Revenue Powers Group. Report to the Minister for Finance

Transcription

1 Revenue Powers Group Report to the Minister for Finance November 2003 BAILE ÁTHA CLIATH ARNA FHOILSIÚ AG OIFIG AN tsoláthair Le ceannach díreach ón OIFIG DHÍOLTA FOILSEACHÁN RIALTAIS, TEACH SUN ALLIANCE, SRÁID THEACH LAIGHEAN, BAILE ÁTHA CLIATH 2, nó tríd an bpost ó FOILSEACHÁIN RIALTAIS, AN RANNÓG POST-TRÁCHTA, 51 FAICHE STIABHNA, BAILE ÁTHA CLIATH 2, (Teil: /35/36/37; Fax: ) nó trí aon díoltóir leabhar. DUBLIN PUBLISHED BY THE STATIONERY OFFICE To be purchased directly from the GOVERNMENT PUBLICATIONS SALE OFFICE, SUN ALLIANCE HOUSE, MOLESWORTH STREET, DUBLIN 2, or by mail order from GOVERNMENT PUBLICATIONS, POSTAL TRADE SECTION, 51 ST. STEPHEN S GREEN, DUBLIN 2, (Tel: /35/36/37; Fax: ) or through any bookseller. Wt.. 3,000. 2/04. Cahill. (M83914). G.Spl. \10.00

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3 Chairman Membership Mr Justice Francis Murphy, formerly of the Supreme Court. Members Ms Julie Burke, Solicitor specialising exclusively in tax disputes and tax legislation. Mr James Jennings, Partner in Jennings and Co, Chartered Accountants, Castlebar. Ms Suzanne Kelly, Barrister at law, President of Institute of Taxation. Mr Sean Moriarty, Assistant Secretary, Office of the Revenue Commissioners. Mr Michael Mullins, Partner, HLB Nathans, Chartered Accountants, Cork & Dublin. Mr Roderick Ryan, Executive Director, Glen Dimplex. Secretary Ms Stephanie O Donnell Secretariat Mr Eamon Healy Mr David Owens Ms Anne Sheridan (to July 2003) Ms Sighle de Barra (from July 2003) Ms Sinead O Gara Mr Karl Foster iii

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5 Table of Contents Preface: Introduction and Background xi 1. Terms of Reference xi 2. Revenue Powers xi 3. Development of Revenue Powers xi 4. Review of Powers xii 5. Workings of the Revenue Powers Group xii 6. Acknowledgements xii Chapter 1: Executive Summary 1 1. Main Statutory Powers Reviewed 1 2. Overall Conclusions 1 3. Recommendations 2 4. Effectiveness of Existing Powers (Chapter 2) 2 5. The Appropriate Balance of Revenue Powers (Chapter 3) 2 6. Streamlining of Existing Powers (Chapter 3) 5 7. Need for Further Powers (Chapter 4) 5 8. Appropriate Appeal or Review Mechanisms on Powers (Chapter 5) 6 9. Comparable Powers in other Jurisdictions and Regulatory Authorities (Chapter 6) General Considerations 8 Table A: Use of Non-Routine Powers 11 Chapter 2: Effectiveness of Revenue Powers Introduction Relevant Factors 13 Changes in Revenue Organisation 14 Restructuring 15 v

6 3. Usage and Effectiveness of Powers mainly used in Audits 16 Breakdown of Audit, Investigation and Prosecution Powers 16 Numbers of Audits Carried Out Number of audits, audit yields and revenue yields Observations 18 Average Yield per Audit 19 Underlying Factors behind Audit Yield Variances Usage and Effectiveness of Powers mainly used in Investigations 21 Use of non-routine powers: (to date) 22 Special Investigations 24 DIRT/BNR and Audit Investigations Yields Aggregate of settlements received from special investigations (\m) Usage and effectiveness of powers used in Prosecution 25 Prosecution for non-filing 25 Results of Prosecution of Income Tax Non-Filers 1997 to Revenue s role in investigation with a view to prosecution 26 Prosecution for serious tax evasion 26 Prosecuted cases of serious tax evasion 27 Civil Penalties and their interaction with Prosecutions 27 Deterrent Value of Prosecution and Civil Penalties The Group s Conclusions regarding the Effectiveness of Revenue Powers 29 Audits and Investigations 30 Prosecutions 30 Chapter 3: Appropriate Balance of Powers Safeguards Authorisations 31 Introduction 31 Restraints on Powers 31 Non-routine powers 32 S900 to S901 Power to call for production of books, information etc. and Application to the High Court: production of books, information etc. 33 S904A Power of Inspection: returns and collection of appropriate tax 33 S906A Information to be furnished by financial institutions 33 S909 Power to require return of property 35 Other Powers from Chapter 4 36 S906 Authorised officers and Garda Síochána 36 Search and Authorisation 37 vi

7 2. Audit, Investigation and Mitigation 40 Introduction 40 Audit Issues Mitigation of penalties and issues concerning interest 41 Comprehensive Audits Interest and Penalties as proportion of tax yield 42 Bogus Non-resident Cases Penalties and Interest 43 Published Cases as percentage of Total Settlements 44 Mitigation of Penalties Recovery of Civil Penalties Interest 47 Compromise of Interest Rate Voluntary Disclosure Prosecution and Voluntary Disclosure Publication of Names and Prosecution of Offenders Disclosure of Information by Revenue to other Official Agencies Power to Remove and Retain Records Compliance with Orders Streamlining of Existing Powers 56 Selected Revenue Powers 58 Audit Powers 58 Investigation Powers 59 Prosecution Powers 59 Chapter 4: Need for Further Powers Introduction Automatic Reporting of Information by Third Parties Automatic provision of information on interest payments on deposits in financial institutions and income earned on other financial transactionsreferenced by PPSN number 63 De Minimis Issue 64 vii

8 4. Automatic reporting of Payments made to taxpayers by Government Departments referenced by PPSN number Offshore Assets: Powers to establish beneficial ownership of offshore assets over which a resident entity has control Payments for Services Provided from Countries with which Ireland does not have a Tax Treaty 66 Sone other Issues Considered in this General Context Additional Prosecution Powers 68 Introduction 68 History and Context of Prosecution Powers 68 Search and Production Powers 70 Power of Arrest 71 Power to Obtain Information under Oath 72 Access to Telephone Records in a Criminal Investigation 72 Chapter 5: Appeals and Reviews of Revenue Powers Existing Review and Appeal Mechanisms Other Relevant Examinations International Approach Administrative Review 76 Internal Administrative Reviews 76 External Administrative Reviews 77 Revenue Internal and External Reviews Experience of External Reviewers Appeal Commissioners 79 Issues concerning the Appeal Commissioners The Ombudsman 81 Complaints made to the Ombudsman about Revenue Judicial Review Conclusions and Recommendations 82 Chapter 6: Comparable Powers in Certain Other Jurisdictions and Other Regulatory Authorities Powers in other Jurisdictions 85 Issues for Comparative Analysis 85 Type of Tax Administration 86 Obligation to File Returns 87 viii

9 2. Information Powers 87 Access to First Party Information 87 Time Periods for retention of books and records by the taxpayer 88 Access to Third Party Information 89 Professional Privilege Audit and Investigation of Tax Liabilities 89 Power of Entry and Search 89 General preconditions for Entry 90 Requirement for Court Order or Warrant to Search 90 Seizure and retention of books and records 92 Appeals 93 Penalties and Interest: Power to Mitigate or Compromise 93 Voluntary Disclosure 95 Prosecution of Tax Offences 96 Other Sanctions Comparable Powers in Regulatory Authorities 98 Regulatory Authorities 98 Issues for analysis 98 Power to carry out investigations 99 Power to Require Information from Third Parties 99 Power to Require Production of Records and Information 99 Transition to Investigation 101 Investigation with a View to Prosecution 101 Mitigation and Penalties 102 Maximum Combined Levels of Fines and Penalties 103 Power of Entry and Search 103 Power to Seize Document and Records 105 Appeal Mechanisms 105 Power of Arrest and Detention 106 Power to Summon Witnesses 106 Other Measures 107 Chapter 7: Full List of the Group s Recommendations 109 ix

10 Appendices A. Provisions in European Convention On Human Rights Act B. Outline of Eskort system 121 C. Irish Response to the Questionnaire circulated to Other Jurisdictions 123 D. List of Contributors to Review 133 E. List of Sections referred to in Submissions 135 F. Revenue s Statutory Powers to establish tax liabilities 139 G. Extract from OECD report Improving Access to Bank Information for Tax Purposes 2000: Table H. Extract from OECD report Taxpayers Rights and Obligations 1990: Control and Search Powers of Tax Authorities Tables 9A and 9B; Administrative Discretion of Tax Authorities Table I. Current Sources of Information to Revenue 155 x

11 Preface: Introduction and Background 1. Terms of Reference 1.1. The Revenue Powers Group was established by the Minister for Finance, Mr Charlie McCreevy, TD in March 2003 with the following terms of reference: (1) To enquire into the main statutory powers available to the Revenue Commissioners to establish tax liabilities including investigation with a view to prosecution of Revenue offences. (2) To advise the Minister for Finance as to the effectiveness of these powers; the appropriate balance between the need to secure the revenue of the State and the rights of the taxpayer; whether there is a need for further powers or streamlining of existing powers; comparable powers in other jurisdictions and other regulatory agencies in the State; The appropriate appeal or review mechanisms that should be applied in the exercise of these powers. (3) To report on the results of their enquiries and considerations and to make such recommendations as they think fit to the Minister of Finance by 31 October Revenue Powers 2.1. Broadly speaking the statutory powers of the Irish Revenue Commissioners are characteristic of those of other tax administrations 1, i.e. general information powers including the power to require information from the taxpayer and from third parties, the power to require returns from the taxpayer and third parties, the power to require production of records, the power of entry, search and removal of records and the power to mitigate penalties in certain circumstances. As in other countries, the legislation provides for interest charges and a variety of fines, surcharges and penalties in the case of late or inaccurate returns to the Revenue Commissioners by the taxpayer and/or third parties. The legislation also provides for offences and penalties in the case of certain other acts or omissions. 3. Development of Revenue Powers 3.1. Key developments in revenue powers have occurred in 1976, 1983, 1992 and 1999 with further strengthening in the period These developments were driven both by 1 See Taxpayers Rights and Obligations A Survey of the Legal Situation in OECD countries, OECD There are variations between administrations in terms of preconditions and restraints on the powers. xi

12 changes in the way Revenue operates and, in 1992 and 1999, by public revelations of systematic tax evasion. Whereas Value Added Tax a self-assessed tax has been in place since 1972, it was not until 1988 that the self-assessment approach began to be extended to direct taxes. There has been a consequent increase in outdoor activity by Revenue Officers, 2 initially involving the inspection of underlying records to verify VAT returns and later extending to on site visits to inspect, verify or investigate taxpayer returns of direct taxes liability The use of outdoor powers to verify returns, inspect records or investigate selected cases underpins the self-assessment system. In addition, the selection of returns for verification is increasingly influenced by technological developments. The use of computerised systems to match taxpayer information, including information from third party returns, has increased in order to improve the targeting of non-compliant taxpayers. Many of Revenue s current powers address the requirement to obtain information and the need to verify various returns by having access to the underlying records. 4. Review of Powers 4.1. The Minister for Finance, Mr Charlie McCreevy, T.D., undertook to keep the operation of the powers under review when providing for increased powers in the 1999 Finance Act. The Minister has stated that there is an ongoing need to take regular stock of the remit of Revenue powers in order to assure the Government and the public at large that these are meeting the needs of the system and are being used fully as the Oireachtas intended In the context of the establishment of the Revenue Powers Group, the Minister stated: The additional powers I gave to the Revenue Commissioners since becoming Minister are very significant. In the last month I set up a Revenue Powers Group to review those powers, to assess a number of matters, including an evaluation of whether the balance is just right Workings of the Revenue Powers Group 5.1. The Group convened in April 2003 and met 14 times between April and November These meetings included four day-long sessions, on 26 June, 8 September and 6-7 October, to concentrate on specific issues. Advertisements inviting submissions to the Group were placed in the national newspapers on 29 April and 2 May The Group also wrote to a number of professional and public bodies. The Group consulted a number of other tax administrations 5 and other regulatory authorities regarding their powers. 6. Acknowledgements 6.1. The Group wishes to thank the members of the public and the professional and public bodies who made submissions. 6 Although a minority of issues raised were outside the terms of reference, all submissions helped the Group in their enquiry. The Group also wishes to express 2 The term audit first appears in TCA 1997: S904A 3 At the annual dinner of the Institute of Taxation on 28 February 2003, the Minister for Finance said: The opportunity presents itself now to perform such a stock-taking exercise to ensure that the balance and strategic direction we have put in place is right. 4 Reply to Dáil question concerning tax inspections: 8 April UK, New Zealand, Australia, Canada, Sweden, USA and the Netherlands. 6 See acknowledgements at Appendix D. xii

13 its appreciation to the tax administrations and the Irish regulatory bodies 7 who completed questionnaires and provided follow up material. A number of other persons and public bodies provided valuable assistance to the Chairman and Secretariat in clarifying certain issues. The Revenue Commissioners were asked for briefing material on numerous occasions and always gave their full cooperation even where a request was made at short notice Most of all, the Group as a whole, and the Chairman in particular, wishes to record their thanks to Ms. Stephanie O Donnell and the other members of the Secretariat who procured, analysed and presented to the Group the arguments made to, and the information required by, the Group; and drafted and re-drafted the many papers and proposals required to advance the work of the Inquiry. The Group is appreciative of the outstanding work which was done by the Secretariat and the good grace and good humour with which they worked the unsociable hours which were required to perform their task Finally, the Group found the Consultation Paper issued by the Law Reform Commission in June 2003 on the case for a Revenue Court and Fiscal Prosecutor to be an invaluable up-to-date reference source on the development of the Irish Tax System The Group wishes to note that this review does not represent a legal opinion on any of the powers considered. 7 Competition Authority, Office of the Director of Corporate Enforcement, IFSRA, the Gárdaí, CAB, Companies Registration Office and the Department of Social and Family Affairs. xiii

14 Members of Revenue Powers Group Signed: Mr. Justice Francis Murphy Formerly of the Supreme Court. (Chairman) Ms. Julie Burke Solicitor, J. M. Burke Solicitors Mr. James Jennings Partner, Jennings and Co. Chartered Accountants. Ms. Suzanne Kelly Barrister at Law, President of the Institute of Taxation Mr. Sean Moriarty Assistant Secretary, Office of the Revenue Commissioners. Mr. Michael Mullins Tax Partner, HLB Nathans Chartered Accountants. Mr. Roderick Ryan Executive Director, Glen Dimplex. xiv

15 CHAPTER 1 Executive Summary 1. Main Statutory Powers Reviewed 1.1. The Group identified approximately 120 sections 8 containing powers to establish tax liabilities. The Group concentrated its enquiries and considerations on: The powers set out in Chapter 4 Part 38 of the Taxes Consolidation Act 1997: Revenue Powers; Powers raised in submissions to the Group; 9 Issues arising in relation to third party information powers under which information is disclosed to Revenue through reporting obligations; Interest and penalties provisions 10 because of their role in settlements given Revenue s power to mitigate. Scope of the Terms of Reference 1.2. The Group considered that collection powers and powers relating to the customs and excise area were excluded by the terms of reference. 2. Overall Conclusions 2.1. Revenue powers in Ireland are generally in line with international norms. The Group accepted the need for far-reaching Revenue powers 11 provided that adequate safeguards apply to their use. 12 The legislation should carry the key restraints on the use of the powers, while it is accepted that these may be amplified in codes of practice and operations manuals. 13 In this regard the Group recommends a number of legislative provisions which should enhance the safeguards for the taxpayer including additional appeal provisions The Group considers that streamlining of the powers legislation is necessary to make clear the gradations in powers appropriate for use in audit, investigation of tax liabilities and 8 See Appendix F. 9 See list of powers mentioned in submissions at Appendix E. 10 Including publication. 11 Submissions to the Group did not seek to remove the powers of access to the financial institutions, introduced in 1999, but commented instead on the need for safeguards. 12 A small number of cases of inappropriate behaviour in the confrontational use of the powers were reported. 13 There was a general appreciation, endorsed by the Group, of the quality of Revenue s endeavour to develop administrative safeguards in regard to use of the powers. 1

16 investigation with a view to prosecution and the attendant safeguards, authorisations and appeal provisions.the Group considers that the existing revenue powers are adequate to allow Revenue to carry out its task with the exception of a limited number of areas. The Group recommends that the jurisdiction of the Appeal Commissioners be extended regarding the use of the powers. The Group also recommends some reform of the interest and penalties regime. Finally, the Group recommends that the remaining legacy cases, as defined at below, should be treated in line with the practice heretofore. 3. Recommendations 3.1. The Group s recommendations are summarised hereunder using the following headings: Effectiveness of Existing Powers; Appropriate Balance of Revenue Powers; Streamlining of Existing Powers; Need for Further Powers, including powers regarding investigation with a view to prosecution; Appropriate Appeal or Review Mechanisms; and Comparable Powers in other Jurisdictions and other Regulatory Agencies in the State in line with the terms of reference. 4. Effectiveness of Existing Powers (Chapter 2) 4.1. Overall the Group considers that Revenue powers are necessary not only to uncover evasion but also as a deterrent to evasion in the first place. However, it is difficult to assess a correlation between the existence of a power and its effectiveness on compliance or on the Exchequer s overall yield from taxation. That being said, Revenue would not have been able to conduct its investigations into evaded DIRT and tax on the underlying deposits without certain powers introduced in the 1999 Finance Act to access information in financial institutions (see Chapter 2) investigations which have brought in over \800 million. There is now an understanding that Revenue can access financial and other records more readily than before and this has contributed to greater levels of disclosure both prompted and unprompted. The Group makes some recommendations in regard to the ongoing management and measurement of the effect of powers. 5. The Appropriate Balance of Revenue Powers (Chapter 3) 5.1. To balance better the need to secure the revenue of the State with the rights of taxpayers additional legislative safeguards are proposed in the following areas: New objective preconditions for the use of some of the more intrusive powers. New safeguards on certain powers, e.g. search, removal of records. Legislating for number of areas in which Revenue has a developed system of practice under the power to mitigate, e.g. penalty regime and voluntary disclosure, with some amendments to the existing provisions in the 2002 Code of Practice. Additional appeal to the Appeal Commissioners on areas concerning the exercise of powers including the interest and penalties area. Changes in regard to access to third party information. 2

17 5.2. Specific proposals include: Search The removal of the power to search any premises without a warrant A requirement to distinguish in a warrant between a private dwelling and a business premises 15 and between a search in relation to tax liability and search in an investigation with a view to prosecutions More limited criteria for search warrant applications made under current S905(2A). Removal of Records Specific statutory limit on the period for which seized records may be retained 16 in a non-prosecution case and prescribed time limit for provision of copies to taxpayer in prosecution case. Penalty and Interest Regime There is a need for a codified structure for interest and penalties to be statutorily defined. The Group considers that the interest and penalty regime in the legislation should be brought into line with Revenue s 2002 code of practice, with some amendments. This would involve: Abolition of 2% per month penalty interest rate and similar tax geared civil penalty of 200% of tax liability from the legislation The existing practice be amended to introduce: Small reduction in interest rate from 12% to 10% to ensure that the rate continues to act as a deterrent but is not penal. New category of innocent error 17 linked to track record in past 3 years. Mitigation of interest to a rate equivalent to the time value of money in defined circumstances. 18 Appeal to Appeal Commissioners on categorisation of penalties 19 and on interest payable in certain defined circumstances. A limit on the period for which interest will be levied, in line with the approach followed in BNR cases Power of search of business without warrant exists in S903, S904, S905(2)(a)(iv)(B). Arguably, it could be used in a private residence if domestic workers on PAYE were employed. 15 Power to search premises without a warrant exists in 6 of the 7 jurisdictions studied; conversely, power to search a private dwelling is subject to warrant in 6 of the 7 jurisdictions. Searches are subject to objective preconditions in a number of jurisdictions. 16 Statutory time limits on retention of seized records in Sweden, New Zealand, Canada; administrative limit in UK. 17 UK recognises category of innocent error. 18 Time value of money as represented by consumer price index to apply (1) where late payment resulted from innocent error as defined (2) where a taxpayer made a genuine but mistaken interpretation of a tax provision and a substantial interest charge was now due as a result of a determination of an appeal. 19 The Group notes the view of the Law Reform Commission that an appeal to the Appeal Commissioner is probably necessary to ensure conformity with the requirements of the European Convention on Human Rights. The Group proposes a particular formula where there is no agreement on the penalty category. 20 Par 4.3 of Statement of Practice SP Gen 01/01; this would involve a widening of practice. 3

18 Ring fencing from new provisions of cases currently under investigation, i.e. legacy cases, defined as follows: Clerical Medical International/National Irish Bank, Ansbacher, BNR and any disclosure arising as a result of a current investigation by the Revenue Offshore Assets Group in respect of the taxpayer. 21 Provision for Revenue to sue for a lesser amount of the penalty. Voluntary Disclosure Existing statutory reference 22 should be expanded to include a provision that full voluntary disclosure should carry safety from prosecution 23 for tax offences and provision for an appeal to the Appeal Commissioners There should be no disclosure of information provided in a voluntary disclosure except as may be required by law The legislation should provide for an appeal to the Appeal Commissioners against any determinations by Revenue in regard to a voluntary disclosure. Access to Third Party Information A taxpayer who is the subject of an investigation 24 should be invited to mandate information in advance of a request to a financial institution; 25 Revenue to make application to the High Court if mandate not provided. Unreasonable Requests for Information There should be an appeal to the Appeal Commissioners to determine disputes as to the relevance of documents and information sought by authorised officers. 26 Length of Audit To protect against unjustified disruption to taxpayers there should be limits on the length of audit and an appeal to the Appeal Commissioners against breaches of the limit or an appeal to stay an audit to ensure that audits do not go on for an unreasonable length of time. Publication The threshold for publication should be increased from \12, to not less than \50,000 as the current limit, which was set twenty years ago, is considered too low and to lessen the impact of the penalty in material cases. 21 As regards the interest roll-up, this would apply to investigations underway or announced. 22 Currently referred to with regard to exemption from publication S1086 TCA Immunity provided in USA if no fraud money laundering or criminal activity determined; UK if unprompted and Netherlands if full voluntary disclosure (all provided administratively except Netherlands). 24 Under s906a 25 This practice applies in investigations by the Department of Social and Family Affairs. 26 i.e. beyond the records required in a particular investigation; automatic reporting should also help to reduce demands in this regard. 27 Comprising tax, interest and penalties. 4

