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

Summary

Section 1077F provides for penalties for failure to file returns or for filing incorrect returns. For the most part, section 1077F reproduces provisions previously contained in section 1077E but these provisions have been reordered to simplify the calculation of the appropriate tax geared penalty and the application of the disclosure regime. The section also provides a legislative basis for not charging a penalty for technical adjustments, innocent errors and cases where total defaults are below €6,000. Section 1077F amends the calculation of a tax geared penalty in non-filer cases to ensure that a tax geared penalty applies It also removes the prohibition on qualifying disclosures in offshore cases.

Details

(1) Subsection (1) defines various terms used in the section. These definitions are similar to those contained in the current section 1077E TCA.

“the Acts” means the Tax Acts, the Capital Gains Tax Acts, Parts 18A, 18B, 18C, 18D and 22A 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 (3) or (5) arising from any matter referred to in subsection (2) or (4);

“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 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 the date that the investigation or inquiry starts;

“qualifying disclosure”, in relation to a person, 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 –

• 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
• a payment of the tax and duty and interest on late payment of that tax and duty

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

“tax” means any 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 -

1. before an investigation or inquiry had been started by them or by a Revenue officer into any matter occasioning a liability to tax of that person, or
2. where 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 before that notification.

(2) Subsection (2) provides that where a person deliberately or carelessly makes an incorrect return, declaration, statement or accounts to Revenue, that person will be liable to a penalty.

(3) Subsection (3) sets out the amount of the penalty for a person who has deliberately or carelessly made an incorrect 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.

(4) Subsection (4) provides that where a person deliberately or carelessly fails to make a return or statement, when required to do so, that person will be liable to a penalty.

(5) Subsection (5) outlines the amount of the penalty which applies to the circumstances outlined in subsection (4). It is defined as the difference between the amount of tax paid before the notification of any inquiry 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.

(6) Subsection (6) sets out the treatment, for penalty purposes, of deliberate behaviour defaults. Paragraph (a)(i) explains that where a person deliberately files an incorrect return or deliberately fails to file a return, that person will be liable to the penalty as set out in subsection (3) or (5), as appropriate; that is the amount of underpaid tax.

Paragraph (a)(ii) provides for a reduction of this penalty amount where the person cooperates with Revenue. In these circumstances the penalty will be reduced to 75% of the tax underpaid.

Where the person cooperates with Revenue and makes a prompted qualifying disclosure (for example, after receiving an audit letter from Revenue) paragraph (a)(iii) provides for a further reduction of this penalty to an amount equal to 50% of the tax underpaid; and paragraph (a)(iv) reduces the penalty to an amount equal to 10% of the tax underpaid, where the person co-operates 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).

Paragraph (b) sets out the penalty reduction available in circumstances where a person makes a second qualifying disclosure within five years of their first qualifying disclosure. In these circumstances, the penalty amount is that provided for in subsection (3) or (5), as appropriate.

However, paragraph (b)(ii) provides that where a second qualifying disclosure is made by a person within five years of that person’s first qualifying disclosure 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.

Paragraph (c) explains 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 (3) and (5), as appropriate, will apply.

(7) Subsection (7) deals with careless defaults with “significant” consequences”. Paragraph (a) introduces a new definition of the phrase “significant consequences”. This phrase is used in Revenue’s Code of Practice for Revenue Audits and other Compliance Interventions but was not previously defined. A default will be considered to have “significant consequences” in circumstances where the tax underpaid exceeds 15% of the total correct tax due.

Paragraph (b) sets out the penalty applicable where a person’s default is categorised as careless with significant consequences. In these circumstances, the penalty amount calculated in accordance with subsection (3) or (5), as appropriate will be reduced to 40%. Where that person cooperated fully with any inquiry or 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.

Paragraph (c) sets out the penalty reduction available in circumstances where a person makes a second qualifying disclosure within five years of their first qualifying disclosure. In these circumstances, the penalty amount provided for in subsection (3) or (5), as appropriate is reduced to 40%. However, that where a second qualifying disclosure is made by a person within five years of that person’s first qualifying disclosure and that person cooperates with Revenue and makes a prompted qualifying disclosure, the penalty is reduced to an amount equal to 30% of the tax underpaid; and where the person cooperates with Revenue and makes an unprompted qualifying disclosure, the penalty is reduced to 20% of the tax underpaid.

Paragraph (d) explains that where a third or subsequent qualifying disclosure is made in respect of a careless default with significant consequences, within five years of that person’s second disclosure, the penalty will be the amount set out in subsections (3) and (5), as appropriate, reduced to 40%.

(8) Subsection (8) outlines the penalty where a person’s default is in the careless category without significant consequences. In these circumstances the penalty amount set out in subsections (3) or (5), as appropriate is reduced to 20%. Where the person cooperated fully with any inquiry or 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.

(9) Subsection (9) puts the non- application of a penalty where the aggregate amount of a person’s tax default is less than €6,000 and the default is not in the deliberate behaviour category on a legislative basis and mirrors the Code of Practice for Revenue Audits and other Interventions.

(10) Subsection (10) legislates for two further administrative practices currently provided for in the Code of Practice. These are innocent error and technical adjustment. Technical adjustment permits taxpayers to make amendments to their tax returns without incurring a penalty where the amendment arises from a difference in the interpretation or application of the legislation. Similarly, amendments may be made, without attracting a penalty where the taxpayer has made an innocent error in completing their return. Such errors are those which are not deliberate and not in any way attributable to a failure by the taxpayer to take reasonable care to comply with their tax obligations.

(11) Subsection (11) provides 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 Schedule 29. The penalty is €3,000 where the person has acted carelessly and €5,000 where the person has acted deliberately. This was previously provided for in section 1077E(8) TCA.

(12) Subsection (12) 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. This was previously provided for in section 1077E(9) TCA.

(13) Subsection (13) provides that apart from the time limit relating to deceased persons, proceedings or applications for recovery of any penalty may exceed the general time limit of six years.

(14) Subsection (14) 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 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.

(15) Subsection (15)(a) 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.

Subsection (15)(b) explains that, for the purposes of subsection (15), the references in subsections (3) and (5) to the amount of tax payable shall not, in relation to a partnership, include any tax not chargeable in the partnership name.

(16) Subsection (16) 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 their consent or knowledge.

Relevant Date: Finance Act 2021