6) and the tax underpaid exceeds 15% of the total correct tax due and the person cooperated fully with any investigation and made a prompted qualifying disclosure, the penalty is reduced to 30% of the tax underpaid and to 20% where an unprompted voluntary disclosure is made.

(14) Subsection (14) provides that where a third or subsequent qualifying disclosure is made within five years of that person’s second disclosure, the full penalty as outlined in subsections (11) and (12), as appropriate, will apply.

(15) Subsection (15) provides that matters referred to in the definition of a prompted or unprompted qualifying disclosure do not include matters occasioning a liability to tax relating to a person that, before the disclosure to Revenue is made, is one of a class of persons being investigated by Revenue or a statutory body, a person who is within the scope of an enquiry being carried out wholly or partly in public or a person who is linked, or about to be linked, publicly with such matters.

(15A) Subsection (15A) provides that, with effect from 1 May 2017, a disclosure in relation to a person shall not be a qualifying disclosure in two situations and thus cannot avail of the penalty mitigation arrangements in respect of qualifying disclosures provided for in subsections (4) and (7).

The first situation is where the disclosure relates directly or indirectly to “offshore matters” as defined in the subsection. The definition of “offshore matters” is linked to both the OECD Standard for Automatic Exchange of Financial Account Information in tax matters (i.e. the Common Reporting Standard) and to the EU Directives relating to administrative cooperation and mandatory exchange of information in the field of taxation, but essentially covers any income, gains, accounts or assets, accruing, arising, situated or located outside of the State.

The second situation is where the matters being disclosed relate solely to onshore tax defaults in circumstances where the person has, before the date of the disclosure, certain (undisclosed) offshore matters that are known or become known to Revenue at any time and which give rise to a penalty other than a specified penalty.

Specified penalty is defined in the subsection in terms of the lowest level of “careless default” penalty quantified in subsection (7)(b)(II)(A) and in the equivalent provisions of the Capital Acquisitions Tax Consolidation Act 2003, the Value-Added Tax Consolidation Act 2010 and the Stamp Duties Consolidation Act 1999. In essence, this means that if the penalty applying to the undisclosed offshore matters is in the category of careless rather than deliberate default, does not have significant tax consequences (i.e. the underpayment did not exceed 15 per cent of the total tax due) and the person co-operates fully with any Revenue investigation, the disclosure in relation to the onshore tax defaults would be considered a qualifying disclosure and the penalty mitigation arrangements in respect of qualifying disclosures provided for in subsections (4) and (7) would apply.

(16) Subsection (16) provides that the relevant period for calculating the amount on which the penalty is based shall be in relation to anything delivered, made or submitted in any period, that period, the next period and any preceding period, and that the amount of tax payable shall not, in relation to a partnership, include any tax not chargeable in the partnership name.

(17) Subsection (17) provides that any accounts submitted on behalf of a person shall be deemed to have been submitted by the person unless that person proves that they were submitted without that person’s consent or knowledge.

(18) This section applies only in respect of any disclosure made, act done or omission made up to the passing of the Finance Act 2021.

Relevant Date: Finance Act 2021