19 6. Streamlining of Existing Powers (Chapter 3) 6.1. The Group made a distinction between: the more invasive powers appropriate to investigation and prosecution cases which impact on a smaller percentage of taxpayers 28 and powers which are regularly employed in a standard audit to establish tax liabilities and which thus have the potential to impact on a larger group of taxpayers As a result of this distinction the overall approach to streamlining which they recommend is that: The gradation of powers from less intrusive to more invasive should be made transparent in the legislation in line with the transitions from audit to investigation and investigation with a view to prosecution The legislation should specify what third party supervision and internal revenue authorisation levels 29 are required to activate the more intrusive powers Existing prosecution powers 30 should be separated from the other powers. This will protect the rights of the taxpayer but should also help with the alignment of procedures to ensure that evidence collected in a revenue investigation does not become tainted by selfincrimination and therefore inadmissible in a criminal trial. Also there should be an appropriate power of search under warrant for use in criminal cases The appropriate avenue of appeal applying to each of the three categories above should be clear from the legislation. 7. Need for Further Powers (Chapter 4) 7.1. The Group recommends a number of new provisions as follows: General Provision Explicit positive statutory statement of Revenue s right to obtain all relevant document and records 31 should be provided. Third Party Information Powers The automatic provision of information on (i) interest payments on deposits in financial institutions 32 and income earned on other financial transactions 33 and (ii) payments made to taxpayers by Government Departments, 34 referenced by PPSN number, subject to 28 See Table at end of Executive Summary for usage of non-routine powers. 29 A number of sections already do this e.g. S901, S902A, but other significant powers are subject only to internal instructions for authorisation in the Revenue Operations Manual e.g. S900, S904A, S905 (apart from S905(2A) and S905(2)(e)). 30 currently S905(2A) and S908A TCA 1997 are used exclusively for prosecution cases. 31 Existing provisions in S899 and S956 require to be underpinned by a general right. 32 Automatic reporting of information on taxpayers sources of income is common in other jurisdictions, see Appendix G for extract from Improving Access to Bank Information for Tax Purposes 2000, OECD. 33 Capital gains and income arising on the encashment of other financial products. Effectively this is an extension of the intermediary provisions in the current code. 34 S910 allows Revenue to obtain information from Minister of Government. 5

20 proper information security safeguards; subject also to Revenue demonstrating a capacity to make use of such information, 35 to the information being made available to the taxpayer on request and to a review of the provision within five years. 36 Offshore Assets and Overseas Payments New power, subject to High Court supervision, to establish the beneficial ownership of offshore assets over which a resident entity has control; Taxpayers to satisfy Revenue that payments for services provided from countries with which Ireland does not have a tax treaty are bona fide commercial transactions in the absence of which tax can be assessed at the income tax standard rate on the payments. 38 Investigation with a View to Prosecution A power for Revenue to access telephone records in criminal investigations Revenue investigators should be permitted to question persons detained in Garda custody in connection with an arrestable revenue offence Further studies required in regard to the appropriateness of granting powers of search and production of records under recent criminal justice legislation. 8. Appropriate Appeal or Review Mechanisms on Powers (Chapter 5) Appeal Commissioners 8.1. The jurisdiction of the Appeal Commissioners should be extended in the light of the statutory amendments proposed to allow appeals on the categorisation of penalties, the interest level in certain defined situations and the facts defining a voluntary disclosure In addition the Appeal Commissioners should be empowered to adjudicate: (1) whether Revenue have a right in law to seek particular information, (2) breach of proposed statutory time limits on audit and/or a request to stay an audit (3) unreasonable disruption to business from the removal of current records and equipment subject to these arrangements being practicable in terms of resources available to the Appeal Commissioner and subject to the taxpayer being required in all cases to pay the tax which is not in dispute The Group envisages the Appeal Commissioners holding regular short hearings based on oral evidence to decide summarily matters of fact the Monday morning session. 35 To ensure that the compliance cost on third parties of providing such information is proportionate to the benefit; there is some evidence that much information has been sought from taxpayers which has not been used in the past eg form 46G. 36 If adverse social consequences arise, there could be a threshold figure introduced by Ministerial Order, subject to such safeguards as might be considered necessary. 37 Statutory definition of control would be required. All jurisdictions consulted had access to records of foreign controlled entities. 38 This would operate like a deemed withholding tax. 39 Currently taxpayers must pay tax in accordance with the information on his/her return. 6

21 External Reviewers The Group considers that the External Reviewers should continue in the role which they currently fulfil as quality assurance on the internal customer service function effectively Revenue conduct issues but they should have a profile independent of the Revenue Commissioners and their role should be better publicised. 9. Comparable Powers in other Jurisdictions and Regulatory Authorities (Chapter 6) Other Jurisdictions 9.1. The Group surveyed seven other jurisdictions. 41 The powers of other jurisdictions consulted are broadly comparable but there were variations in terms of preconditions and limitations on the use of the more intrusive powers i.e. powers of entry, production of records, search and removal of records. To some extent these reflect the different tax administrations and legal traditions. The other jurisdictions have access to a wider range of taxpayer records in that they have access to records relating to resident controlled foreign entities. While the safe harbour concept involved in voluntary disclosure is accepted internationally, there are variations in the legislative and administrative provisions in regard to voluntary disclosure The appeal during audit regarding use of powers is generally to a court, except in the UK where there is an appeal to the Tax Appeal Tribunal to stay an audit which it is claimed has gone on too long. The Netherlands and the UK C&E were the only tax authorities with the power to arrest and detain suspected tax offenders for questioning. Other Regulatory Agencies 9.3. The Group examined comparable powers in other regulatory agencies and enquired into both the range of powers and any preconditions or restrictions on the use of the powers and made detailed enquiries into the availability of powers to undertake investigation with a view to prosecution. The following bodies were consulted: the Competition Authority, Office of the Director of Corporate Enforcement (ODCE) and the Companies Registration Office, 43 IFSRA, Department of Social and Family Affairs and An Garda Síochána.The summary of the findings is at Chapter 6. Most of these bodies have access to third party information and have legal provision for information sharing also. Some of these are cited at Appendix I Current Sources of Information to Revenue The Department of Social and Family Affairs do not have an express power of entry and do not have a search power. Of the remaining four bodies, three require a court order/warrant for entry to a business premises and all required a warrant for entry to a private residence and had the power to remove records. Few of the bodies had the power to reduce penalties but most had the power to not impose a sanction or select a case for sanction Instituted at the time of the 1999 Finance Act powers; issues regarding the 1999 powers have arisen rarely before them. 41 In the UK jurisdiction, two tax authorities were surveyed (Inland Revenue and Customs & Excise). 42 No voluntary disclosure in Sweden. 43 These have complementary powers in the Company Law area. 44 IFSRA, Department of Social and Family Affairs, CAB, Competition Authority; power allowing ODCE to accept a penalty in lieu of prosecution provided under statute but not in force yet. 7

22 9.5. In regard to powers used in investigation with a view to prosecution, the power of direct arrest for questioning is available to CAB, Competition Authority and ODCE through members of An Garda Síochána seconded to the Agency The Group noted that compelled evidence given by anyone under compulsion of law is not admissible against him/her in a criminal investigation General Considerations Finally a number of issues arose in the course of the review which the Group considers it important to note: Communication While these are available on Revenue s website, greater publicity for Revenue operations manuals and codes of practice is required. The Group considers that these publications and the information which they provide particularly in relation to appellate procedures would be of assistance in dealing with situations of conflict or confrontation between taxpayer and Revenue officials. Third Party Information The fact that third party disclosure mechanisms are improving Revenue s information base should help reduce the need for Revenue to intrude on compliant taxpayers and on third parties in individual cases. Significant changes in the regulatory environment have the potential to increase the flow of information to Revenue from third parties both within Ireland 46 and internationally. 47 These developments will have an impact on compliance levels. Revenue intends to have a new integrated information management system 48 in place by Information Disclosure In view of the traditional presumption of confidentiality in taxpayer dealings with Revenue, the circumstances in which Revenue must disclose to other foreign and domestic authorities should be made clear to taxpayers. This observation is made in the light of new legislative obligations on Revenue to disclose information to other regulatory authorities where there is suspicion of an offence outside the revenue area. There is a need to ensure that uncertainty in this regard does not undermine voluntary disclosure. Interdependence of Powers There are implications for revenue powers arising from the pooling of powers between regulatory authorities in models such as the Criminal Assets Bureau and these need to be addressed by the appropriate authorities in situations where the powers are being altered, 45 Judgement of Mr Justice Barrington in the matter of National Irish Bank Ltd (Under Investigation) and in the matter of the Companies Act 1990, delivered 21 st January Empowering of other new regulatory agencies such as IFSRA, ODCE, Competition Authority, strengthening of reporting by external auditors to regulatory authorities (e.g. auditors must report to ODCE if company has committed an indictable offence), clarification of directors responsibilities in regard to compliance with statutory requirements, new information flows between regulatory agencies. 47 EU Savings Directive, Tax Information Exchange Agreements, Money Laundering Regulations. 48 Eskort system. 8

23 particularly where specific powers are relied on by the other agencies in their current form. In the current review the Group did not consider it within its competence to address any implications for other agencies of proposed new safeguards on existing powers. Investigation with a View to Prosecution The Group considers that the clarification set out below should be taken into account by policy makers and commentators on the outcome of prosecution cases. It requires significant resources for Revenue to mount a successful prosecution case. In recent years there has been an extension of statutory provisions for tax geared penalties. In certain cases there are both civil penalties and criminal sanctions for the same default. In examining the effectiveness of prosecution powers, the Group considered recent cases where the amount paid by way of interest and penalties was taken into account by the trial judge in imposing a fine under S1078 of TCA 1997 and the fine imposed was at the lower end of the range The judgement of the Court of Criminal Appeal in The People (Director of Public Prosecutions) v Redmond explained that: It is plainly not possible for a sentencing court in a case such as this to ignore the fact that other penalties, which may be much greater in amount than the cumulative sum of the maximum fines for these charges have already been paid The judgement also cited Professor Thomas O Malley in his book Sentencing Law and Practice who pointed to the growth of multiple responses to crime as opposed to the presumption of a sole official response to an offence. Professor O Malley stated that the existence of such measures, which are set to become more prevalent, together with the growth of civil penalties poses a problem for any sentencing system claiming to be guided by proportionality standards. These issues are considered at greater length in chapter 2. The Group notes that the recovery of civil penalties and interest is in itself a very significant sanction and deterrent and this is also discussed in chapter 2. Incorporation of European Convention on Human Rights into Irish Law The Group s recommendations in regard to an appeal on penalties would be consistent with the view expressed by the Law Reform Commission in regard to the likely need for procedural protections in regard to civil penalties. The European Convention on Human Rights Act 2003 transposing Ireland s obligations under the Convention into domestic law was enacted in June 2003, subject to a commencement order. 52 The European Court Of Human Rights has distinguished between private and public law for purposes of bringing rights from private law within the scope of the civil rights and obligations under Article 6 (1). It has determined that tax matters are part of public law and therefore do not involve a determination of a taxpayers civil rights and obligations under Article 6 (1). On the other hand if civil penalties were considered to amount to a criminal charge 53 for purposes of the Convention, the standard of criminal 49 The Group have recommended that information voluntarily disclosed in a voluntary disclosure should not be used in a criminal prosecution. 50 In general penalties would not have been mitigated to any great extent in a criminal case such as this; interest is not mitigated in any case under current provisions. 51 See Appendix A for details of European Convention on Human Rights Act For an examination of tax case law under ECHR; see Law Reform Commission s July 2003 Consultation paper on a Fiscal Prosecutor and a Revenue Court. 52 Due to commence with effect from 31 December European Court adopts it own autonomous definition irrespective of the domestic classification. 9

24 protections specified in Article 6 could be sought in individual cases. The implications for Revenue law and procedures have been considered by the Law Reform Commission. Their current view is that the European Convention probably requires that there be an appeal from Revenue to an independent and impartial tribunal, such as the Appeal Commissioners, in respect of penalties. Scheme of Administrative Redress for Taxpayers The Group notes that Revenue proposes to apply the civil service administrative scheme 54 of redress to taxpayers when it is agreed. The Charter of Rights promises taxpayers that compliance costs will be kept to a minimum. Voluntary compliance will be encouraged if taxpayers consider that they are fairly treated, the system is balanced in their favour to the greatest extent possible consistent with securing the revenue of the State and that administrative remedies are available in material cases of unjustifiable loss or disruption. The Group believes that there is an onus on Revenue to seek to ensure that compliance costs are kept to a minimum. This onus applies equally in the context of existing powers and of new powers which are sought. 54 Currently under examination by Secretary General Working Group. 10

25 Table A: Use of Non-Routine Powers Year to date Power 900 Production of books etc. by taxpayer Application to High Court for production of books etc. by taxpayer 902 Information from Third Party A Application to High Court for Information from pending Third Party 904A Power of inspection: DIRT (2A) Search Warrant* A Information from financial institutions Appeal Commissioner: Information from financial institutions 908 High Court: Information from financial institutions A 58 District Court: Revenue Offence Information 0 2 [10] 14 [29] 4 [6] 0 from financial institutions* 909 Statements of Affairs * Used only in prosecution cases 55 Section 900 used mostly in relation to Ansbacher inquiries. 56 Warrants issued for 43 premises in respect of 9 investigations of the 17 in respect of identifying bogus non-resident account holders. 58 Figure in brackets is the number of financial institutions concerned. 11

26

27 CHAPTER 2 Effectiveness of Revenue Powers 1. Introduction 1.1. The Terms of Reference asked the Group to advise the Minister on the effectiveness of the main statutory powers available to the Revenue Commissioners to establish tax liabilities including investigation with a view to prosecution of Revenue offences There are difficulties inherent in any attempt to measure the non-compliant or the black economy, a measurement which is particularly important in terms of the effectiveness of revenue powers which aim to keep as many taxpayers as possible within the tax system. Such studies as have been done indicate that Ireland is not out of line with other European and OECD economies Relevant Factors 2.1. The Group considers that the effectiveness of the statutory powers is influenced by numerous factors including, but not necessarily limited to, the following: Developments in Revenue s organisation. Improvements in the level of tax compliance. Developments in the economic, political and social environment within which Revenue operate the powers. Extent of usage of the powers. Nature and reach of the powers available. The yields resulting from audits and investigations carried out using the powers. The criminal convictions obtained using prosecution powers The Group considered these factors and whilst they do not include commentary on each of these the Group believes that all relevant aspects have been explored, discussed and reflected in its recommendations. 59 Size and Measurement of the Informal Economy in 110 countries; Friedrich Schneider; Paper presented at Australian National Tax Centre, Canberra, July

28 Changes in Revenue Organisation 2.3. Recent changes in the structure of the Office of the Revenue Commissioners are relevant considerations in analysing the effectiveness of Revenue Powers in the past and gauging how effective they may be into the future The Revenue Commissioners have eight stated key objectives in their current Statement of Strategy, three of which read as follows: Deter and detect tax evasion and the illegal importation of goods and illicit drugs. Maximise compliance with all aspects of tax and customs law; and Measure and evaluate performance The Minister for Finance has stated in the Dáil that the Commissioners consider that ongoing implementation of the efforts and initiatives which they are putting in place should result, over time, in a significant improvement in compliance. 61 The improvement in compliance spoken of is a clear recognition that Revenue are themselves seeking to better utilize their finite resources The Minister for Finance stated that the Revenue Commissioners Statement of Strategy , published on 3 March last, contains a very strong emphasis on maximising compliance with tax and customs legislation and outlines a number of related key objectives and supporting strategies, including: An investigations and prosecutions division 62 to deal with prosecution of persons involved in serious tax evasion. A large cases division with a specific focus on large companies and wealthy individuals. 63 A computerised risk based selection system, Eskort which is under development and will be brought into operation in some form this year. When fully operational, this system will allow for the screening of all tax returns against sectoral and business profiles and will provide a sophisticated selection basis for cases for audit. A code of practice for Revenue audits that outlines clearly the consequences of noncompliance and the penalty provisions which apply in such cases. Increased resources have been applied to audit programmes and ongoing training programmes are in place to ensure that all Revenue auditors have the necessary knowledge and skills to audit effectively and efficiently; and A comprehensive strategy to improve tax returns compliance. 60 Annual Report of the Revenue Commissioners. 61 Dáil Éireann 8 April Additional staff has been allocated to give this the extra capacity it needs and to ensure that a reasonable number of serious evasion cases are investigated each year with a view to prosecution. 63 This division is preparing a comprehensive analysis of the issues relating to large companies and wealthy individuals, in particular those which pose a risk to tax revenues across all the taxes and duties payable to the Exchequer. 14

29 Restructuring 2.7. In addition, Revenue is undergoing a fundamental restructuring in order to increase efficiencies in managing the tax system. The Minister for Finance has given approval to the Revenue Commissioners to proceed with substantive integration of the taxes departmental and the general services grades in Revenue. These developments provide a backdrop to any analysis of the effectiveness of Revenue Powers Effectiveness means producing the desired result. The desired result in terms of the existence of Revenue Powers is tax compliance. This has been stated on many occasions by the Revenue Commissioners and Ministers for Finance Revenue Powers may serve to produce this desired tax compliance in a number of ways, in that they may act: As a deterrent to potential evaders because of their use in detecting and penalising those who do not disclose their true income. As an encouragement to comply by enabling defaulting taxpayers to come forward and rectify an incorrect return; or As an enforcement to comply by allowing Revenue to gather evidence and prosecute criminal tax evaders The Group looked at certain important investigation and prosecution powers, together with a sample of the less intrusive powers that are used in standard audits. 64 The Group considered these may be divided into three categories as is shown in the Table below (the numbers refer to the sections of the Taxes Consolidation Act 1997). 64 There have been over 68,000 standard audits since 1999, including VAT audits which are undertaken using S18 of the VAT Act

30 Breakdown of Audit, Investigation and Prosecution Powers Less Intrusive Powers mainly used in More Intrusive Powers mainly used Powers used in cases selected for audits in investigations, including special prosecution investigations Inspectors right to make 900 Production of books etc. by 905(2A) Search Warrant enquiries taxpayer 903 Power of inspection: PAYE 901 Application to High Court for 908A District Court: Revenue production of books etc. by taxpayer Offence Information from financial institutions 904 Power of inspection: tax 902 Information from Third Party deduction from certain sub-contractors 904C- 904J: Power of inspection: 902A Application to High Court for Information from Third Party assurance companies investment undertakings claims by authorised insurers claims by qualifying lenders claims by qualifying insurers qualifying savings managers dividend withholding tax professional services Inspection of documents and 904A Power of Inspection: DIRT records 956 Inspectors right to make 906A Information from financial enquiries and amend assessments institutions 907 Appeal Commissioner: Information from financial institutions 908 High Court: Information from financial institutions 909 Statements of Affairs 3. Usage and Effectiveness of Powers mainly used in Audits 3.1. The Group examined the evidence from the yields from the use of powers in audit cases since Unless otherwise indicated, all the figures quoted, are extracted from the Revenue Annual Reports from 1988 to The Group attempted to draw some tentative conclusions about the effectiveness of the main tranches of powers granted to Revenue by the Oireachtas in the period especially in the 1992 and 1999 Finance Acts. The table below illustrates the breakdown of Revenue s audit activity by tax-head since Such as Ansbacher and other off-shore entities, DIRT audits, Bogus Non-Resident Investigations. 66 Subsections such as 905(2)(a)(iv)(B) and 905(2)(e) are, however, potentially intrusive. 16

31 Numbers of Audits Carried Out Audit Type Audits Audits Audits Audits Completed Completed Completed Completed Comprehensive (All taxhead) 2,424 2,200 2,270 2,512 VAT 4,300 4,223 4,409 5,101 Employer s PAYE/ PRSI 862 1,443 2,104 2,768 Relevant Contracts Tax (RCT) Combined VAT, RCT & PAYE/ PRSI Verification Audits 67 7,594 7,107 1,733 1,848 Desk Audits 4,393 3,400 Investigation Branch Anti-Avoidance Capital Acquisition Tax Residential Property Tax N/A N/A 1,321 1,096 Total number of audits 16,176 16,356 17,672 18,524 Yield (m) 68 \269 \208 \141 \142 Source: Revenue Commissioners 3.2. The graph below seeks to cast some light on the audit yield performance since 1990 (chosen as a benchmark (=100) because it was the first year for which a full self-assessment audit yield was produced). It shows the trends since then for four indicators: the total number of audits (until 1998 this was for audits active during the year but then became completed audits); the overall audit yield; the yield per audit, and the overall Revenue yield (net of repayments). 67 Verification audits include some field audits carried out at a taxpayer s place of business and desk verification audits where the audit is carried out in the office. In 1999 and 2000 separate statistics were kept for desk verification audits. In 2001 and 2002 a guarded estimate is that 30% of verification audits would have involved an examination of records at a taxpayer s place of business. 68 Excludes yield from DIRT look back audits, bogus non-resident accounts, Ansbacher and NIB cases. 17

32 Number of audits, audit yields and revenue yields Total number of audits Audit Yield Yield/audi Overall Revenue Yield (Base Year 1990=100) Observations 3.3. The total number of audits carried out each year has been steadily diminishing since 1994 and presently stands at some 16,000 per year, down from a peak in 1994 of almost 29, This drop in the number of audits is notable as it is occurring as the average yield per audit increases, indicating improved targeting amongst other factors such as general economic buoyancy leading to greater tax liabilities. The audit yield dipped in 1993 and again in It is important to note that the audit yield figures in the table and graph above exclude the yield from the special investigations and the tax amnesty. The overall yield from audits remained at the same level from 1994 until 1998, despite the reduction in the number of audits carried out. The yield per audit figure roughly mirrored the overall audit yield figure until The overall yield per audit figure has almost doubled since This arises from the diversion of resources, as well as a focus on larger cases and improved targeting. 70 These dips are explained in the Annual Reports as being due to the diversion of experienced audit staff to special projects (respectively the 1993 Amnesty and the DIRT, NIB, Ansbacher and BNR investigations from 1999 onwards). 18

33 Average Yield per Audit 45,000 40,000 35,000 30,000 Comprehensive (All taxhead) VAT Employer's PAYE/PRSI Verification Audits 25,000 20,000 15,000 10,000 5, The graph above shows the average audit yield for certain tax head audits. It does not show the investigation branch and anti-avoidance figures which may arise from investigations and act to distort the overall picture since they have a very high average yield per audit. It is clear that the comprehensive audits and the verification audits (and we do not have any pre-1999 statistics for the latter) have been strong contributors to the recent increase in the audit yield and the yield per audit. The improved yield from verification audits in the last year or two is largely due to the success of a particular programme targeting taxpayers who exercised share options, the value of which are clearly a function of the relative buoyancy of the equity markets. The relative fall-off in the yield per audit under other tax heads would underscore this point. Underlying Factors behind Audit Yield Variances 3.5. One could speculate as to the underlying factors behind this recent improved audit performance the availability of experienced staff, increased resources and consequently improved research and targeting together with, perhaps, closer performance management all appear to have contributed. In addition, the non-mitigation of interest since 1998 (see interest discussion) may have had an influence on the yield figures as may a more rigorous imposition of penalties. On the other hand, it is also true that tax rates have reduced over the period in question, which, as a factor, would tend to lessen the average yield. 19

34 3.6. The Group looked in more detail at Comprehensive Audits, which are important indicators of the success of the targeted audit programme, as they cover a number of tax-heads and are more likely to uncover significant defaults than single issue or verification audits. Year Number of Comprehensive Nil Settlements included Nil Settlements as percentage of Settlements Comprehensive Audit Settlements % , ,482 1, , ,838 1, ,058 1, , , , , , , , Source: The Revenue Commissioners 3.7. The table above shows that a sizeable proportion of comprehensive audits result in a nil yield: between 1999 and 2002, the average was 36%; in 2002 this proportion was 39%. In the period the proportion averaged 26% and never exceeded 29%. The increase in nil audits, especially more recently, could also be as a result of various factors such as increased tax compliance arising, perhaps, from more effective use of the powers or, conversely, from less measured selection of audit cases. This high level of nil audits indicates the need for better targeting of revenue powers. In this context, the Group noted that Revenue are introducing a risk based assessment system to assist in this With regard to overall tax compliance measurement, the Group briefly considered the 2002 annual report of the Comptroller and Auditor General and in particular the examination of the random audit programme. The Group agrees that random audit results could not be safely extrapolated to give a universal compliance figure but also believes that a solid statistical trend could be established based on a regularised random audit programme. The Group also noted the Comptroller and Auditor General s concerns about the level of recidivism amongst tax defaulters and considers Revenue should put in place a standardised procedure to measure this trend The less intrusive powers are regularly used by Revenue but, in overall terms, the data available does not allow for clear findings concerning the effectiveness of powers. On the one 20

35 hand the increase in yield might point to more effective use of these powers by Revenue. On the other hand the increased yield has undoubtedly been influenced by certain special factors such as the targeting of share options, but, on the other hand, it may well be the case that a similar yield may have been achieved in any case. Furthermore, the recent dramatic economic growth resulting in a substantial increase in the overall tax yield for these years would also give rise to additional yield in targeted cases. 4. Usage and Effectiveness of Powers mainly used in Investigations 4.1. Revenue supplied the Group with information concerning the use of non-routine powers used mainly in investigations and in investigations with a view to prosecution. In essence these powers relate to Revenue s ability to lawfully require certain information from: the taxpayer (or first party); financial institutions about the taxpayer, and other third parties about the taxpayer 4.2. The Table below details of these non-routine powers together with a brief description of them and the number of times each has been used since The table below shows that these powers are, by and large, infrequently used. Applications to the High Court for first or third party information (other than from a financial institution) have occurred only six times between 1999 and 2003; the formal use of section 902 has only happened 15 times in the same period. However, although section 908 has only been used 27 times, its use has led to the investigation of 76,000 bogus non-resident accounts involving 149,000 taxpayers. 21

36 Use of Non-routine Powers to date Section and Power 900 Production of books etc. by taxpayer Application to High Court for production of books etc. by taxpayer 902 Information from Third Party A Application to High Court for Information from pending Third Party 904A Power of inspection: DIRT (2A) Search Warrant* A Information from financial institutions Appeal Commissioner: Information from financial institutions 908 High Court: Information from financial institutions A 74 District Court: Revenue Offence Information from financial institutions* [10] [29] [6] 909 Statements of Affairs * Used only in prosecution cases 4.4. Despite the infrequent use of the powers to access financial information, the Group considers these powers to have an important deterrent effect, in that taxpayers and their advisors are aware of Revenue s ability to require this information should the taxpayer envisage not cooperating with a Revenue request. This may suggest that Revenue do not often need to rely on a formal activation of the power as, in the normal run of events, neither Revenue nor the taxpayer is particularly anxious to be placed in a position where they have to go to the High Court Section 909 is the power to require a Statement of Affairs and is more often used than those mentioned above it has been formally used 147 times since The Group believes that Revenue does need this power; the regularity of its usage underlines its value to Revenue. The Group had some concerns that the Statement of Affairs power might be resorted to if a Revenue auditor was unprepared to examine a taxpayer s existing documentation in that s/he could simply issue a demand for a return of a statement of affairs. This could put the taxpayer to some considerable cost in circumstances which may not merit such expense and attention. The Group therefore suggest the existing authorisation procedure at Principal Officer level be given legislative standing. 71 Section 900 used mostly in relation to Ansbacher inquiries. 72 Warrants issued for 43 premises in respect of 9 investigations of the 17 in respect of identifying bogus non-resident account holders. 74 Figure in brackets is the number of financial institutions concerned. 22

37 300 Investigations 250 Number Yielding Number Nil Investigations Average Yield (, 000) The trend between 1990 and 2002 in the number of investigations carried out and the average yield from these, as shown in the tables above, shows a gradual reduction in the average yield. The finite resources available to Revenue can be advanced as a reason for variations in yields over the period. 23

38 4.7. In the course of the 1990s, the numbers of investigations fell with many cases being dealt with as audits. From 1996 on, Investigation Branch staff were transferred to prosecutions work and very few new cases were initiated as existing investigations were settled. It is clear that the numbers of investigations carried out dropped sharply over the decade and also that the effectiveness of these investigations, measured purely in terms of the financial yields, declined apart from The yield in this year reflects the settlements from certain special investigation cases arising from Ansbacher and the Tribunals. Special Investigations 4.8. Certain recently introduced Revenue Powers have clearly been used to considerable effect. Revenue figures show a clear linkage between the powers to access information from financial institutions in relation to DIRT and the substantial yields from settlements of cases arising from the usage of these powers The chart below illustrates the clear impact of a number of the specific powers introduced in the 1999 Finance Act. The yields from the DIRT and BNR cases currently approach \700 million whilst in the same period standard audit activity has brought in a similar sum. These powers have been cited by Revenue as being essential to their success in the DIRT look back audits, the follow up projects in relation to the underlying depositors and the inquiries in relation to Ansbacher and other off-shore entities. DIRT/BNR and Audit Investigations Yields DIRT/BNR and Audit Investigation Yields ( m) DIRT & BNR Cases Audit Yields Jan-Jun

39 4.10. In relation to financial institutions Finance Act 1999 introduced several entirely new sections to the Taxes Consolidation Act 1997: 904A, 906A and 908A and amended or substituted other sections: 905, 907 and 908. The 2000 figure of \220 million is the aggregate of the Financial Institutions DIRT related settlements, whilst the 2001 figure of \227 is the quantum of the DIRT and BNR settlements made under the Incentive offered in that year. The remaining figures in the chart (2002 and 2003 to date) represent the settlements of BNR account holders who did not choose to avail of the incentive. Aggregate of settlements received from special investigations (\m) 76 \ NIB/CMI 47 Ansbacher 26 DIRT and Bogus non- resident accounts Tribunals 24 Offshore Assets Group 111 Total The Group considers that, in the cases where the powers have been used, their use has had a positive effect on the collection of additional unpaid tax. Also the existence of the powers and their exercise may lead to increased compliance in other cases where they are not used although it is not possible to adduce empirical evidence to support this view. In particular, it is not possible to define a firm causal relationship between the usage of powers and the effectiveness of powers with the substantial exception of the DIRT/BNR yields. 5. Usage and effectiveness of powers used in Prosecution Prosecution for non-filing 5.1. It is Revenue policy to bring criminal prosecutions under Section 1078 of the Taxes Consolidation Act 1997 against those who ignore their filing responsibilities. Non-filer prosecutions are taken by way of summary proceedings in the name of the Director of Public Prosecutions in the District Courts. Prosecutions in Dublin are taken by the Revenue Solicitor, while outside Dublin the State Solicitors perform this work. Results of Prosecution of Income Tax Non-Filers 1997 to Warning letters 1,917 5,450 5,399 6,457 9,818 9,348 Cases referred for issue of summons 853 1,968 2,369 1,951 2,401 1,839 Number of taxpayers convicted , , Total Fines \0.2m \0.9m \1.5m \0.9m \1m \1m and 2003 estimates are derived from Iris Oifigiuil and Revenue website published figures. 76 Statement by Chairman of the Revenue Commissioners to PAC, October \227 (Financial Institutions) + \220 ( Incentive settlements) leaves a balance of \237m, but some of these figures should be treated with caution as they are subject to constant revision as settlements continue; for example the total settlements from the Offshore Assets Group has recently increased to some \122m. 25

40 5.2. Prosecutions for failure to file tax returns are common 78 : since 1998, Revenue have obtained District Court convictions under S1078 of the Taxes Consolidation Act 1997 in 5,270 cases of non-filing and court fines amounting to \6.2 million. Revenue s role in investigation with a view to prosecution 5.3. From a policy point of view there are constraints on Revenue which do not apply to other agencies undertaking investigation with a view to prosecution: The major competing objective of pursuing the tax liabilities to a financial settlement. Revenue investigators do not have Garda powers such as the power of arrest and detention. Weighing the heavy resource implications of preparing cases for criminal trial against the need for resources to establish and collect of tax liabilities. The existence of civil penalties for the same default as a prosecutable offence Revenue identified two particular sections that are used for prosecution cases: namely sections 905(2A) and 908A, the usage of which is set out in Table A. 79 Audit districts are required to forward cases to Investigation and Prosecutions Division for investigation with a view to criminal prosecution where there is prima facie evidence of serious revenue offences having been committed. These cases are further evaluated within the Division before commencement of the very resource intensive criminal investigation work which can take several years before reaching the Courts Convictions were obtained in the three cases decided in Court in In addition, there have been five further convictions in 2003 to date. Revenue have stated that there are currently 35 cases under active investigation for prosecution. In the UK, by comparison, there were convictions for serious tax fraud between 1998 and So, on average, there were some 45 successful prosecutions a year in the UK which has a population some fifteen times larger than Ireland which is pro rata at least a similar prosecution record to that in Ireland. Prosecution for serious tax evasion 5.6. Revenue also investigates cases of serious tax evasion which they believe should be investigated with a view to prosecution if they involve one or more of the following: Use of forged or falsified documents; Systematic scheme to evade tax; False claims for repayment; Failure (as distinct from minor delays) in remitting fiduciary taxes; Deliberate and serious omissions from tax returns; 78 While many of these convictions are successful, they are not without their own operational enforcement difficulties which have been outlined by the Comptroller and Auditor General in his recent report. See 2002 Report of the C&AG (Chapter 2; section 2.8). 79 At the end of the Executive Summary defendants were brought to court and 183 were convicted, 24 were acquitted, 13 defendants offered no evidence (because the case was dropped, the defendant was in ill health or the evidence was inadmissible) and 25 cases were stayed for technical reasons. 26

41 Use of off-shore bank accounts to evade tax; Insidious schemes of tax evasion; Aiding and abetting the commission of a tax offence; and Offences under the Waiver of Certain Tax, Interest and Penalties Act Prosecuted cases of serious tax evasion Year Cases under Investigation at Year End Convictions Fines Collected (\) ,854 19, ,666 5,540 16,865 Custodial Sentence (Suspended) 2(2) 1 2(1) 4(2) (1) Acquittal According to the 2002 Code of Practice for Revenue Auditors, the following considerations will influence the decision to investigate with a view to prosecution (as opposed to investigation with a view to financial settlement): Whether sufficient evidence is or will be available to prove that the accused committed the alleged offence beyond reasonable doubt; The length of time since discovery of the alleged offence and any damage consequent on a delay in initiating proceedings; The assessment of the cost of prosecution; The culpability, responsibility and experience of the accused; The deterrent effect of prosecution for the particular offence; and Whether full disclosure has been made, whether co-operation has been given and whether the tax, interest and penalties due have been paid. Civil Penalties and their interaction with Prosecutions 2.8. A standard prosecution scenario currently is that Revenue will prosecute for an offence under section 1078 of the Taxes Consolidation Act 1997, 82 typically the offence of filing a false tax return. There are also civil penalties for this default. 83 The overall case will frequently involve a number of years. The prosecution is taken in respect of the return for a single year but the Code of Practice for Revenue Auditors Appendix Note that the maximum fine a court may impose under s.1078 of the TCA is \126, Under s.1053 TCA 1997 any person who delivers an incorrect return of income is liable civilly to a fixed penalty of \125 and a tax geared penalty which consists of a sum equal to the amount of tax underpaid where the error was made negligently and twice that amount where the underpayment was due to fraud). 27

42 interest and penalties 84 will arise in respect of all years. The tax geared penalty at the full statutory rate of 100% of the unpaid tax can constitute a very substantial sum The existence of the right to mitigate civil penalties creates both legal and practical difficulties as there is an inherent conflict between the exercise of the power to collect tax and civil penalties on the one hand and the prosecution of offenders on the other. For example, if a taxpayer were to admit a wrongdoing to a Revenue official with a view to taking advantage of the promise of mitigation under voluntary disclosure it is unlikely that the admission could be used in evidence against him in subsequent criminal proceedings. Whether information gleaned by Revenue as a result of such an admission would itself be admissible in evidence has not yet been fully explored in this jurisdiction. Also any mitigation prior to the court hearing could undermine Revenue s position In examining the effectiveness of prosecution powers, the Group considered recent cases 85 where the amount paid by way of interest and penalties was taken into account by the trial judge in imposing a fine under section 1078 of TCA 1997 and the fine imposed was at the lower end of the range. 86 The judgement of the Court of Criminal Appeal in The People (Director of Public Prosecutions) v Redmond explained that: It is plainly not possible for a sentencing court in a case such as this to ignore the fact that other penalties, which may be much greater in amount than the cumulative sum of the maximum fines for these charges have already been paid The judgement also cited Professor Thomas O Malley in his book Sentencing Law and Practice who pointed to the growth of multiple responses to crime as opposed to the presumption of a sole official response to an offence. Professor O Malley stated that the existence of such measures, which are set to become more prevalent, together with the growth of civil penalties poses a problem for any sentencing system claiming to be guided by proportionality standards This would suggest that where a taxpayer has paid very substantial civil penalties the prospect of securing any significant penalty from the court is remote Possible approaches were considered by the Group as follows but no conclusion was reached: That Revenue postpones agreement on civil penalties until the criminal case had been determined It is almost certain that this would not solve the problem. The trial judge would require some undertaking from Revenue as to the course being adopted in relation to civil penalties or adjourn the imposition of his/her sentence until the civil penalties had been disposed of. 84 The Revenue Commissioners have a statutory power to mitigate civil penalties (see s.1065 of the 1997 Act), except for years prior to the 1993 Amnesty where mitigation is statutorily prohibited. 85 Although it should be said cases involving pre 1993 default present an exceptionally penal profile due to strictures in regard to non mitigation of penalties where there was a failure to avail of amnesty. 86 The maximum fine payable on conviction on indictment is \126,970, which could be added to or replaced by up to five years in prison. 28

43 To permit the judge in the criminal proceedings to determine the civil penalties To vest in the judge in the criminal proceedings the power to impose or order payment of civil penalties could challenge the distinction between civil and criminal penalties. To select for prosecution cases where the civil penalties would be modest This might result in less serious offenders being convicted and the more serious offenders escaping prosecution through settlement. To forego civil penalties altogether in civil cases in respect of which prosecutions are instituted This solution does overcome many of the legal problems. However, Revenue might have to waive the right to collect substantial civil penalties in favour of proceedings in which they would be required to prove their case beyond reasonable doubt and where the fine imposed might only represent a fraction of the civil penalty foregone. Deterrent Value of Prosecution and Civil Penalties Conviction for a criminal offence carries with it a stigma and opprobrium which is entirely distinguishable from any possible outcome of civil proceedings. The imposition of a substantial fine may be an appropriate sanction in some cases but the imposition of a custodial sentence particularly for white collar crime is generally seen as the most effective deterrent to crimes of that nature. Accordingly, it is entirely appropriate that Revenue should pursue through the criminal process serious offences in respect of which adequate evidence is available On the other hand, the Group believes that the attention of taxpayers and the public generally should be drawn to the penalties which have been imposed by the Oireachtas and can be recovered by Revenue through the Courts. Such penalties are exigible on the balance of probabilities whereas criminal conviction requires proof beyond reasonable doubt. Proof beyond reasonable doubt can be difficult to obtain and frequently can be obtained only by a disclosure from the taxpayer himself. (A taxpayer is under no obligation to incriminate himself and consequently, where there is any risk of criminal prosecution taxpayers may not make a voluntary disclosure.) Consequently civil proceedings may be preferred to a criminal prosecution The provisions requiring publication of the penalties and interest in cases other than those expressly excepted by the legislation ensures that even civil procedures carry with them a significant degree of opprobrium. 6. The Group s Conclusions regarding the Effectiveness of Revenue Powers 6.1. Revenue powers are considered by the Group to be effective as a deterrent and to serve broadly to reinforce compliance culture. There is a clear perception and understanding abroad that Revenue can access financial and other records more readily now than heretofore and this is believed to lead to greater levels of disclosure both prompted and unprompted. It is noteworthy that Revenue s use of powers has given rise to a low level of complaints by way of submissions. 29

44 Audits and Investigations 6.2. All audits need powers and clearly they have an effect in that there is a yield from these audits. The Group was reluctant to draw any other strong conclusions about effectiveness from audit yields in general, mainly because of the inherent pitfalls in making assumptions about microorganisational effectiveness based on aggregate statistics, in isolation from other factors Having said that, there is a clear and direct relationship between certain powers used in recent special investigations such as accessing financial institutions to obtain information about Bogus Non-Resident account holders and the yield from the settlements of the resultant cases. Prosecutions 2.4. As many of the defendants to date were being prosecuted for first offences, the Courts may prove to be less lenient should they re-offend. This factor may be worth considering in selecting future cases. Also future cases may not involve the same history of default. Pro-rata Ireland s prosecution record would appear to be no less than the prosecution record in the UK. The Group s Recommendations Effectiveness of Revenue Powers (1) In view of the Group s difficulties in establishing linkages between the usage of powers and desired outcomes, the Revenue Commissioners should put in place a systematic approach to assess the effectiveness of Revenue Powers; the approach could be based on internationally recognised criteria of tax administration performance measurement, which might include the trend over time of the cost to the taxpayer of complying with the use of powers. (2) Revenue, in line with their re-organisation and restructuring, should establish Regional Powers Officers in each of the five regions. This officer (at least at Principal Officer grade) would be accountable for the coordination of the operation of powers in line with Revenue guidelines. All requests to use more intrusive powers would be routed through their office therefore ensuring consistent treatment throughout each region. This should enable better co-ordination and management information and monitoring of the powers. It may also facilitate the identification of linkages between their actual use (indeed the request or intention to use could be recorded) and measurable outcomes in terms of improved compliance. (3) A better targeting of the powers should be possible in order to improve the cost/yield ratio given that the rates of nil targeted audits have increased in recent years and are running close to 40%. (4) Compliance costs resulting from the use of powers ought to be reduced where possible. The compliance cost burden on taxpayers should always be actively considered by policymakers as an issue in relation to the effectiveness of powers and by Revenue in relation to the usage of powers. (5) The Revenue Commissioners should periodically, say every three years, include a section on the effectiveness or otherwise of their powers in their annual report to the Minister for Finance. 30

45 CHAPTER 3 Appropriate Balance of Powers Safeguards 1. Authorisations Introduction 1.1. Comparison with other jurisdictions 87 shows that the powers of the Irish Revenue are characteristic of those of other tax administrations: i.e. first and third party information powers, the power to require production of records, powers of entry, inspection, search and removal of records and the power to mitigate penalties in certain circumstances. There are variations between jurisdictions in terms of the restraints on the use of the more intrusive powers, to some extent these represent different legal traditions and different administrative practices. Restraints on Powers 1.2. All of the powers conferred by law on the Revenue Commissioners are subject to certain restrictions in their use. These restraints are imposed for the protection of the taxpayer and to ensure that intrusive powers are not exercised indiscriminately, unreasonably or in a manner which is disproportionate to the objective intended by the Oireachtas. The legislative restraints upon the Revenue officials exercising the powers under the tax legislation represent legally enforceable safeguards for the taxpayer. In addition to the specific provisions in the Taxes Acts, the taxpayer also has his/her general legal rights The administrative means to control the use of the powers include authorisations to use the powers either specific to each use or on a general enabling basis and instructions in operations manuals developed by Revenue. 88 Revenue has a published Charter of Taxpayers Rights although it not clear whether these rights are legally enforceable. 89 The Ombudsman expects Revenue powers to be exercised in accordance with the principles outlined in the Ombudsman s Guide to Best Practice for Public Servants In general, legislative restraints take the following forms: requiring a formal authorisation either internal or external to the Revenue Commissioners to invoke particular powers; 87 See Taxpayer Rights and Obligations a survey of the Legal situation in OECD countries, 1990 ; Control and Search Powers of Tax Authorities: Tables 9A and 9B. Administrative Discretion of Tax Authorities: Table 11 in Appendix H. 88 There are also Statements of Practice, Guidance Notes and Codes of Practice. 89 In the case McKechnie J in Keogh v the Criminal Assets Bureau and Others (High Court, Unreported, 20/12/02) the judgement noted that If the process was based on administrative practice or even on a basis truly responsive to the exercise of a discretionary power, I would think that an argument could be advanced that it is very much incumbent on an inspector who is exercising a Revenue function to do whatever the relevant part of the Charter says... but added that these remarks are general in nature and are not to be taken as expressing a concluded opinion on the nature or scope of enforceable rights (if any) under the Charter... in particular I express no view on what legal consequences in other areas any breach thereof might give rise. 31

46 statutory preconditions on the use of some powers, and appellate procedures to correct the alleged abuse of powers These legislative restraints should be graded in proportion to the extent to which the exercise of particular powers intrudes on the constitutional, civil or other rights of the taxpayer The table below shows the formal authorisations required under Revenue s Operations Manual on Outdoor Powers for the use of certain far-reaching powers. Not all of these authorisation requirements are specified in the legislation. Non-routine powers 91 Section and Power Authorisation to date 900 Notice by authorised officer requiring production Senior Inspector of books etc. by taxpayer. 901 Application to High Court for production of Assistant Secretary 1 books etc. by taxpayer 902 Notice from authorised officer for information Regional Director 15 from Third Party 902A Application to High Court for Information from Revenue Commissioner 4 Third Party (1 pending) 904A DIRT audit power Regional Director (2A) Search Warrant* from District Court Assistant Secretary A Notice from authorised officer for information Revenue Commissioner 20 from financial institutions in relation to a taxpayer liability 907 Notice from authorised officer for information Revenue Commissioner consent for 4 from financial institutions regarding taxpayer, including authorised officer to apply to Appeal those of unknown identity and including taxpayers in Commissioner for consent to issue respect of whom a DIRT declaration was made 908 application to High Court for information from Revenue Commissioner 27 financial institutions, including those of unknown identity and including taxpayers in respect of whom a DIRT declaration was made 908A 94 District Court: Revenue Offence Information Revenue Commissioner 20 from financial institutions* [45] 909 Statements of Affairs on notice from inspector of District Inspector 147 taxes *Used only in prosecution cases 90 The constitutional and human rights considered to be germane to the issue of appropriate restraints on powers included rights to fair procedure, privacy/confidentiality of documents, inviolability of the dwelling, respect for privacy and family life, right to silence and to privilege against self-incrimination. 91 These require internal specific authorisation for each use. The use of non routine powers is subject to individual authorisation; routine powers have a standing authorisation, i.e. do not require specific approval to activate in a particular instance. 92 Section 900 used mostly in relation to Ansbacher inquiries. 93 Warrants for 43 premises in respect of 9 investigations. 94 Figure in brackets is the number of financial institutions concerned. 32

47 1.7. The Group s consideration of these is set out hereunder. S900 to S901 Power to call for production of books, information etc. and Application to the High Court: production of books, information etc Submissions to the Group sought the application of objective preconditions to these powers. The Group agrees with the need for objective preconditions but also recognises the complexity of crafting these so that they do not unduly fetter proper use of the powers. The Group has sought to meet this standard in its recommendations No change in authorisation is recommended but the internal authorisation level, which is specific to each use of the powers, should be specified in the legislation. The fact that these powers may be used by the Criminal Assets Bureau also means it may give rise to the need in the legislation to either exclude or provide for equivalent authorisation by other agencies which access revenue powers through the secondment of revenue officers. S904A Power of Inspection: returns and collection of appropriate tax The revelations regarding the prevalence of bogus non-resident deposit accounts resulted in Revenue being given, in Finance Act 1999, the power to audit DIRT returns at the premises of the institutions concerned. While this power was to enable Revenue to uncover the extent of DIRT evasion in the past, it also permitted the ongoing audit of such returns. In the course of the audit the authorised officer may examine the procedures in place to ensure compliance with the DIRT legislation and may check a sample of accounts. Subsequent Finance Acts gave Revenue the powers to audit systems of other persons who were required to comply with similar obligations as deposit takers. 95 The DIRT audit power has no third party supervision. The Group considers that the authorisation level of Regional Director/Assistant Secretary should be set out in the legislation. S906A Information to be furnished by financial institutions This section provides for the issue of a notice to a financial institution for information concerning a taxpayer. Whilst privilege does not attach to communications between a banker and his/her customer the relationship does confer a high degree of confidentiality which should be protected. On the other hand, it is clear that there are many cases in which the Revenue Commissioners would be frustrated in the performance of their statutory duties if they were denied access to records maintained by financial institutions The nature of this problem and the manner in which it might be resolved was the subject matter of observations by Chief Justice Keane in Liston.v. G O C 1 IR 501 [1996]. What the Chief Justice said in dealing with that issue under section 18 of the Finance Act was as follows: The clear object of the provision is, however, to enable the Revenue Commissioners to obtain information of this nature in order to ensure that all taxpayers pay the tax which by law they are required to pay. That object would be seriously frustrated if an onus was imposed on the applicant to satisfy the court that the information sought would in fact disclose that false returns had been made. However, an order made under this section seriously abridges the right of confidentiality which every person dealing with the bank enjoys and it is for that reason that the Oireachtas not merely stipulated that the inspector 95 Sections 904C to 904J. 96 Previous enactment to current S

48 must have reasonable grounds for the belief provided the additional and valuable safeguard that a High Court judge must be satisfied that such reasonable grounds exist before the institution concerned can be required to furnish the information sought Significant changes were made to powers enabling Revenue to access information held by financial institutions in Prior to Finance Act 1999 Revenue could not conduct an audit of a financial institution s tax return at the premises of the institution as section 905 did not apply to financial institutions. In addition the powers available to Revenue to access information held in a financial institution were limited: Revenue could require a named financial institution to furnish particulars of all accounts maintained by a named person over a 10 year period and to furnish information relating to the person s financial transactions The current powers in relation to financial institutions 97 allow Revenue: to conduct an audit on the institutions premises under section 905; by the issue of a notice to a financial institution, to seek information from the institution regarding the accounts of a named taxpayer under section 906A; to apply to the Appeal Commissioners under section or the High Court under section 908, in order to obtain information from a financial institution regarding a taxpayer 99, where taxpayer includes a person or a group or class of persons whose identity or in the case of a group or class of persons, the individual identities, are not known to Revenue and Section 908A gives power to an authorised officer to apply to a judge of the Circuit Court or of the District Court for an order authorising the officer to inspect and take copies of bank records for the purpose of investigation a Revenue Offence Unlike other sections regarding access to information in financial institutions S906A does not involve third party authorisation. Prior to 1999 all access to financial information involved application to a third party. 100 The third party provision in regard to these powers typically involves either application to the Appeal Commissioners for consent to issue a notice or application to the High Court for the information sought from the financial institution The legislation currently provides that the taxpayer should be given a copy of the notice issued to the financial institution under section 906A. The section 906A power could be characterised as an investigation power (as opposed to a standard audit power). It has been used only 10 times since it was enacted. If the legislation provided that the taxpayer should be invited to mandate 101 the bank concerned to provide the relevant information in the absence of which an application would be made to the High Court it may be anticipated that such consent would 97 The Group recommends in Chapter 4 the automatic transmission by financial institutions to the Revenue Commissioners of all amounts paid by way of interest by banks to their customers. If that recommendation is accepted the need of the Revenue Commissioners for full access to the records maintained by banks should be greatly reduced. 98 Section 907 TCA substituted by Section 207 (h) Finance Act A taxpayer for the purposes of section 907 and 908 includes a company which has been dissolved and an individual who has died. 100 In the case of section 907, Revenue was required to obtain the determination of the Appeal Commissioners before issuing a notice seeking the required information. In the case of section 908, an application had to be made to the High Court for an order requiring the financial institution to furnish the information specified therein former enactment S18 of Finance Act A mandate procedure is used by the Department of Social Community and Family Affairs. 34

49 be forthcoming. If not, it would be an appropriate factor for the Court to take into consideration in determining by whom the costs of the application should be met Based on usage to date it is not anticipated that it would be necessary to make frequent applications for the authorisation of the High Court to inspect banking records under this section so amended. The Group also noted that the procedure prescribed by the Rules of the Superior Courts for making Revenue applications of this nature was by way of motion and not by way of summons. This procedure would be more expeditious and less expensive than the institution of substantive proceedings. 102 S909 Power to require return of property This power is used to ask the taxpayer to provide a Statement of Affairs essentially a statement of all assets, including non financial assets, and all liabilities. It is used with greater frequency than the others and involves cost to the taxpayer. The Group had some concerns that the Statement of Affairs power might be resorted to if a Revenue auditor was unprepared to examine a taxpayer s existing documentation in that s/he could simply issue a demand for a return of a Statement of Affairs. This could put the taxpayer to some considerable cost in circumstances which may not merit such expense and attention. The Group therefore suggests the existing authorisation procedure, at Principal Officer level, be given legislative standing. In consideration of the fact that this power may be used by the Criminal Assets Bureau also it may be necessary in the legislation to either exclude or provide for equivalent authorisation on its use by other agencies which access Revenue powers through the secondment of Revenue officers The table hereafter and ensuing comments set out the Group s considerations of other powers from Chapter The Senior Registrar of the High Court indicated that an application in accordance with this procedure would usually be heard within two weeks from the commencement of the proceedings. 35

50 Other Powers from Chapter 4 Section and Power Nature of power Consent required to Officer to be use authorised 899 Inspector s right to make enquiries Audit of third party Regional Director Inspector Senior return. Inspector 903 Power of inspection: PAYE 904 Power of inspection: tax Entry to business deduction from payments to certain premises. subcontractors 904C Power of Inspection (returns and collection of appropriate tax): assurance companies Inspection of records. 904D Power of inspection (returns and collection of appropriate tax): investment undertakings 904E Power of inspection: claims by authorised insurers 904F Power of inspection: claims by qualifying lenders Removal and/or retention of records. Inspection of property. No specific approval needed once officer is authorised to use the section. If taxpayer refuses consent, approval of 904G Power of inspection: claims by Search of premises for Regional Director will qualifying insurers records (903, 904, 905 be required H Power of inspection: qualifying savings manager 904I Power of inspection: returns and collections of dividends withholding tax (2)(a) (iv) (B) only) Requiring assistance from third party. Higher Tax Officer Senior Inspector 904J Power of inspection: tax deductions from payments in respect of professional services by certain persons 905 Inspection of documents and records 906 Authorised Officers and Garda To be accompanied by Síochána a Garda when exercising powers under s.903, 904 or 905 to protect against obstruction. Assistant Secretary Higher Tax Officer Senior Inspector 104 S906 Authorised officers and Garda Síochána This section provides for the involvement of An Garda Síochána in the exercise of Revenue Powers under sections 903, 904 and 905. In the event that a person obstructs or interferes with an authorised officer in the exercise of his/her powers the member or members of An Garda Síochána may arrest that person. Of its nature an investigation has the potential for creating a confrontation. The possibility that such a confrontation would escalate into a more serious incident can necessitate the involvement of An Garda Siochána under S Where a request to search is refused by the taxpayer, Revenue s Operations Manual indicates that a search warrant is always sought. 104 This is specifically authorised: Revenue s Operations Manual states that HTOs should always be accompanied by a more senior officer when exercising powers for which prior approval is required. 36

51 1.21. Revenue officers, as ordinary citizens, are entitled in situations of danger to call upon the Gardaí for assistance. Some other regulatory bodies (ODCE, CAB and the Competition Authority) can rely on the involvement of the Garda Siochána who are seconded to them. No doubt, proper training of Revenue officials does much to reduce the likelihood of such events. However, in a small number of incidences it may be appropriate to have a member of An Garda Síochána present to ensure the safety of the officers involved in the investigation. Revenue authorisation at Assistant Secretary level is required to avail of S906 in each case but this is not provided for in the legislation. In addition, current Revenue instructions state that where powers subject to specific authorisation are used, a Higher Tax Officer must always be accompanied by a more senior officer. The Group s Recommendations Authorisations (6) The powers legislation should specify in all cases the levels of third party and Revenue authorisations required to activate any of the above powers from Chapter 4. (7) Regarding S900 and S901 one or more of the following should exist for the activation of these information powers: a failure on the part of the taxpayer or notice is given of audit or investigation. (8) S906A should provide that the authorised officer should first request the information from the taxpayer; that the taxpayer be given an opportunity to authorise or mandate the information sought (unless this would prejudice a prosecution); and if the taxpayer fails to so authorise, then the Revenue officer should apply to the High Court for approval to direct this information be given. 105 (9) The full authorisation requirements in regard to the use of S906 should be made legislative. Search and Authorisation The powers of search contained in the existing legislation are necessarily complex. First, a distinction must be drawn between business premises and domestic accommodation. 106 Particular care is required in regard to a private dwelling where part is used as a business premises. Secondly, it is necessary to recognise the different considerations which arise when a search is authorised to procure evidence in support of criminal proceedings in contrast to cases (civil cases) where the Revenue Commissioners are seeking evidence to establish a tax liability. There are then special considerations to be taken into account when the premises in question are occupied by a solicitor, accountant, doctor or other professional person who may be in possession of documents to which either privilege or a special degree of confidentiality may attach. These considerations are most clearly evident in the overall construction of Section Basis of application would be as in S907 and S908 i.e. that Revenue have reasonable grounds for suspecting that the taxpayer may have failed or may fail to comply with any tax provision and that that would result in significant tax liabilities not being discharged. 106 A warrant is required to search a private dwelling in six of the seven jurisdictions consulted. 107 Although due to its piecemeal development this section lacks cohesion. 37

52 1.23. Under existing legislation, there are some circumstances in which a search can be conducted on behalf of the Revenue Commissioners without any judicial intervention. Sections 903 (PAYE Inspection), 904 (Relevant Contracts Tax Inspection) and 905(2)(a)(iv)B contain a power to search premises without a warrant. Internal instructions prescribe that if consent for the search is not forthcoming, the outcome would be that a search warrant should be sought. These are not powers to search premises as such they provide for the search for particular records which the authorised officer has reason to believe were not produced on his/her request These powers of search without warrant were introduced in 1992 to address concerns regarding the suppression of records at business premises. Revenue informed the Group that the Relevant Contracts Tax is particularly susceptible to abuse which takes the form of forged or fraudulent documents with potentially very large amounts of tax at stake Revenue s powers of search without warrant have been used in very limited circumstances in recent years. As currently drafted the power of search without warrant in section 903 could possibly be construed as allowing a search of a private residence where domestic workers on PAYE were employed The power to search premises without a warrant exists in most of the seven jurisdictions studied. Ireland is not unique in this respect. There is provision for the use of a search without warrant by other agencies, e.g. the Health and Safety Authority 108 but the situations are not considered strictly comparable Revenue have said that the search under warrant power in S905(2A) is used only in prosecution cases, although this is not made clear in the legislation. The main ground on which Revenue will go to the Court for such an order is to secure evidence of a serious breach of the tax code. The District Court procedure does not permit or afford the person whose premises are to be searched being heard in opposition to the application but several judicial decisions have emphasised the need for the applicant to provide sufficient evidence to the judge of the District Court to enable the judge to determine if a search is needed At Common Law authorisation to enter the dwelling or other premises of a citizen for the purpose of searching or taking documents therefrom was obtained from the District Court or a court of equivalent jurisdiction. The power to search for stolen goods in accordance with that procedure has been long established and was subsequently given legislative effect under the Larceny Act and other legislative provisions. Other legislation such as the Offences Against the State Act 1939, the Drugs Trafficking Act 1996 and the Criminal Assets Bureau Act 1996 permit searches to be made with the authority of senior officials of the relevant agency. Such legislation can be seen as emergency legislation or legislation to deal with very special situations A District Court warrant to conduct a search of premises for evidence in support of criminal proceedings is self-policing to the extent that if Revenue, the Gardaí or other parties concerned exceed their jurisdiction in applying for the warrant or in conducting the search the evidence obtained might not be admissible in the subsequent criminal proceedings. There is no comparable protection where the warrant is obtained and the search is conducted to establish a civil liability. 108 Section 50 of the Food Safety Authority Act The Group have been afforded the opportunity of inspecting the information and other documents submitted to the District Court in a variety of cases for the purposes of obtaining a search warrant. It would seem clear that in the cases examined by or on behalf of the Group that the Revenue Solicitor and the Revenue Officers involved are obliged to apply in full with the strictures laid down by the Supreme Court when searching a premises or a dwelling. 38

53 1.30. The main purpose of the power of search without warrant appears to be its deterrent effect which the Group considers would not be eroded by a requirement to obtain the authority of the District Court. A private residence which is the place of employment of domestic staff should not be allowed to be searched without warrant under S903 and a search of any premises should not be permitted save in accordance with an order or warrant of the District Court. The Group considers it desirable to make legislative provision to ensure that all searches are conducted properly whether in connection with a civil or a criminal investigation and that the number of documents or computer equipment seized is strictly limited. The special distinctions which are recognised in S905 as necessary to protect the interest of clients of professional persons, whose premises are the subject matter of a duly authorised search, should be applied to all search powers as appropriate. The Group s Recommendations Search in Regard to Establishment of Tax Liabilities (10) The power to search without warrant in S903, S904 and S905(2)(a)(iv)B should be made subject to a warrant from the District Court. (11) A search warrant of the premises of a professional, 110 where the professional is a third party, should specifically restrict the search to files of a particular client or class of clients. (12) A legislative precondition should be stated that the search should be limited to the records relevant to the determination of a tax liability of a particular taxpayer or taxpayers or class of taxpayers. (13) In investigations into additional tax liability, the present statutory professional privilege under section 905(2)(c) should apply. (14) Where an ex parte warrant is sought to establish a tax liability, the warrant of the District Court should provide that in the event of a dispute about the relevance of any documents or records obtained as a result of the search, they should be retained by the Revenue solicitor for five days in his/her capacity as an officer of the court to permit the taxpayer the opportunity to appeal to the Appeal Commissioners to determine any allegation as to the relevance of the records so removed to any tax liability. Criminal Investigation with a View to Prosecution 111 (15) There should be a stand alone power of criminal search. (16) A search warrant issued in respect of the premises of a professional where the professional is a third party, should specifically identify the client or clients whose documents Revenue are entitled to obtain. (17) The current provisions of S905(2A) should stand in this context except for the condition regarding an anticipated beach of the tax code i.e. reasonable grounds for suspecting that a persons may have failed or may fail to comply with any provision of the Acts from which the element of futurity should be deleted. 110 See case of Niemietz v Germany [1993] 16 EHRR 1997 for comments regarding lawyer/client confidentiality and searches. 111 See also Chapter 5 regarding Prosecution Powers and later in this chapter regarding Power to Remove and Retain Documents. 39

54 2. Audit, Investigation and Mitigation Introduction 2.1. The introduction of self-assessment in 1988 was, understandably, counter balanced by the powers conferred upon Revenue to make inquiries of and concerning the taxpayer and to conduct investigations of one form or another into his/her affairs to determine the correctness or otherwise of the returns made by him. 112 The onus was placed on taxpayers to make proper returns without a prompt from the tax inspector. Audit practice developed in this period as a mainstream outdoor activity for Revenue officers. The available statistics show that such investigations, frequently described as audits, and the voluntary disclosure which may precede or be prompted by such audits has done much to secure the compliance if belated with the tax code and has yielded substantial revenue in the form of arrears of tax, interest and civil penalties There are civil penalties and interest charges for late filing. The Group accepts that these are necessary provisions to maintain the collection of the revenue of the State but has reservations about the cumulative impact of these in the longer term and in particular in audit and investigation negotiations An audit may be triggered in circumstances where a taxpayer has failed to make a tax return or has made an incomplete return. This may arise from third party information reaching Revenue in regard to possibly undisclosed income of the taxpayer. Even where there is not the intention to under-declare tax, the taxpayer may find that he/she has inadvertently done so. The taxpayer may employ an advisor but in the final analysis the under-declaration is the responsibility of the taxpayer Every audit carried out on the business or domestic premises of the taxpayer is a source of potential confrontation. It is possible that the taxpayer could see such an audit as a challenge to his/her integrity. Some taxpayers who have made submissions to the Group felt that the Revenue officials adopted a domineering attitude in the course of audits. 113 Even if that conclusion was unwarranted it must be accepted that the audit is a point at which all the powers of Revenue, legislative and administrative, appear to be arrayed against the taxpayer. In those circumstances any settlement between Revenue and the taxpayer or his/her advisor may not have the appearance of being negotiated on equal terms The audit carried out on behalf of Revenue may be a relatively simple verification of certain items of expenditure. On the other hand, Revenue may see fit to conduct an investigation in depth over a range of taxes in a given year 114 or over a period of years. The investigations may be carried out with a view to establishing an underpayment of tax due to the neglect of the taxpayer or it may be an investigation leading to a prosecution for a revenue offence. It will not always be apparent what the ultimate purpose or outcome of the investigation may be. 112 Obligations to make returns rest with the taxpayer; in general the inspector does not have to request that these be made. 113 But see also the experience of the External Reviewers in Chapter Defined by Revenue as a comprehensive audit. 40

55 Audit Issues 2.6. Where a difference of opinion arises between the authorised officer and the taxpayer or his/her advisor concerning the entitlement to particular documents or information or indeed to the duration of the audit itself there is under the law at present no readily accessible means of resolving that dispute. It would greatly assist if there was access to a low cost appeal mechanism in this situation in the course of an audit A number of submissions outlined the distress and disruption caused to a business where an audit was prolonged beyond a reasonable period. While there may be good reason for the delay the Group considers that the reasons for a long delay should be reviewable. The Group s Recommendations (18) To protect against unjustified disruption to taxpayers there should be limits on the length of audit and an appeal to the Appeal Commissioners against breaches of the limit or an appeal to stay an audit to ensure that audits do not go on for an unreasonable length of time. (19) The Appeal Commissioners should be given jurisdiction, subject to these arrangements being practicable in terms of resources available to the Appeal Commissioners, to hear appeals during an audit in regard to: Revenue s right in law to seek particular information; Breach of proposed statutory limits on audit and/or request to stay an audit; and Unreasonable disruption to business from the removal of current records and equipment. (20) Every such appeal shall be conditional on the taxpayer paying any tax which is not in dispute Mitigation of penalties and issues concerning interest 3.1. The Revenue Commissioners have powers (indeed they could be described as statutory responsibilities) to charge interest on unpaid taxes and impose penalties on the taxpayers found to be in default. 115 Most jurisdictions surveyed stated that any appeal during audit would be to a court, except for UK where the taxpayer can appeal to the Tax Appeal Tribunal to stay an audit. 116 Currently taxpayer must pay tax in accordance with the information on his/her return. 41

56 Comprehensive Audits Interest and Penalties as proportion of tax yield Penalties/Interest as Percentage of Comprehensive Audit Yield 100% 90% 80% Penalties Interest 70% 60% 50% 40% 25% 30% 21% 17% 19% 25% 20% 10% 0% 14% 8% 14% 5% 10% 14% 11% 15% 15% This graph shows, as a percentage of the total tax yield, the average interest and penalties actually charged and imposed in comprehensive audits between 1997 and It is evident that: the interest is generally approximately twice the value of the penalties; the change in policy regarding the compromise of interest in 1998 has had an effect, and the penalties imposed in these cases are not, on the face of it, excessive. 42

57 Bogus Non-resident Cases Penalties and Interest Penalties and Interest as % of Tax Due 300% 250% 200% 150% 100% 50% 0% Audit BNR 3.3. The table above is based on a sample of 40 drawn from the published cases in Iris Oifigiúil in September A split between penalties and interest is not possible as the data is not published. However it clearly shows that the average aggregate penalties and interest figure for published BNR cases is in excess of 250%, whereas for the standard Revenue audit cases being published the aggregate is around 60%, which is more comparable to the 2002 figure for Comprehensive audits above (at slightly more than 50%). The Group, of course, is aware that the historic nature of the tax evasion involving bogus non-resident account holders and the failure of those being published to avail of the 2001 incentive to disclose these accounts, inter alia, results in the very high levels of penalties and interest being imposed. The table below shows the recent trend in the proportion of total settlements represented by published cases. 43

58 Published Cases as percentage of Total Settlements 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% The chart above shows that, since 1990, there has been a gradual increase in the proportion of total settlements represented by published cases, but the proportion remains small (at less than 2% of total settlements) A major feature of the civil settlement system is that Revenue may mitigate any fine or penalty. The power to do this is found in section 1065 TCA 1997 which provides that Revenue may: Mitigate any fine or penalty, or stay or compound any proceedings for the recovery of any fine or penalty, and may also, after judgement, further mitigate the fine or penalty, and may order any person imprisoned for any offence to be discharged before the term of his or her imprisonment has expired The 2002 Code of Practice for Revenue Audits sets out Revenue s mitigation policy, see table following. 44

59 Mitigation of Penalties Category of Tax Net Tax-geared Net Penalty after mitigation where there is: Default Penalty Co-operation only Co-operation including Co-operation including Prompted Qualifying Unprompted Qualifying Disclosure Disclosure % % % % Deliberate Default Gross Carelessness Insufficient Care In addition, if the aggregate amount of tax in respect of which penalties are computed is less than \3,000 and the default is exclusively in the Insufficient Care category, a penalty will not be imposed The Group believes that the Code s approach to penalties should be incorporated as far as practicable into statute. Mitigation should be by agreement between Revenue and the taxpayer and that this need for agreement should be clearly understood. Agreement may not be possible in all cases. Therefore a system should be put in place whereby, in the absence of agreement, there will be a rebuttable presumption that the additional tax arose from Gross Carelessness. The presumption may be rebutted on the basis of evidence presented by the taxpayer or Revenue to the Appeal Commissioners that another category such as Insufficient Care or Innocent Error should apply. 4. Recovery of Civil Penalties 4.1. The Revenue Commissioners have rarely instituted proceedings to recover civil penalties, presumably because the amount of the civil penalty has always been agreed and paid by the taxpayer. What is clear, however, is that if proceedings were to be instituted the appropriate amount of the claim would be the full penalty and not the sum to which the Revenue Commissioners believe that it should be mitigated. The Court has no function in mitigating the penalty. The result is that in the absence of agreement between the Revenue Commissioners and the defaulting taxpayer as to the appropriate level of mitigation the Revenue Commissioners would recover judgment for a larger sum than they regarded as appropriate. This must constitute an injustice The Group considers that the prospect of Revenue suing for the full penalty overshadows negotiations with taxpayers. The Group considers that the penalties regime, in operation for certain specific categories of tax defaulters, should remain in place for all legacy cases (i.e. specified investigation cases which are currently being followed up by Revenue) 117. This would ring-fence current defaulters and ensure that cases currently under investigation would not stall settlement in the hope of being able to avail of a more beneficial regime. 117 Legacy cases are defined in the Executive Summary under Penalty and Interest regime. 45

60 4.3. The Revenue Commissioners have made it clear to the Group that they have rarely sought to recover a civil penalty on the grounds of fraud. Moreover, they have very clearly recognised the wisdom and justice of relating the penalties to be paid by the defaulting taxpayer to the particular conduct that gave rise to the default and the circumstances in which s/he disclosed the wrongdoing. The Group recognises that the Code of Practice for Revenue Auditors, which, amongst other things, explains the penalties mitigation regime and defines the practical application of this administrative understanding. It is the view of the Group that these are fair and proper provisions and should be available to the taxpayer even a defaulting taxpayer as of legal right and not by way of administrative concession. It would then be possible to determine by an appropriate appellate procedure what were the particular rights and obligations of the taxpayer in any given set of circumstances The Group considers that, in this light, the actual statutory penalties regime is anachronistic and in need of some reform. In addition, the Group agrees with the approach taken in the Code of Practice to the mitigation of penalties and believes it should form the core of a legislative provision. The Group s Recommendations Penalties (21) The Group recommends the incorporation of the 2002 Code of Practice penalties scheme into the tax acts with some additional elements: Mitigation to be permissible within the bands outlined in Revenue s 2002 Code of Practice for Revenue Auditors. Category of Innocent Error, attracting no penalty, to be recognized and to be distinguished from that of Insufficient Care on the basis that the taxpayer has a good track record of tax compliance for the three previous years. The abolition of the 200% tax-geared penalty for fraud, as it is considered an anachronism and possibly un-enforceable. Categorization and mitigation will be, as heretofore, by agreement and this should be explicit in the legislation and explained in any correspondence between Revenue and the taxpayer. In the absence of agreement, categorization of the incorrect return will initially be deemed to be Gross Carelessness. For a categorization of Insufficient Care or Innocent Error to apply, the taxpayer must prove these categorizations before the Appeal Commissioners, with the usual onwards route via a re-hearing in the Circuit Court and to the High Court on a point of law. For a categorization of Deliberate Default to apply, Revenue must prove it before the Appeal Commissioners. A legislative provision to allow Revenue pursue in court the amount of penalty they consider they are entitled to, i.e. not the full amount. Current penalties regime should remain in place for all legacy cases as previously defined. 46

61 5. Interest 5.1. The Group considered that the issue of interest was not outside its terms of reference because of its relevance to and interaction with the operation of Revenue powers in a settlement situation. There was an opinion that the high level of interest due over a number of years should be reduced, e.g. at least 48% interest would be charged for tax liabilities from 1998/ In this context it was agreed that what is of concern here is, essentially, the statutory interest that is added to the tax underpaid to reach a settlement figure in a negotiation between Revenue and a defaulting taxpayer, and not the interest charge arising on late payments, which are clearly a collection issue rather than relating to the establishment of a tax liability Interest on overdue tax (S1080 TCA 1997) is charged at a rate of per cent for each day or part of a day; until 2002 this was defined as 1 per cent for each month or part of a month. Finance Act 2002 change altered the rate from monthly to daily, the rate would be approximately 11.75% simple interest for tax outstanding for one year. There is no appeal mechanism provided, although an appeal on the quantum of tax due would clearly affect the interest payable Separately, Revenue may seek penalty interest of 2 per cent per month or part of a month where fraud or neglect is considered to be present (S1082 TCA 1997). The imposition of this interest rate may be appealed to the Appeal Commissioners The logic of the existence of the penalty interest rate for fraud or neglect would seem to indicate that the standard interest rate does not carry an acknowledged penalty The general position is that, where a tax default is discovered and tax is deemed unpaid (as opposed to simply being overdue), Revenue will seek to recover the tax at stake, statutory interest due on that tax and a penalty (to impose a civil punishment on the defaulting taxpayer). The Group considers that the existing interest rate is unduly penal In the case where a repayment of tax is due, because the taxpayer has overpaid, the rate of interest provided for, since the enactment of Finance Act 2003, is 0.011% per day or some 4% per annum (S865 TCA 1997) In summary the rates are: Overdue or underpaid tax % per day (approx % per annum). Fraud/neglect 2.00% per month (approx. 24% per annum). Overpaid tax 0.011% per month (approx. 4% per annum) The Group agreed that the penalty interest rate should be abolished and that it is efficiently redundant Leaving aside the penalty interest of 2% per month, there are two basic questions to be addressed about interest: is the rate too high and should it be within Revenue s powers to compromise the statutory interest due? 47

62 Level of Interest rate The rate is just less than 1% per month and has not changed since 1998, when it was reduced by 0.25% per month. Basically, Revenue charge simple interest, e.g. if you are late by two months you pay roughly 2% on the tax debt Clearly, Revenue is not in a commercial line of business. Commercial lenders are in a different position as their brief is to charge whatever interest rates the market will bear in order to make a profit for the shareholders. Rates which are designed to dissuade the customer from availing of them as a matter of routine, such as credit card lending rates and unauthorized overdraft rates, are generally in a range around 15% and can approach 20%. The standard credit union charge is 1% per month on a loan, sometimes subject to a recoupment at year end Unlike some other jurisdictions surveyed, Revenue do not compound the interest charged, i.e. charge interest on the outstanding tax and interest and while they treat interest as tax for the purposes of collection they cannot add to an interest charge. Another factor is that Revenue interest is not deductible against tax as a business expense, whereas bank interest is The Group felt that that the rate should be reduced partly because the due dates for filing have been brought forward in recent years and because interest is not deductible for tax purposes, unlike the position in the UK. The Group also noted that a number of other countries have rates which are linked to an outside base rate with an additional percentage to protect revenue. Due to the current low international interest rate environment, these are below 12%, see table below. Country Annual Rate Link % Australia day Bank accepted bill rate + 7% Canada day Treasury Bill + 6% UK (Inland Revenue) 5.50 Not tied to a rate United States 4.00 Federal short term rate plus 3% New Zealand has no interest rate but a 10% penalty is levied for lateness and is repeated every six months. Compromise of Interest Rate The Group examined the question of whether revenue interest should be capable of limited compromise, within defined legislative parameters. The Tax Acts (S1065 TCA 1997) specifically allow Revenue to mitigate any fine or penalty but do not explicitly allow Revenue to mitigate or compromise statutory interest. Until 1998, Revenue s practice had been to mitigate administratively or compromise on the interest. This is borne out by the Fifth Report of the Commission on Taxation where Revenue stated that in a settlement negotiation the inspector would consider what penalties and interest are exigible Since 1998, Revenue s stated policy has been that it cannot compromise interest and that interest follows automatically from underpaid tax, once that is calculated and agreed. It is true that this policy has not been rigidly followed in all cases, for example in relation to Revenue s 48

63 approach to Bogus Non-Resident (BNR) Accounts, an earliest start date for the interest charge was decided on, which was not always the date from which the underpayment had arisen Canada, Australia, New Zealand and the UK all have appeal mechanisms, through which the taxpayer may contest the interest charge. For example, in the UK the taxpayer can appeal the interest to the General or Special Commissioners, who may if it appears to them that the tax carries no interest, set the determination aside ; they cannot vary the magnitude of the interest but can on facts found revise the date on which the tax ought to have been paid. It is important to realise that the appeal body which examines the interest charged does not alter the rate but looks, for example, at whether the due date was correct or whether there was an error on Revenue s part in the calculation or whether the interest was due at all. In other words the General or Special Commissioners decide on a matter of fact rather than on whether they consider the rate to be too high and do not mitigate or compromise the rate Our international comparisons indicate that other tax jurisdictions do not routinely mitigate the interest charged, although in bankruptcy or other situations where the taxpayer cannot pay it may be decided not to collect. In the UK it may be mitigated under care and management in defined circumstances. There is no cap on interest in the jurisdictions consulted The Group recommend that the interest charged on overdue tax be capable of compromise to a rate to restore the time value of the money in defined situations i.e. (1) Innocent Error based on similar proposition to that relating to penalties, in that a good track record of tax compliance for the three previous years would mean the full interest rate would be compromised on the basis that the payment would be deemed to have resulted from an innocent error and (2) a meritorious appeal case where a taxpayer made a genuine but mistaken interpretation of a tax provision and a substantial interest charge was now due as a result of a determination of the Appeal Commissioners. The time value of money would be expressed by reference to the Consumer Price Index, similarly to what is done for Capital Gains Tax Indexation purposes. 49

64 The Group s Recommendations Interest (22) The Group agreed that a fixed interest rate would be more easily administered in the Irish system and that the fixed rate should be sufficiently high to discourage businesses from deferring their tax payments to Revenue. On balance, they recommend a rate of 10% which represents the current Euribor rate of 2.5% plus 7.5%. (23) That the 2% per month penal interest rate for fraud and neglect cases be abolished on the basis that it is effectively redundant. (24) That a limit be placed on the period for which interest will be charged on the lines of the approach followed in BNR cases under paragraph 4.3 of Revenue Statement of Practice SP Gen 01/01 effectively a roll up provision. (25) That the interest charged on overdue tax be capable of compromise to a rate to restore the time value of the money in defined situations, and that the time value of money be expressed by reference to the Consumer Price Index, similarly to what is done for Capital Gains Tax Indexation purposes. (26) Defined situations would be as follows: Innocent Error, based on similar proposition to that relating to penalties, in that a good track record of tax compliance for the three previous years would mean the full interest rate would be compromised on the basis that the payment would be deemed to have resulted from an innocent error. This will be a rebuttable presumption before the Appeal Commissioners and onwards. Statutory recognition for a meritorious appeal case, so that where a taxpayer made a genuine but mistaken interpretation of a tax provision and a substantial interest charge was now due as a result of a determination of the Appeal Commissioners, the taxpayer could apply to the Appeal Commissioners to ask that only the time value of the funds should be restored to Revenue. If this was not found by the Appeal Commissioners then Revenue would receive the full 10% rate. (27) That each of these above compromise situation carve-outs to the standard interestcharging regime would be capable of appeal to the Appeal Commissioners for a determination. (28) Current interest regime to remain for legacy cases as defined heretofore. 6. Voluntary Disclosure 6.1. As already mentioned, the voluntary disclosure which is a concept referred to in S1086 of the TCA 1997 has not been statutorily defined. Again, it would seem that this crucial compliance tool frequently referred to as the safe harbour principle is internationally recognised. In this jurisdiction voluntary disclosure is a significant source of additional tax to the Exchequer and allows for the efficient use of Revenue resources against those who are not prepared to make a disclosure. 50

65 Number Value (\m) Average (\) Audit Settlements Published Unpublished Published Unpublished Published Unpublished 2002 (Total) , ,184 13, (to end June) 704 7, ,111 18, The unpublished category includes: those below the publication threshold, those cases where penalties amount to less than 15% of the tax and those who have made a qualifying voluntary disclosure. It would seem that a substantial proportion of the yield from unpublished cases involves voluntary disclosure but many of the cases are small settlements Parameters of voluntary disclosure are in legislation in the following countries: New Zealand, the Netherlands, UK (C&E) and Canada Voluntary disclosure is now a significant feature in the determination and collection of tax and penalties. The process is of value to Revenue in collecting tax and to the taxpayer in regularising his/her affairs. The precise nature of voluntary disclosure qualifying and the benefits which it confers could be defined by primary and subordinate legislation and any dispute as to the adequacy of disclosure should be capable of resolution by an appropriate appeal procedure The right of a taxpayer to make voluntary disclosure is valuable and should not be lost through accident or inadvertence. The taxpayer should be advised clearly of the termination of the period within which a qualifying disclosure should be made. The Group s Recommendations Voluntary Disclosure (29) That voluntary disclosure should be defined in and its consequences regulated by primary legislation supported, where necessary, by subordinate legislation and administrative directions. (30) To qualify for voluntary disclosure the following should be required: Disclosure in writing. Payment of 80% of the estimate of the additional tax within a reasonable time. The provision to Revenue of full details concerning the disclosure within a reasonable time. In default of agreement the time appropriate for the delivery of such information to be determined by the Appeal Commissioners. 118 New Zealand and Canada: both statutory and administrative; Netherlands and UK (C&E): statutory; Ireland: both statutory and administrative. 51

66 (31) Any dispute to whether the disclosure is voluntary or otherwise complies with the requirements of legislation and any relevant directions to be determined in the event of a dispute by the Appeal Commissioners. (32) That full voluntary disclosure should confer on taxpayers other than those involved in legacy cases stipulated rights including the following: Publication: exemption from publication of names as provided in S1086 of the TCA Prosecution: non-selection of the subject matter of the disclosure for prosecution. Penalties: the right to enjoy the prescribed rights of penalty mitigation under the new proposed regime. (33) Where Revenue propose to undertake the audit of a company separate notice should be given to the directors of the company so as to ensure that such directors are not deprived of an opportunity to make a voluntary disclosure in respect of their own affairs. If no such notice is given to the directors the period in which voluntary disclosure may be made by him or her shall not terminate with the audit of the company. (34) The verification by Revenue officials of a particular item should be clearly designated as a verification audit and such audit should not terminate any right to make an effective voluntary disclosure at a later time. 7. Prosecution and Voluntary Disclosure 7.1. Where, following voluntary disclosure, the liability of a defaulting taxpayer to arrears of tax, civil penalties and interest is determined and discharged Revenue do not seek to prosecute and it is the understanding of the taxpayer that they will not prosecute for the offence (if any) perpetrated in failing to pay the appropriate tax Voluntary disclosure confers safety from prosecution in the United States (subject to certain exceptions), the Netherlands and in the United Kingdom. No such immunity is available in New Zealand or Australia If voluntary disclosure is seen as delayed compliance with the tax codes and appropriately punished by civil penalties there is much to be said for the continuance of this arrangement. There would be, in any event, particular problems in utilising in criminal proceedings admissions made by a taxpayer in the course of a voluntary disclosure which is encouraged by the provision of legislative or administrative benefits. 52

67 The Group s Recommendation Voluntary Disclosure and Prosecution (35) The Group recommends that the practice of Revenue not prosecuting revenue offences admitted in the course of voluntary disclosure should be continued. (36) There should be no disclosure of information obtained by Revenue from a voluntary disclosure to other agencies save as may be required by law. 8. Publication of Names and Prosecution of Offenders 8.1. The power (under S1086 of the TCA) to publish the name of defaulters is a valuable weapon in the armoury of the Revenue Commissioners. The right to publish the name of defaulters is subject to certain statutory exceptions which include the following: Where the total amount of the agreed liability of the taxpayer does not exceed \12,700, or Where the taxpayer has made a full voluntary disclosure, or Where the amount of the penalty does not exceed 15% of the tax involved in the settlement The monetary limit aforesaid has remained unchanged since Indexed in accordance with the CPI a comparable figure today would be \25,000. Indeed, indexed as per the GNP at current market prices it would amount to \77, The Group would be apprehensive that the maintenance of a comparatively low exemption figure would result in longer lists of defaulters and the very real danger that publication would lose its current effectiveness as a deterrent to tax evasion. The Group s Recommendations Publication of Tax Defaulters (37) That the exemption limit aforesaid be increased to not less than \50,000. (38) That the existing exemption limit be retained in respect of legacy cases as hereinbefore defined. 9. Disclosure of Information by Revenue to other Official Agencies 9.1. The Group are conscious of the strong tradition of confidentiality within Revenue and the benefit of that tradition to both Revenue and the taxpayer. However, this requirement of confidentiality is not universal. The Disclosure of Certain Information for Taxation and other Purposes Act 1996 permits the transmission of confidential information from Revenue to the 53

68 Criminal Assets Bureau. Again, Ireland s participation in the international treaty network involves the interchange of confidential information between tax administrations in different jurisdictions However, the Group are concerned by the provisions of the Company Law (Amendment) Act 2001, and in particular section 18 thereof which provides that a Revenue officer may provide information to the Office of the Director of Corporate Enforcement where the Revenue officer suspects that an offence under company law may have been committed The Group are aware that a memorandum of understanding is in course of negotiation between Revenue and the Office of the Director of Corporate Enforcement which will set out the criteria under which Revenue will exercise their discretion in relation to the provision of information under that Act The Group would be concerned to ensure that disclosure by Revenue to the Officer of the Director of Corporate Enforcement would not undermine the value to both Revenue and the taxpayer of the system of voluntary disclosure and the terms on which it is made It is the understanding of the Group that voluntary compliance would result in full compliance by the taxpayer with tax laws and the preparation of accounts which would be filed in the company s office. In that way voluntary disclosure and settlements made in pursuance thereof should result in compliance with both the Income Tax Code and the Companies Acts. The Group s Recommendations Disclosure of information to Director of Corporate Enforcement and other Agencies (39) There should be legislative protection from prosecution for a tax offence in a voluntary disclosure case. (40) That the Revenue Commissioners should not be required to provide information to the Office of the Director in relation to the subject matter of a voluntary disclosure. (41) In relation to information provided by Revenue to the Director under the Act of 2001 the Group recommends that a procedure similar to that 119 operated by the Disclosure of Information for Taxation and Other Purposes Act 1996 should be introduced to address the information exchange interface between Revenue and the Director. (42) To the greatest extent consistent with legal obligations, the taxpayer should be notified of any information passed by Revenue to any other regulatory agency in relation to his/her affairs. 10. Power to Remove and Retain Records The power of Revenue to retain documents removed by them (in accordance with various provisions of the Taxes Acts) can cause considerable disruption to the taxpayer s business. The 119 Nomination of a specific officer in Revenue to deal with disclosures 54

69 time limit is not regulated by statute but the operations manual published by the Revenue Commissioners suggests a period of one month There does not appear to be any reason why, in the case of an investigation into the adequacy of returns made by the taxpayer, the documents removed could not be copied and the originals promptly returned to the taxpayer. In the case of an investigation with a view to criminal proceedings where a book of evidence is being assembled it is understandable that the originals would be retained by Revenue or the Director of Public Prosecutions and in that event it would seem appropriate that copies be furnished to the taxpayer within not more than four weeks There may be disputes over the appropriateness of documents retained by Revenue, and so the Group recommends that the Revenue Solicitor holds the records for one week to allow adjudication by an officer of the DPP on the appropriateness of the relevance of the records. (In the case of documents seized by the Competition Authority, disputes as to what is covered by legal professional privilege are arbitrated by a senior legal adviser in the Competition Authority who is a solicitor or barrister.) The Group s Recommendations Removal and Retention of Taxpayer s Records (43) There should be an express statutory limit on how long the tax authorities can retain books and records taken from a taxpayer. 120 The Group recommends that this should be one month. (44) Where the removal of records and computing equipment would prevent the taxpayer carrying on his/her business in an orderly manner, then Revenue should be able to examine the records at the taxpayers premises. (45) A right of appeal to the Appeal Commissioners should be provided where the taxpayer feels removal of records and computer equipment prevents him carrying on business. (46) If there is a dispute over the appropriateness of documents taken by Revenue, the Revenue Solicitor should hold the records for one week to allow for adjudication on the appropriateness of the relevance of the records Compliance with Orders Every audit and investigation imposes some measure of cost on the taxpayer and frequently will be the cause of some embarrassment to him. The proposals already made in relation to the right of the taxpayer to challenge the duration of an audit or the relevance of documentation sought should assist the taxpayer against any abuse in this regard. 120 I.e. not just for a reasonable time as in Section 905(2)(a)(D) of the Taxes Consolidation Act, Competition Authority and Companies Office: limit is 6 months. 121 See also recommendation 13 regarding search in Chapter 3. 55

70 11.2. Concern has been expressed, however, about the situation of third parties from whom information or documentation is sought in pursuance of the powers in that behalf vested in the Revenue Commissioners. The Group is of the view that powers exercised by Revenue to obtain information or documentation from third parties should be as specific as the circumstances permit. Requests or demands for such information should not be cast in wide or general terms. The Group s Recommendations Compliance with Orders (47) It should be provided that any unreasonable request for information should be capable of being objected to before the Appeal Commissioners. (48) Where Revenue make a verification audit check, this will have no implications for a taxpayer (who is a third party in the matter under investigation) in relation to voluntary disclosure and this should be notified to the taxpayer. (49) The Group notes that the Revenue Commissioners have said they will consider applying the civil service redress scheme when it comes into operation. There may be some merit in making a payment in acknowledgement of the inconvenience caused where a taxpayer has been significantly inconvenienced by Revenue error, inaction or delay. (50) In all cases where information is provided by a third party subject to a statutory provision, it should be made explicit that the information provider cannot be sued for breach of client confidentiality. 12. Streamlining of Existing Powers The legislative history of the Income Tax Code in Ireland extends for a period of more than 150 years. Many of the existing powers were introduced over a lengthy period to achieve different purposes or support different operations. Whilst careful drafting has avoided the confusion which might have otherwise arisen there are important areas in which, the Group believes, greater clarity could be achieved Certain important legislative powers may be invoked for purposes of a criminal prosecution. Where it is determined to conduct such an investigation it is appropriate that the taxpayer concerned should be duly informed The Group believes that there should be a clear differentiation and demarcation between a civil investigation, that is to say, an audit or investigation into the accuracy of returns made by the taxpayer with a view to recovery of tax underpaid together with appropriate penalties and interest and a criminal prosecution It is in the interest of Revenue and of the taxpayer that such a distinction should be drawn clearly. There is an inherent conflict between the civil investigation and the criminal one. The civil investigation has the purpose of recovering tax and penalties due by law to the State. The criminal proceedings have their purpose in the punishment of a wrong doer. If Revenue were to proceed 56

71 with a civil investigation there is the danger as they fully appreciate that negotiations in the course of the civil investigation would taint subsequent criminal proceedings. In particular, the voluntary disclosure procedure and any evidence obtained in pursuance of it would certainly militate against a successful prosecution From the point of view of the taxpayer justice requires that s/he should be informed of the nature and purpose of investigations. At the least s/he should be in a position to obtain any appropriate professional advice which s/he may think fit and in any event s/he may have to be warned in accordance with the ordinary norms of criminal investigation of the dangers of incriminating herself/himself The civil investigation, the status of the officers by whom it would be conducted and the powers available to them should be, in the view of the Group, segregated and distinguished from the situation which applies in a criminal investigation. Revenue must inform and keep informed the taxpayer of the nature of the audit/investigation to which his/her affairs are being subjected This distinction would enable the taxpayer and his/her advisor to know the limits of the powers which may be invoked and the sanctions which could be applied as a result of the particular investigation The Group feels that consideration should be given to a further refinement to create a subdivision within civil investigations. There is in practice a distinction to be drawn between what are sometimes described as routine audits and tax investigations. In the former case the Revenue officer concerned may be seeking merely verification or clarification in relation to particular financial transactions which occurred within a given financial year. Investigations may extend to a wide range of taxes and cover a period of years. It is proposed that in the latter case more extensive powers are available to the authorised officer than in the former The Group are conscious of the fact that streamlining of this nature raises difficulties in relation to legislative drafting and administrative procedures. However, the scheme in general which the Group would wish to see achieved would be as set out below: It is possible to stratify the statutory powers into broad groupings which reflect the impact of the powers on taxpayer as follows: (1) Less intrusive powers used in audit which in this report are described as audit powers; (2) more intrusive powers which are used in investigations with a view to financial settlement which are described as investigation powers; and (3) more intrusive powers which are used in prosecutions which are described as prosecution powers. 57

72 Selected Revenue Powers Less Intrusive Powers mainly used More Intrusive Powers mainly used Powers used in cases selected for in audits in investigations, including special prosecution investigations 899 Inspectors right to make 900 Production of books etc. by 905(2A) Search Warrant enquiries taxpayer 903 Power of inspection: PAYE 901 Application to High Court for 908A District Court: Revenue production of books etc. by taxpayer Offence Information from financial institutions 904 Power of inspection: tax 902 Information from Third Party deduction from certain subcontractors 904C- 904J: Power of inspection: 902A Application to High Court for Information from assurance companies Third Party investment undertakings claims by authorised insurers claims by qualifying lenders claims by qualifying insurers qualifying savings managers dividend withholding tax professional services Inspection of documents 904A Power of Inspection: DIRT 123 and records 956 Inspectors right to make 906A Information from financial enquiries and amend assessments institutions 907 Appeal Commissioner: Information from financial institutions 908 High Court: Information from financial institutions 909 Statements of Affairs The table above illustrates how this might be done with existing powers. Audit Powers The first group is those audit powers used to examine returns and which are exercised in writing by an officer from a Revenue office. These would include powers to request returns and powers to request and copy records. In addition the powers to assess, to list cases for appeal and to mitigate penalties would fall into this category. The charging of interest in respect of late payment of tax would also be included for completeness sake. The category would also comprise audit powers used to verify returns by examining records at the business premises of the taxpayer. These examinations would normally relate to a defined period of assessment. These would include 122 Subsections such as 905(2)(a)(iv)(B) and 905(2)(e) are, however, potentially intrusive. 123 Historically, this was seen as a very intrusive power, but on an ongoing basis the DIRT audit is likely to become routine. 58

73 the power to enter business premises including the power to enter the portion of a private residence used for business purposes. It would include the power to examine, remove and retain records, including computer records. The power to require assistance from individuals on the premises would be included. The category would also include the power to inspect property and to obtain information from third parties other than the financial institutions. Investigation Powers The second group would include powers used to investigate tax returns in depth to obtain the correct tax payment. Such investigations may extend over a number of years of assessment and would normally last for an extended period of time. The powers would include the search of premises for records, the power to request Garda assistance 124 and the power to enter private residences on foot of a court order and the accessing of information on specific taxpayers or a class of taxpayer from financial institutions. Control powers such as those allowing Revenue to deem transactions as having been purely for tax advantage purposes under antiavoidance legislation would be included. Prosecution Powers The final group would be those powers used only in the course of an investigation for criminal prosecution purposes in relation to Revenue offences. This category would include the power of personal search, removal of records and equipment and powers to question witnesses/suspects. The Group s Recommendations Streamlining of Powers The overall approach to streamlining which they recommend is that: (51) The gradation of powers from less intrusive to more invasive should be made transparent in the legislation in line with the transitions from audit to investigation and investigation with a view to prosecution. (52) The legislation should specify what third party supervision and internal revenue authorisation levels are required to activate the more intrusive powers. (53) Existing prosecution powers 125 should be separated from the other powers. This will protect the rights of the taxpayer but should also help with the alignment of procedures to ensure that evidence collected in a revenue investigation does not become tainted by self-incrimination and therefore inadmissible in a criminal trial. Also there should be an appropriate power of search under warrant for use in criminal cases. (54) The appropriate avenue of appeal applying to each of the three categories above should be clear from the legislation. 124 Currently associated with the use of S903, S904, S Currently S905 2A and S908A TCA 1997 are used exclusively for prosecution cases. 59

74

75 CHAPTER 4 Need for Further Powers 1. Introduction 1.1. The terms of reference required the Group to consider the case for new powers including powers to establish tax liabilities and powers of investigation with a view to prosecution. The last independent review of Revenue powers was conducted in the 1980s as part of the work of the Commission on Taxation. 126 Since then, there have been some fundamental changes in the way in which the taxation system is administered. Chief amongst these was the move to self-assessment, commencing in Apart from those taxed under the PAYE system, almost all other taxes and duties come within the self-assessment system. In the short time allocated for this review it was not possible to provide an exhaustive assessment of any shortfall in current Revenue powers The Group accepts the need for powers. The powers are considered by the Group to be effective as a deterrent and to serve broadly to reinforce compliance culture. Powers are necessary both to tackle evasion and to underpin the self-assessment system. While the previous chapter sought to restrain the use of powers to protect the rights of taxpayers subject to their use, it is also necessary to take into account the rights of taxpayers who pay their tax on time. The use of powers against tax evaders protects against the injustices that result from distortions in the market place that arise from tax non-compliance. Thus the use of powers against evasion serves to reinforce compliance. Since the introduction of new powers in 1999, there is a clear perception and understanding abroad that Revenue can access financial and other records more readily now than heretofore and this is believed to lead to greater levels of disclosure both prompted and unprompted A number of submissions addressed the issue of the need for further powers for Revenue it was submitted that in general the existing powers were sufficient but that there was a case for strengthening of powers in three areas: (1) reporting of payments (2) offshore assets and (3) investigation with a view to prosecution The comparative study undertaken by the Group indicated that Revenue powers are generally on a par with those of other tax administrations. 127 As a general principle the Group considers that Revenue should fully exploit their existing suite of powers when faced with a novel evasion situation and consider a variety of approaches including those which would be used by 126 Chapter 12 of the Fifth Report of the Commission in relation to Information Powers of the Revenue Commissioners. 127 With the exception of (1) automatic reporting in some other jurisdictions and (2) other jurisdictions consulted had access to records of resident controlled foreign entities. The position regarding automatic reporting of interest in other countries is shown at Appendix G. 61

76 a competent auditor of company accounts rather than seeking a new power specific to the situation on hands. It could be argued that to date the development of the powers to tackle evasion has been reactive. However, the Group considers that careful scrutiny of international material should assist Revenue in the early identification of new forms of tax evasion There is now an increased flow of third party information to Revenue from a variety of sources 128 including international tax information exchange agreements and tax treaties. In addition the EU Savings Directive, which will come into force in January 2005, will require the reporting to other jurisdictions of interest earned by non-residents. Recently introduced provisions for information exchange between regulatory agencies in Ireland will also bring information to Revenue in relation to the possible commission of revenue offences. The Group considers that the use of this information with proper information security 129 should reduce the need for the use of direct information powers to intrude on compliant taxpayers In general it should be clear that Revenue has the right to relevant information. The Group s Recommendations General Right to obtain information (55) The right of Revenue to obtain the documentation and information relevant to the establishment and collection of all taxes (subject to appropriate safeguards and authorisations) and the duty of taxpayers to provide such documentation and information must be accepted and should be incorporated into legislation. 2. Automatic Reporting of Information by Third Parties 2.1. The Group accepts that there are two areas in which Revenue should be entitled to obtain information from third parties in relation to the affairs of a taxpayer automatically and without the necessity of any request from Revenue in that behalf. The first of these relates to interest earned on deposits in financial institutions and income earned on other financial transactions and the second relates to payments made to taxpayers by Government departments and agencies The 1990 OECD Report on Taxpayers rights and Obligations acknowledged that the use of taxpayer identification numbers and computerised matching techniques are a useful means of combating tax evasion and avoidance. Citizens, however, may feel a certain unease at the powers that such techniques provide to the tax authorities to build up comprehensive data banks on their personal and professional lives Before recommending these provisions the Group reflected on these concerns and sought reassurance that: Revenue could properly manage the increased inflow of data as historically there have been concerns about Revenue s ability to process adequately certain information. 128 See Appendix I: Current Sources of Information to Revenue. 129 See proposals in regard to safeguards on information disclosure in Chapter Taxpayer s Rights and Obligations OECD 1990: Part II General Considerations para

77 Revenue could ensure full confidentiality for any such information and to guard against inappropriate use The Group was assured by Revenue that they are at an advanced stage of preparation for comprehensive data matching under the ESKORT system 131 and that very strict controls including authorised access levels operate within Revenue to restrict access by revenue officials to limited and relevant taxpayer information. Revenue have the capacity to interrogate their systems to identify any access made by officials to electronic information at any time The flow of information from national and international sources should enable Revenue and they are optimistic that it will to target those taxpayers whose affairs should be investigated. More particularly, Revenue should be able to identify the particular issues, expenditures or allowances which would require verification or explanation. Targeting of this nature should result in queries from Revenue being directed to specific issues rather than audits which might be wide-ranging and protracted. 3. Automatic provision of information on interest payments on deposits in financial institutions 132 and income earned on other financial transactions 133 referenced by PPSN number 3.1. Given the international trends and the increased third party flows to Revenue generally the Group see no objection in principle to the automatic reporting of all interest. 134 Clearly the existence of a bank account and the unexplained accumulation of substantial funds may be significant in any investigation carried out by Revenue. On the other hand, it is recognised that in times of low interest rates there may not be the same compulsion to place money on a deposit earning account The Group s proposal in relation to interest and income would restore a legislative power which previously existed and was effectively repealed by S31 of the 1986 Act. 135 Experience of the evasion of both DIRT and tax on the underlying deposits, strongly indicates that domestic financial institutions not only deposit takers, but also life assurance companies and collective funds are used to hide untaxed funds. At present, Revenue can only get access to information held in a financial institution if there is prima facie evidence of evasion involving an account/investment in the institution. Requiring these institutions to report annually on their customers deposits/investments would greatly assist tax compliance by deterring the use of onshore and very easily accessible accounts and financial products to hide undeclared income/gains. 131 See Appendix B on the Eskort system. 132 Automatic reporting of information on taxpayers sources of income by financial institutions in USA, Sweden, New Zealand, Netherlands. 133 i.e. capital gains and income arising on the encashment of other financial products. Effectively this is an extension of the intermediary provisions in the current code. 134 The Savings Directive will require reporting to other jurisdictions on interest earned here by non-residents and this proposal could be addressed in the context of these international developments. 135 In fact, in the context of a changeover to self-assessment, the International Monetary Fund, in 1986, had recommended that the Revenue Commissioners should receive details of interest paid by financial institutions. This was also the view of the Commission on Taxation Fifth Report paragraph

78 De Minimis Issue 3.3. The Group considered the possible advantage of reporting limits where the amounts earned were in excess of a threshold. Compliance with automatic reporting involves third parties in significant compliance cost. Overall, it was felt that the problems of segregating accounts for the financial institutions and the danger of taxpayers avoiding compliance by subdividing accounts rendered this solution unattractive. The lack of a de minimis will undoubtedly impose a burden, especially for smaller financial institutions and their customers The Group also notes that there may be social and economic consequences of this provision which should be considered by policymakers. If policymakers consider that the social and economic consequences of such a provision would be unacceptable, a threshold could be determined by Ministerial order, subject to such safeguards as might be considered necessary. 4. Automatic reporting of Payments made to taxpayers by Government Departments referenced by PPSN number At the present time the Revenue Commissioners may, subject to S910 TCA 1997 Act, request any Minister of the Government or any body established by or under statute to provide them with such information in the possession of that Minister or body in relation to payments for any purpose made by that Minister or that body as the Revenue Commissioners may specify in the notice The Group proposes to extend in practice what exists in principle, that is to say, the right of Revenue to receive information concerning payments made by the State and State agencies to taxpayers. A significant flow of payments pass through the hands of Government Departments and other State agencies. One of the background criticisms levelled at public bodies in the context of the PAC Sub-Committee Inquiry into DIRT evasion was the lack of co-ordination between the bodies concerned. This criticism has been responded to by information sharing provisions being contained in some recent legislation Whereas Revenue has the power to request information from Government Departments and statutory bodies regarding payments that they make, it is considered that details of all such payments made by or through all such bodies should be provided on an automatic basis i.e. without being requested and should include the payee s PPSN. Again, as with automatic reporting by financial institutions, automatic reporting of these payments would contribute to tax compliance It is clear that it would take very considerable time to set up the mechanisms by which the information sought could be provided automatically. It would be more practical from the point of view of the supplying agency and more manageable from the point of the Revenue Commissioners to arrange this information flow by reference to different agencies or functions over a period of time. 136 For example section 17 of the Company Law Enforcement Act 2001 in conjunction with section 21 of the Companies Act 1990 (as amended by section 53 of the Companies (Amendment) (No 2) Act 1999); and section 33AK of the Central Bank Act 1942 as inserted by section 26 of the Central Bank And Financial Services Authority of Ireland Act

79 The Group s Recommendations Automatic Reporting to Revenue (56) The recommended scheme for automatic reporting is: For all new accounts/investments in Irish financial institutions the institution should be required to obtain and record the account holder s/investor s personal public service number (PPSN), or foreign equivalent, and include such number in the automatic reports made to Revenue. Deposit takers (i.e. Irish banks, building societies, credit unions and the Post Office Savings Bank) would be required to make an automatic annual report to Revenue in respect of all resident individuals who earn deposit interest in a tax year the report to include the name and address of the beneficial owner of the interest, the account number(s) and for new accounts the PPSN and the gross amount of such interest (no de minimis figure is proposed principally to deter account splitting); Irish life assurance companies and collective funds would also be required to make an automatic report to Revenue of all policies/investments which are cashed in, matured, redeemed, surrendered, transferred or otherwise disposed of by resident individuals in a tax year the report to include the name and address of the beneficial owner of the investment at the time of cashing-in etc., the account/policy number(s) and for new investments the PPSN and the amount involved; In future details of all payments made by Government Departments and their Agencies to taxpayers referenced by PPSN numbers should be transmitted to Revenue, Subject to the provisos that: The statutory obligations as aforesaid should not take effect until the Minister for Finance has been satisfied that the information technology systems of the Revenue Commissioners are capable of receiving and handling such information and utilising it effectively. Taxpayers should have available on request particulars on the information supplied to Revenue in accordance with the proposed obligation. Revenue, the Department of Finance and representatives of the financial institutions should review the operation of automatic reporting not less than three and not more than five years after the introduction of the obligation to ensure the system is operating effectively and economically. It should be determined that there are no unduly adverse social or economic consequences of this proposal. If policymakers consider that the lack of a de minimis provision would have social and economic consequences, a threshold for interest reporting could be determined by Ministerial order subject to such safeguards as might be considered necessary. 65

80 5. Offshore Assets: Powers to establish beneficial ownership 137 of offshore assets over which a resident entity has control 5.1. There are particular difficulties in obtaining material documentation and information in relation to transactions which take place outside the State by or on behalf or for the benefit, directly or indirectly, of taxpayers resident in this jurisdiction The information powers contained in sections 900, 901, 902A, 906A, 907 and 908 do not apply to Irish owned foreign resident subsidiaries of Irish residents. The Group considers it unreasonable for a taxpayer to cite a perceived inability to access documents and records from a non-resident entity when in fact that entity is under the control of the taxpayer concerned. Clearly there are cases in which information held by a foreign resident subsidiary may be relevant to the tax liability of an Irish resident. The Group does not consider that it would be unduly burdensome to require the Irish resident to provide information in relation to the foreign entity controlled directly or indirectly by him. The information powers of other jurisdictions consulted by the Group included access to records of resident controlled foreign entities. The Group s Recommendations Offshore Assets (57) Revenue should be given the power to obtain documentation and records in the power, possession or procurement of a non-resident entity over which a person resident in this jurisdiction has control. The existing statutory definition of control should apply in this context. (58) Revenue should first seek the information from the taxpayer direct and, only if the taxpayer refuses, then make an application to the High Court. (59) The Court may refuse the application if it is satisfied that it is impracticable for the taxpayer to procure the required documentation or records. 6. Payments for Services Provided from Countries with which Ireland does not have a Tax Treaty 6.1. Where information which is reasonably required to verify the bona fides of an off-shore payment is sought by Revenue under sections 900/901 or 902/902A and is refused, then the deduction claimed by the taxpayer in respect of that payment can be challenged by Revenue under the wholly and exclusively rules. However, where the taxpayer can produce commercial documentation to support the payment, Revenue have stated that they have had, on occasion, difficulties in checking the commercial reality Revenue already has sufficient scope to disallow a business deduction if it amounts to a sham. Appeals before the Appeal Commissioners should in most instances constitute sufficient protection for Revenue in addressing their concerns. There may be situations, however, where documentation is presented which on the face of it looks plausible but turns out not to be. In 137 All tax authorities consulted stated they have access to records of resident controlled foreign entities. 66

81 relation to payments to residents of countries with which Ireland has Double Taxation Treaties or formal Exchange of Information arrangements, the Group consider that Revenue would have the scope to verify the payment to the non-resident payee with the foreign tax authority A difficulty arises when an Irish resident taxpayer claims to deduct an expenditure made in respect of services rendered by a person resident in a country with which Ireland has no Double Taxation Treaty or formal Exchange of Information Arrangement countries frequently, though not always accurately, referred to as tax havens If Revenue can obtain reliable information in relation to the nature of the expenditure and the identity of the person by whom it is provided, they may be in a position to challenge the payment on the grounds that it was not wholly and exclusively expended for the purpose of the trade of the taxpayer. Alternatively, it might be possible to challenge the expenditure on the grounds that it formed part of a transaction which constituted a sham Until arrangements can be made to gain the necessary access to information and documentation in the remaining tax havens the Group believes that payments made to those jurisdictions by a taxpayer for services rendered should be subject to a arrangement whereby tax would be capable of being assessed at standard rates unless a person can satisfy Revenue of the bone fide nature of the transaction. The Group s Recommendations Payments for services provided from countries with which Ireland does not have a tax treaty (60) Taxpayers to satisfy Revenue that payments for services provided from countries with which Ireland does not have a tax treaty are bona fide commercial transactions in the absence of which, tax should be assessed at standard income tax rates on the payment. 138 (61) Provision for the refund of the tax if and when the Irish resident taxpayer satisfies Revenue that the payment was bona fide made for services properly provided for the trade carried on by the taxpayer by a supplier whose identity was established to the satisfaction of Revenue. Some other Issues Considered in this General Context 6.6. Consideration was given as to whether powers should be extended in other areas. The Group considered whether there should be a penalty where a tax avoidance scheme failed. A variety of views were considered. The Group did not agree that a penalty be introduced for a number of reasons. These included: There is an existing interest and penalty regime which imposes substantial cost on taxpayers engaging in such schemes which fail; There is no agreement regarding the boundaries of tax avoidance; 138 This would operate like a deemed withholding tax. 67

82 Tax law can be very difficult to interpret and such a scheme might fail or succeed on very narrow grounds and it seems inherently unfair to impose substantial penalties in such situations; Imposition of a penalty in so called S811 cases would result in a taxpayer incurring a penalty despite having fully complied with the law but failing on a point of opinion The Group debated whether any person who in the course of their trade or profession was concerned with the making of an offshore settlement should be required to report the transaction to Revenue identifying the settlor and the trustees where the trustees are not resident or ordinarily resident in Ireland. The Group considered that such a compliance burden on third parties was not warranted given the existing S808 power and the fact that a settlement might be made directly with an offshore entity. 7. Additional Prosecution Powers Introduction 7.1. Extensive powers have been granted by the Oireachtas in recent years to the Gardaí and to a variety of agencies, such as the Competition Authority, the Irish Financial Services Regulatory Authority and the Office of the Director of Corporate Enforcement. The Group considered whether many or all of the powers available to these agencies should be also available to Revenue. Such powers might include the power of arrest, holding for questioning and obtaining information from witnesses under oath It was recognised that many of these powers have been introduced in response to issues of pressing public concern, and have been of great assistance in resolving those matters satisfactorily from the point of view of the public interest The Group felt that it would not be possible to carry out a comprehensive review of these powers in the time available. Nevertheless, the Group noted, for example, Professor Dermot Walsh s 139 observations that the powers of the Gardaí to arrest and detain someone for questioning in connection with a serious crime (not against the State), as opposed to simply charging them, are relatively recent arrivals. The Group understands that the use of such powers has not always been uncontroversial. The Group also notes that the exercise of these powers by agencies has on occasion been the subject of successful appeals to the Courts. In that light, there must be some concern at the granting of wide-ranging and relatively unfettered powers to any agency without extensive thought or concern for the rights of individuals or businesses. History and Context of Prosecution Powers 7.4. Historically, before 1983 the prosecution of tax offences was based on the common law offence of defrauding Revenue. Prosecutions were rare. Some prosecutions based on non- Revenue offences such as not keeping proper books and records were directed against more serious cases of tax evasion. Section 94 of Finance Act 1983 introduced a new range of Statutory Offences to tax legislation. The number of offences has been increased by subsequent Finance Acts. The investigation of offences under section 94 was based on the existing Revenue powers to establish liabilities principally section 18 of the Valued Added Tax Act 1972 (Inspection and 139 In Chapter 4: Arrest; Criminal Procedure,

83 Removal of Records) and Section 34 of the Finance Act In 1992, existing powers were harmonized under the various tax heads. While there was some reference to records being used in later criminal proceedings, there was no clear provision for the use of revenue powers in investigation with a view to prosecution. Prosecution for revenue offences was carried out through An Garda Siochána and the Director of Public Prosecutions. Revenue acted as the complainant In 1996, following a review of the existing prosecution structure, Revenue took a direct role in the prosecution of tax offences. The following measures were put in place: A special Prosecutions Unit was established in Investigation Branch to gather evidence with a view to reporting cases involving possible revenue criminal offences to the DPP, via the Revenue Solicitor. Since 1997 a senior officer of the Director of Public Prosecution s Office is available to the Revenue Commissioners for the purposes of case referral and consultation. Finance Act 1999 introduced specific prosecution powers for the first time S908A (power to obtain information from financial institutions) and S905 (2A) (search warrant power) to the TCA Finance Act 2003 inserted three new sections into the TCA 1997 to: (1) Create a criminal offence of falsifying, concealing, destroying or otherwise disposing of material by a person where the person knows, or suspects, is or would be, relevant to the investigation of a revenue offence. (2) Establish substantial presumptions mainly relating to documents. 140 (3) Permit a judge to give documentary information (charts, transcripts, summaries) to juries where a revenue offence is being tried on indictment, in order to assist then in their deliberations Revenue s investigation of tax offences with a view to prosecution is subject to a number of constraints inherent in any criminal investigation: Requirement to produce testimony from witnesses. Privilege against self-incrimination. The right to silence. The unavailability of the power of discovery of documents in criminal proceedings. 141 The right to have criminal proceedings instituted with reasonable expedition If the investigations were being carried out by the Garda Síochána, they would have available to them the powers set out in sections 4 to Section 10 of the Criminal Justice Act 1984, subject to the safeguards provided in sections 5 and 7 of that Act. 140 The Law Reform Commission has stated in regard to these statutory presumptions that: Such provision is constitutional. However, on policy grounds, the Commission feels that the legislature should be cautious in making changes to procedural and evidential rules, for revenue offences. An important policy consideration is that a significant aspect of a criminal opprobrium which the offender attracts may be eroded if it is perceived that special rules had been imposed to facilitate conviction. 141 Clarified in DPP v. Sweeney, Supreme Court 9/10/

84 7.8. It is a complex task to determine the extent to which the powers available to An Garda Síochána under various provisions of the criminal law should be made available to investigators who are not members of An Garda Síochána. Some of the more draconian powers such as those used in the case of drug offences may not be appropriate to use in the investigation of revenue offences There have been a number of developments in the criminal law which are available to members of An Garda Síochána: A new power of search under warrant under section 48 of the Criminal Justice (Theft and Fraud Offences) Act Power to apply to the District Court for an order to obtain material from a third party under section 52 of the Criminal Justice (Theft and Fraud Offences) Act Power of arrest without warrant on suspicion of an arrestable offence under the Criminal Law Act Search and Production Powers The Group believes that, at the present time, it would be more prudent to deal with searches in the manner provided in Chapter 3. The Group recognises, however, that extensive powers to search premises for, or otherwise procure, documentation in connection with criminal proceedings have been conferred by recent legislation. The attention of the Group has been drawn in particular to the Criminal Justice (Theft and Fraud Offences) Act 2001 sections 48 and 52; the Company Law Enforcement Act 2001 section 29 and the Competition Act 2002 section 45. Whilst these legislative provisions may be helpful in indicating public policy generally in relation to the prosecution of offences the Group would not accept that the powers conferred on one agency would necessarily be appropriate to another agency. Distinctions between different agencies may be subtle but very real. The Director of Corporate Enforcement has the task of ensuring that persons who choose to take the benefit of incorporation and in particular incorporation with limited liability comply with all of the requirements of the Companies Acts. The number of undertakings and activities which would fall under the scrutiny of the Competition Authority would be fewer and perhaps better defined than those suspected of wrongdoing under the tax codes. The Group recognises the value of the Criminal Justice (Theft and Fraud) Offences Act 2001, asa possible model but again the distinction must be drawn to the combined function of pursing both civil and criminal liabilities imposed on the Revenue Commissioners where the Garda Síochána are limited to criminal matters The Group recognises that a search carried out in accordance with law can be very intrusive. This must be particularly so where the search concerns a tax offence which may involve the scrutiny of a vast array of documents. Such searches can be very disruptive, expensive and embarrassing for the taxpayer The Group considers that it would be desirable that there should be further exploration of the problems actually encountered by Revenue in carrying out searches or procuring 142 The Group considered whether a power to detain for questioning or to allow Revenue put their case to the accused should be given to Revenue. It is noteworthy that other agencies access Garda powers by the mechanism of having a seconded member of An Garda Síochána on their staff and utilise Garda facilities (i.e. stations) to operate these powers with the benefit of the legislative safeguards built into the criminal justice system. 70

85 documentation relevant to a prosecution. It may be possible to devise some alternative procedure or at any rate some more clearly focussed power which would meet the ascertained needs of the Revenue Commissioners without unduly intruding on the business or family affairs of the taxpayer who is presumed to be innocent of any wrongdoing. Power of Arrest Even if powers of arrest were conferred upon to Revenue investigators it would be necessary for them to procure facilities from the Garda Síochána for the detention and interrogation of the arrested taxpayer. If, as the Group understands the position, it is the Commissioner of An Garda Síochána who will bear the ultimate responsibility and the Station Sergeant the immediate care for the person arrested, it would seem more appropriate that the arrest should be carried out by a member of An Garda Síochána at the request of the official of the Revenue Commissioners and on the basis of the information provided by him or her. The Group would, however, expressly recommend that appropriate provisions should be made either in primary or subordinate legislation to permit an authorised officer of Revenue to interrogate the suspect but subject of course to all of the safeguards which would apply if such interrogation were to be carried out by a member of the Gardai Only one of the tax administrations consulted the Netherlands had the power of arrest for questioning of a tax offender. 143 It is noteworthy that other agencies may access such Garda powers by the mechanism of having a seconded member of An Garda Síochána on their staff and therefore can utilise Garda facilities (i.e. stations) to operate these powers with the benefit of the legislative safeguards built into the criminal justice system The Gardaí have a general power of arrest without warrant in relation to offences which are defined as arrestable offences (ie offences which carry a jail sentence of 5 years or more). This is provided for in section 4 of the Criminal Law Act, Many revenue offences, including those for VAT, Direct Tax and Capital Tax fall within the arrestable offence definition. Consequently, if a member of the Garda Síochána were investigating such an offence, he/she could arrest the suspect and detain the person for questioning in accordance with and subject to the safeguards in section 4 of the Criminal Justice Act However, this power is not available to Revenue officers carrying out an investigation of revenue offences Four of the seven agencies, ODCE, the Competition Authority, CAB and Gardaí have the power of arrest and detention of suspected offenders for purposes of obtaining information, including questioning of suspect. In addition, the same agencies have power of arrest and detention of suspected offenders for purposes of advising of a criminal charge It could be argued that Revenue investigators, therefore, need to have the power of arrest without warrant akin to section 4 of the Criminal Justice Act 1997 and section 4 of Criminal Law Act 1997 to be able to bring the arrested person to a Garda station. Appropriate arrangements between Revenue and the Garda Síochána would be required in relation to both arrest and detention, in keeping with the Criminal Justice Act 1984 (Treatment of Persons in Custody in Garda Síochána Stations) Regulations Appropriate amendments to those Regulations would be 143 UK (C&E) has it also but it is a customs administration. 144 Members of the Garda Síochána are seconded to the Office of the Director of Corporate Enforcement and to the Competition Authority. 71

86 required to allow for the detention by the Gardaí and questioning by revenue officers investigating the revenue offence. Power to Obtain Information under Oath The right to silence can be overridden by legislation. A number of authorities which undertake investigations have a power to summon witnesses and to examine them under oath. 145 The powers to examine witness under oath are used primarily in public interest inquiries: not in criminal investigations. It is the understanding of the Group that statements made (whether under oath or otherwise) by potential witnesses are not admissible in subsequent criminal proceedings. Fair procedures require that the witness must be produced in the proceedings and give his/her evidence under oath subject to cross-examination by or on behalf of the accused. A statement in the nature of an admission or confession made by an accused is not admissible in evidence against him if it is made under compulsion of law A procedure by which potential witnesses in criminal proceedings are interrogated under oath as to the evidence which they might give as part of the criminal investigation would be a novel concept in Irish jurisprudence. The Group would not recommend granting this unique power in relation to the investigation of tax offences. Access to Telephone Records in a Criminal Investigation Section 98 of the Postal and Telephone Services Act 1983, as amended by the Interception of Postal Packets and Telecommunications Messages, (Regulations) Act 1993, provides that licensed operators of a telephone system may disclose information concerning the use made of their telecommunications services by other persons, to a Chief Superintendent of the Garda Síochána or a Colonel in the Defence Forces. Revenue is not a party to whom disclosures can be made. By contrast, tax investigators in some other jurisdictions can get such information from the Irish authorities under the Mutual Legal Assistance procedure by means of section 51 of the Criminal Justice Act This type of information has been particularly valuable to them in the investigation of serious VAT fraud. The Group considers that access should be provided to Revenue in the context of a criminal investigation provide that such access is authorised by a Revenue Commissioner. 145 For example, see section 31 of the Competition Act 2001 and the powers of an inspector (under s10 of the Companies Act 1990 as amended by S23 of the Company Law Enforcement Act 2001) appointed by the Director of Corporate Enforcement under section 14 of the said 1990 Act as amended by section 26 of the said 2001 Act. 146 This was clarified in 1999 by the Supreme Court (Barrington J) in the matter of National Irish Bank Ltd and the Companies Act

87 The Group s Recommendations Additional Prosecution Powers (62) Revenue investigators should be permitted to question persons detained in Garda custody in connection with an arrestable revenue offence. (63) A power for Revenue to access telephone records in criminal investigations subject to authorisation by a Revenue Commissioner. (64) The Group does not recommend granting to Revenue the powers of search and production available under recent criminal justice legislation but would encourage further studies to be undertaken in relation thereto by the Law Reform Commission or otherwise 147 independently from the urgency attaching to the annual Finance Act. 147 Certainly there should be consultation with the policy area of the Department of Justice Equality and Law Reform which has been involved in preparation of legislation regarding Garda powers. 73

88

89 CHAPTER 5 Appeals and Reviews of Revenue Powers 1. Existing Review and Appeal Mechanisms 1.1. The Group s terms of reference asked that it advise on the appropriate appeal or review mechanisms that should be applied in the exercise of Revenue powers There are three types of appeal currently available those involving administrative reviews within Revenue, those where the Ombudsman is asked to intervene and those that involve a formal appeal to the Appeal Commissioners. In addition there is the option of seeking a judicial review of the decision making process used by the Revenue Commissioners. 2. Other Relevant Examinations 2.1. The Group noted that the Department of Finance s Steering Group on the Review of the Office of the Revenue Commissioners examined the tax appeals system and made certain recommendations. The Group also noted that the Public Accounts sub-committee s proposals which largely concerned the Appeal Commissioners and the statutory basis for their office. In addition, the recent Law Reform Commission Consultation Paper on a Fiscal Prosecutor and Revenue Court has made a number of detailed recommendations in regard to the appeal process including about the listing of cases for the Appeal Commissioners (recommendation 8.14) and the issuing of precepts to assist witnesses (recommendation 8.21). 3. International Approach 3.1. Ireland, by and large, has opted to steer appeals on the matters of fact and of law of a tax case through the Appeal Commissioners and onto the courts system. The administrative appeal routes include an internal administrative appeal (since 1999 this offers the option of having an external reviewer also examine the case) and the Ombudsman. The other jurisdictions (see Table following) do likewise: administrative reviews, the Ombudsman option, tribunals and the courts all feature in many of these systems It is notable that in Australia and New Zealand the respective Ombudsman establishments have introduced dedicated sections for tax complaints, whilst the UK has opted for an Adjudicator operating under broadly similar rules to an Ombudsman and the UK taxpayer may also go to the Parliamentary Ombudsman with a case that has been dealt with by the Adjudicator. Replies from other jurisdictions indicate that an appeal on powers is generally to a court with a limited exception for certain powers in the UK. 75

90 Spectrum of dispute areas for tax and tax administration appeals machinery in certain common law country comparators Spectrum of Ireland United Kingdom Australia Canada New Zealand Appeal Issues Administrative Administrative Administrative Administrative Administrative Administrative Decisions or Review (internal) Reviews Reviews Reviews Reviews Conduct Administrative Adjudicator s Special Tax Revenue Canada Review (external) Office Advisor to the Appeals Branch Commonwealth Ombudsman Ombudsman Parliamentary Provincial Chief Ombudsman Ombudsman may Ombudsman investigate cases involving provincial taxes 148 General Small Taxation Tax Court of Taxation Review Commissioners Claims Tribunal Canada Authority (small (informal claims procedure) jurisdiction) Appeal Taxation Review Commissioners Special Tax Court of Authority Commissioners Canada (general (general jurisdiction) procedure) VAT/Duties Tribunal Points of Law Courts Courts Courts Courts Courts 3.4. It was also noted that the general norm in Ireland and other jurisdictions would for existing internal appeal mechanisms to be exhausted before cases progressed to an external tribunal of appeal or Ombudsman. 4. Administrative Review Internal Administrative Reviews 4.1. The right to an internal administrative review is contained in Revenue s Charter of Rights which provides that a taxpayer can object to a charge or duty if s/he thinks the law has been applied incorrectly and can ask to have the case reviewed. The procedures in relation to review on taxation issues are outlined in a published Statement of Practice The Charter points out that the administrative review is in addition to a taxpayer s legal rights to an independent review, such as an appeal to the Appeal Commissioners. As well as taxation matters, the administrative review procedures are open to any individual who wishes to object to any decision relating to granting approval for a premises for VRT dealer authorisation 148 There is no Federal Ombudsman in Canada. 149 Statement of Practice SP/GEN-2/99 Revenue Internal Review Procedures: Audit and Use of Powers. 76

91 and a range of other issues such as classifications or valuations under the EU Customs Code. There is a purely internal review and also a review with the involvement of an External Reviewer A taxpayer must make a written request for an administrative review. The reviews are relatively informal investigations that examine the official documents and files to ensure that decisions taken were fair, based on the available information and the correct administrative procedures. The taxpayer does not have a right to be present or to have representation during this process. There is no formal time limit on completing a review but the unit aims to have a four to six week turnaround for cases. The Director of Customer Services is assisted in all administrative reviews by an Inspector of Taxes, part of whose duties relate to the administration of the review process (e.g. summarizing the issues involved, preparing the case notes and files etc.). The reviewer is generally an official who had no previous involvement in the case and at a more senior level than the staff member who made the initial decision. External Administrative Reviews 4.4. In the past, some tax practitioners and business representative groups indicated that there could be a reluctance to seek a review, particularly in relation to audit or use of powers, because the taxpayer might consider the reviewer as being too closely involved with the official who carried out the audit or made the decision in question; or it might be thought that the request for a review would give offence to the official involved and have an adverse affect on the taxpayer s future relations with Revenue A Revenue quality customer service initiative to help deal with these concerns led (particularly in light of powers granted in 1999) to the establishment of a panel of three external part-time reviewers for cases other than those involving customs and excise duties. The involvement of external reviewers commenced in September In making a request for an administrative review, a taxpayer can now nominate a class of person to carry out the review from among the following: a senior colleague of the auditor; the Director of Customer Service, (who has no operational or management function in relation to audits); the Director of Customer Service jointly with an External Reviewer The formal administrative review (as opposed to a local review by a more senior officer or the District Manager) generally begins with a complaint being made to the Director of Customer Services and the complainant indicating whether they wish to seek an internal or external review. An external review involves one of the panel of three External Reviewers, usually selected in rotation, as well as the Director of Customer Service. The Group clarified that the External Reviewers do not sit together as a panel but are each assigned individual cases as they arise. The reviewer receives the taxpayer s complaint, the taxpayers file, the District Inspector s notes and a factual summary of the case, usually written by the Inspector of Taxes in the Customer Service Unit. The External Reviewer reads all this material and comes to a view, which they then discuss with the Director of Customer Service, who has rarely, if ever, disagreed, although views may be tempered by this discussion. The discussion between the External Reviewer and the Director of Customer Service used to be by telephone but, in line with a recommendation contained in a 77

92 2002 review of the External Review process conducted by a former senior civil servant, the External Reviewer now meets the Director of Customer Service in person The External Reviewer will then, together with the Director of Customer Services, agree the text of the letter to issue in reply to the taxpayer. This letter, informing the complainant of the outcome of their review, will usually be signed by the Inspector of Taxes in the Customer Service unit The table below shows the breakdown of cases for Internal and External reviewers Revenue Internal and External Reviews Year Number Number Inspector s Inspector s Withdrawn or Received Finalised decision Upheld decision agreed prior to Revised/ being sent to Partially Revised Reviewers 1999 Internal External Total Internal External Total Internal External Total Internal External Total Source: Office of the Revenue Commissioners Experience of External Reviewers The main points and considerations arising from the Group s consultations with the External reviewers were: There are not a significant number of complaints or appeals being made to the External Reviewers relating to Revenue powers, and issues regarding use of the 1999 Powers have rarely come before them. While there were few cases brought to their attention involving questionable conduct by the Revenue auditor, complainants often underlined that they had no difficulty with the auditor. The External Reviewers felt they had no difficulty in getting the flavour of a case from the written records and did not feel they needed to see the taxpayer or inspector in person if they met with the Inspector then they would also need to meet with the taxpayer. This would mean that representation would be involved and the system would become more costly, formal and quasi-judicial. 78

93 They saw it as their role to see that procedures were fair. They outlined that their recommendations may not always treat of the tax alone for example they could recommend that the taxpayer should employ an accountant. It was added that on occasion they had recommended that the Inspector and the taxpayer should revisit the case and consider some other ways forward and that this could be considered a form of mediation The Group noted that the Reviewers examine cases involving areas which are wider in scope than their stated role of dealing with requests for reviews where a person considers that a Revenue officer has abused his or her position in the use of those powers. 150 The Group considered that the role of the External Review functions is not well understood and needs to be better publicised. 5. Appeal Commissioners 5.1. The Appeal Commissioners constitute a tribunal, which is given the following definition by Hogan and Morgan (1998) in Administrative Law in Ireland : a body, independent of the Government or any other entity but at the same time not a court, which takes decisions affecting individual rights, according to some fairly precise (and usually legal) guidelines and by following regular and fairly formal procedure To this definition may be added some general features of tribunals as follows: They make awards rather than give judgements (i.e. they are an independent part of the Executive and not part of the Judiciary) 152. They are relatively informal in conducting business (compared to Courts). They usually act more speedily than a Court; in theory they give decisions on the spot. They do not usually charge substantial fees or allocate costs. They are not usually bound by precedent. Members of tribunals are frequently specialists in the subject area An appellant makes his/her appeal to the Appeal Commissioners through the Inspector of Taxes, who decides whether or not grounds for such an appeal to the Appeal Commissioners exist. If it is considered that no grounds exist the Inspector of Taxes may advise the appellant of this and the appellant has the option to appeal this decision (i.e. the decision that no grounds exist) to the Appeal Commissioners. The Inspector will communicate with the Appeal Commissioners, concerning a date for the hearing etc., and acts as a conduit between the Appeal Commissioners and the appellant taxpayer. The Tax Inspector notifies the taxpayer and his/her agent at least 21 days in advance. Many appeals are settled in the 21-day interval between the notice and the date of the appeal hearing. 150 Paragraph 3.4, SP/GEN/2/ Hogan and Morgan, Administrative Law in Ireland 3 rd Ed. (1998), pp Dáil Éireann, Vol. 376, Col. 435, 2 December Intervention from Deputy O Dea: Mr. Justice Barron concluded that the functions of the Appeal Commissioners, as set out in the Income Tax Act, 1967, were not judicial functions but were merely administrative functions. 79

94 5.4. The two Appeal Commissioners do not normally sit together but rather hear appeals individually. A taxpayer may represent her/himself at an appeal hearing or may choose to be represented by a barrister, solicitor, accountant, member of The Institute of Taxation or any other person the Appeal Commissioners may permit. Hearings are relatively informal within the parameters of fair procedure and the proceedings are confidential. Witnesses may be called by either side. The burden of proof is on the taxpayer to dislodge the assessment raised by the Inspector by obtaining a determination The Appeal Commissioners decisions are final and conclusive and they adjudicate on an assessment in respect of the quantum of tax alone (they cannot deal with either penalties or interest) The decision of the Appeal Commissioners may be appealed by the losing party to the higher courts on points of law. 153 This is known as a case stated as the losing party before the Appeal Commissioners must prepare and state a case on the relevant legal point for the higher court to hear. An appellant may also seek to have his/her case reheard by a Circuit Court Judge. Revenue may do this (i.e. have the case reheard) only in respect of Capital Acquisitions Tax cases. A small number of appeals, about 10 to 15 a year, proceed from the Appeal Commissioners to the Circuit Court The Appeal Commissioners possess considerable advantages over other external bodies. 155 Proceedings before them are relatively inexpensive and based on existing work loads are reasonably expeditious as well as being informal and confidential. The Appeal Commissioners have a specialised knowledge of the Taxes Acts. Practitioners and taxpayers see a considerable advantage in the fact that hearings are held in private. The Appeal Commissioners cannot currently adjudicate on either penalties or interest, nor can they determine costs, i.e. each side bears its own costs. Issues concerning the Appeal Commissioners 5.8. The Appeal Commissioners have been a long-standing feature of the tax system in Ireland and have stood the test of time. Under current provisions the Appeal Commissioners have some additional functions to the main role in regard to the determination of appeals against tax assessments. They act as custodian of the right of Revenue to access to certain specialised powers the authorisation of an Appeal Commissioner is required for an authorised officer to issue a notice to a financial institution under Section 907; where an officer seeks to reopen a 1993 Amnesty case it is necessary to get Appeal Commissioner approval. In this role the Appeal Commissioners review the facts on foot of which it is intended to exercise the particular powers and determine whether in the particular circumstances the Revenue Commissioners would be justified in so doing. The fact that the Appeal Commissioners have no role in determining appeals in regard to interest, penalties and voluntary disclosure which are an established part of the day to day experience of taxpayers in regard to the making of an audit/investigation settlement and are the subject of Revenue Codes of Practice was seen as a drawback by the Group. 153 It may be noted that in cases with substantial issues or amounts of tax in question, the Appeal Commissioners hearing is frequently a staging post as the losing party before them will frequently utilize the option of a rehearing by the Circuit Court (if such is available to them) and/or an appeal to the High Court (and perhaps onwards to the Supreme Court) on a point of law. 154 Source Law Reform Commission Consultation Paper, June For an in-depth description and discussion of the Appeal Commissioners, see the Law Reform Commission s June 2003 Consultation Paper on a Fiscal Prosecutor and a Revenue Court. 80

95 6. The Ombudsman 6.1. The Ombudsman is statutorily independent in the performance of her functions and can investigate administrative actions by a wide range of state agencies where a complaint has been made to her (or on her own initiative) and report thereon to the parties concerned Before the Ombudsman makes a finding or criticism adverse to any person or body in a report or recommendation she must afford that person or body concerned an opportunity to consider the matter and make representations on the matter. The Ombudsman s Office has indicated its willingness to investigate an issue if it seems to them that existing appeals machinery is being frustrated Excluded from examination or investigation by the Ombudsman are cases: where the matter is before the Courts; where the aggrieved person has a statutory right of appeal to the courts; where there is a right of appeal to an independent appeal body; related to recruitment or terms or conditions of employment; relating to aliens or naturalisation; relating to pardon or to remission of prison sentences or other court penalties; relating to the administration of prisons The Ombudsman has sought to have the decisions of the Appeal Commissioners made subject to consideration by the Ombudsman. 156 The Ombudsman investigates Revenue cases regularly and the table below outlines the number of cases and their outcomes over the past five years. Complaints made to the Ombudsman about Revenue Number of Complaints Outcome Not upheld Withdrawn Discontinued Assistance provided to complainant Partially resolved Resolved Total Source: Office of the Revenue Commissioners Annual Reports 156 The Schedule to the Ombudsman Act 1980 at Part I lists Departments of State and other persons subject to investigation and includes the Revenue Commissioners. However Part II of the Schedule states the following: The reference in Part I of this Schedule to the Revenue Commissioners does not include a reference to the Appeal Commissioners of Income Tax or their staff. 81

96 7. Judicial Review Decisions of the Revenue Commissioners are also open to judicial review. This is a legal remedy available where a body or tribunal with legal authority to determine rights or impose liabilities, and with a duty to act judicially, has acted in excess of legal authority or contrary to its duty Strictly speaking, Judicial review is not an appeal. It is the procedure by which the High Court exercises a supervisory role over lower courts, administrative bodies and individuals and is confined to matters of public law. Judicial review is a relatively expensive process and accordingly may not be the most efficacious way for a taxpayer to rectify an error of law. 8. Conclusions and Recommendations 8.1. The Group believes that the exercise by Revenue of their powers ought to be subject to external appeal procedures and that the Appeal Commissioners represent the most appropriate appeal mechanism The Group considered there were two areas within which an appeal should be provided. The first of these relates to the Group s recommendations concerning reform of the statutory interest and penalty regime and the making of further statutory provision for voluntary disclosure. It is an essential component of the Group s recommendations in these areas that there be an appeal route to the Appeal Commissioners The second area is that of disagreements during audits; for example, where an audit remains open for a considerable period of time (and a surprising number remain live for over twelve months 158 ). This can be a very stressful situation for a taxpayer who wishes to have closure on the examination of his/her affairs or that of their company by Revenue. In addition, any unnecessary prolonging of an audit can involve the taxpayer in considerable and unwarranted expense. Another area of potential disagreement, as referred to in Chapter 3, is when the Revenue auditor requests certain books and records that the taxpayer does not feel are relevant to the audit. In addition the inappropriate removal of books and records and equipment can prove to be very disruptive for a business. The Group believes that the availability of an easily accessible arbitration mechanism on these issues would enable audits which get bogged down over such issues to be progressed to conclusion. The availability of such a facility would do much to alleviate a source of considerable frustration to taxpayers and their agents To deal with this second category the Group envisages the Appeal Commissioners holding regular short hearings based on oral evidence to decide summarily matters of fact the Monday morning session. Obviously the rationale for such a procedure would require that cases could be turned around quickly, certainly no longer than within the current 21 day period; that both sides would enter into the process in good faith and agree to abide by it and the determination reached would be accepted as full and final There would have to be an examination of the feasibility of ensuring such a level of service under the current resource levels for the Appeal Commissioners. To guard against the abuse of 157 This is a common review route regarding Garda powers. 158 In 2002 there were 2,112 audits open for more than twelve months. 82

97 the procedure to stall a Revenue audit/investigation, it would be a precondition for access to such an arbitration mechanism would be that the taxpayer should pay in advance a sum in respect of the estimated tax liability which is not in dispute. 159 Although the Group accepts that it would be a novel jurisdiction for the Appeal Commissioners they consider that such an arbitration function could be viewed as a determination of facts in a restricted range of situations In general the Group considered that the various appeal procedures available to taxpayers need greater publicity. They are not always well understood, even by professional tax advisors. The Group s Recommendations Appeal Commissioners (65) The jurisdiction of the Appeal Commissioners should be extended in the light of the statutory amendments proposed to include appeals regarding: the categorisation of penalties; the application of interest rates in certain defined situations, and the facts defining a voluntary disclosure. (66) In addition the Appeal Commissioners should be empowered to adjudicate in a Monday morning type session: whether Revenue have a right in law to seek particular information; breach of proposed statutory time limits on audit and/or a request to stay an audit; and unreasonable disruption to business from the removal of current records and equipment. Subject to the provisos that: these arrangements being practicable in terms of resources available to the Appeal Commissioners; and the taxpayer being required in all cases to pay the tax which is not in dispute. 159 Section 9 of FA 1983 provided for a similar safeguard against abuse of the Appeal Commissioner process, i.e. a late application for appeal was not admissible unless the appellant paid the tax charged in the assessment (together with interest) and provided all relevant information. 83

98 The Group s Recommendations Administrative Reviews (67) Revenue should continue to have an internal review function which would deal with issues about the exercise of Revenue s powers and believes that the related recommendations about Powers officers in each region should assist these internal reviews in dealing with complaints concerning the use of Revenue powers. (68) The Group also believes that the External Reviewers should continue the role of quality assurance on the internal customer service function effectively Revenue conduct issues but recommends that they should have a profile more visibly independent of the Revenue Commissioners and that their role should be better publicised. 84

99 CHAPTER 6 Comparable Powers in Certain other Jurisdictions and other Regulatory Authorities 1. Powers in other Jurisdictions 1.1. The Organisation for Economic Cooperation and Development s (OECD) 1990 Report on Taxpayers Rights and Obligations is the most recent international study of comparable powers in other jurisdictions. It gives a comprehensive overview of the powers of revenue authorities in 21 jurisdictions world wide (see Tables in Appendix H). Proceeding from this base, a questionnaire was drawn up to establish the position in other jurisdictions on matters of particular concern to the Group The jurisdictions and the tax administrations chosen for comparison were as follows: Jurisdiction Australia Canada Ireland The Netherlands New Zealand Sweden United Kingdom United States of America Tax Administration Australian Tax Office (ATO) Canadian Customs and Revenue Agency (CCRA) Office of the Revenue Commissioners Belastingdeinst Inland Revenue Department (IRD) Riksskatteverket (STA) (i) Customs and Excise (C&E) (ii) Inland Revenue (IR) Internal Revenue Service (IRS) Issues for Comparative Analysis 1.3. The Group wanted to identify two broad comparators: The general characteristics of the tax administrations which were broadly comparable to Ireland, e.g. in terms of the type of tax assessment system used, obligations on taxpayers and penalties for failure for non-filing, and non-compliance, level of access to records and discourse with tax practitioners. Particular approaches to the use of powers in terms of preconditions and limitations on use of discretionary powers. The need for court orders to enter dwellings, the conditions and consequences surrounding voluntary disclosure as well as the mitigation of penalties were included. 85

100 1.4. The questionnaire and its responses of necessity were broad brush and there is an inevitable element of subjectivity involved. The questionnaire covered: Type of Tax Administration; Obligations to file returns; Information Powers; Audits and investigations of tax liabilities; Penalties and Interest: Power to mitigate or compromise; Voluntary Disclosure; Prosecution of tax offences; and Other matters The legislative position was identified in regard to some of the powers but not all so the replies cover both administrative practice and legal provisions. The conclusions drawn are set out hereunder. As already mentioned, given the diverse and distinctive legislative frameworks of each jurisdiction and taxation authority as well as the subjective nature of the responses, these conclusions should be treated with caution without further reference to specific national legislation. Type of Tax Administration 1.6. The chart below sets out the type of administration in each of the jurisdictions: Country (Tax Administration) AUS CAN IRE NETH NZ SWE UK (C&E) UK (IR) USA Type of Tax Administration Self Assessment for all taxpayers Self Assessment for all taxpayers Self Assessment for Business taxpayers Direct Assessment; Self Assessment for Business taxpayers Self Assessment for all taxpayers Self Assessment for all taxpayers Direct Assessment; Self Assessment for Business taxpayers Self Assessment for Business taxpayers Self Assessment for all taxpayers 1.7. Most of the jurisdictions issued codes of practice following consultations with practitioners. The exceptions were the UK Inland Revenue, which issues a code of practice but does not consult with practitioners, and the Netherlands which has no code of practice. 86

101 Obligation to File Returns 1.8. There is a penalty for failure to file returns in most of the jurisdictions and most selfassessment jurisdictions require a return to be filed without notice, as in Ireland. Generally further information not required on the return can be obtained by the tax administration following notice to the taxpayer. The Netherlands, which has self-assessment for business taxpayers, requires the business taxpayer to be notified before an obligation to file a return arises The consequences of not filing or late-filing vary: Australia, Sweden, the Netherlands, USA, New Zealand, UK (C&E) and UK (IR) have limited sanctions such as interest, penalties or administrative fine for not filing. Countries such as the Netherlands, New Zealand and the United States have, in addition, court sanctions such as fines and imprisonment 160 similar to Ireland In all countries it is where there is a deliberate fraud involved that the more serious sanctions such as court fines or imprisonment arise. The information provided indicated that ceiling on penalties imposable for negligence generally ranged between 100% and 150% of the unpaid tax liability with a few in the 150% 200% range. 2. Information Powers Access to First Party Information 2.1. All tax authorities surveyed have the power to require production of books and records from a taxpayer; uniquely, in the UK a court order is necessary to enforce this power. All other jurisdictions, save Canada, have simply to provide the taxpayer with notice Tax authorities could access the following records, with certain exceptions and subject to the restrictions as set out below. It is noteworthy that uniquely Ireland does not have access to records of resident controlled foreign entities Relating to a tax liability; Personal credit card accounts; Personal bank account; Records of related persons; Records of a business; Records relating to resident controlled foreign entities; and Details of property including non-business assets. 160 Although they stated that such sanctions are rare. 87

102 Country (Tax Administration) AUS CAN IRE NETH NZ SWE UK (C&E) UK (IR) USA Summary of Restrictions on access to books and records Must be for a valid purpose of the relevant tax act. None stated. Personal credit card and bank account information can be accessed only where there is a link to business transactions. Cannot access records relating to resident controlled foreign entities. None stated. None stated. Cannot access the records of a related person. Personal credit card and bank account information, records of related persons and details of property can be accessed only in a criminal case. Need the permission of the Tax Appeals Tribunal (Special Commissioner) or a Circuit Court judge to access any of the records. None stated. Time Periods for retention of books and records by the taxpayer Country (Tax Time period up to which a request for books Time period which may be covered by a Administration) and records would usually be made request for books and records where fraud suspected AUS No defined limit No defined limit CAN 6 years No defined limit IRE 4 years No defined limit NETH 5 years Not stated (although have to retain for 7 years) NZ 4 years No defined limit SWE 5 years 10 years UK (C&E) 3 years 20 years UK (IR) Not stated 20 years USA 3 years No defined limit (6 years for non-filer/omission of income cases unless fraud suspected) 88

103 Access to Third Party Information 2.3. The tax authorities in all jurisdictions surveyed have the capability to access information on a taxpayer s income from third parties. This includes situations where the third party is a financial institution, save for the Australian Tax Office (ATO), who could only do this where there was a suspicion of non-compliance. Indeed, automatic reporting from financial institutions is provided for in all jurisdictions surveyed except the ATO and the UK Inland Revenue (UK Customs and Excise have this power). Taxpayers are informed in advance of the intention to approach a financial institution in Australia, Canada, the Netherlands and Ireland. They are not so informed in the United States, Sweden, New Zealand and the UK No jurisdiction had a statutory provision that the taxpayer must be approached before requesting information from a third party that is not a financial institution, although in Ireland and the United States (IRS) the taxpayer would be requested for the information before asking the third party for it. Professional Privilege 2.5. All jurisdictions had provisions which protected certain privileged records, usually legal professional privilege, statutorily defined. Only in Ireland and to a lesser extent the UK does the privilege extend to the accountancy profession, although the Netherlands, New Zealand and Australia have an administrative policy that no confidential correspondence between the taxpayer and his/her accountant/consultant is sought. 3. Audit and Investigation of Tax Liabilities Power of Entry and Search 3.1. Tax authorities in other jurisdictions can enter and search premises and dwellings. Again, UK Inland Revenue are unusual in that they have no right of entry or search save with a court order whilst all the other jurisdictions can enter business premises during working hours. without a court order. Entry to private dwellings (whether first or third party or of related persons) typically needed a court order except where the resident/occupier gives consent. 89

104 General preconditions for Entry Preconditions: Business Dwellings with Private Dwellings Third Party Third Party Premises Business Premises Dwellings Consent of USA USA USA USA USA taxpayer SWE SWE NETH 162 UK(C&E) NETH UK(ci)* UK(ci)* SWE UK(C&E) CAN 161 UK(C&E) UK(ci)* CAN CAN UK(C&E) IRE CAN Revenue N Z AUS AUS NZ AUS Authorisation AUS UK(cr)* UK(cr)* AUS UK(cr)* UK(cr)* IRE UK(cr)* IRE UK(C&E) IRE IRE Court order / USA USA USA USA USA warrant UK(cr)* N Z NZ UK(cr)* NZ UK(cr)* NETH UK(C&E) NETH UK(C&E) UK(cr) CAN UK(cr)* CAN UK(C&E) UK(C&E) SWE IRE IRE CAN CAN Suspected UK(cr)* UK(cr)* NETH UK(cr)* NETH Offence UK(cr)* UK(cr)* SWE *UK (IR) stated: ordinarily, no powers of entry, but in criminal cases and with a court order, entry possible. UK (ci) = Inland Revenue civil cases only; UK (cr) = Inland Revenue criminal cases only. Requirement for Court Order or Warrant to Search Preconditions Business Dwellings with Private Dwellings Third Party Third Party Premises Business Premises Dwelling Court Order UK(IR) 163 UK(IR) UK(IR) UK(IR) UK(IR) USA USA USA USA USA CAN NZ NETH CAN NETH CAN NZ NZ IRE CAN CAN SWE IRE IRE Warrant UK(IR) UK(IR) UK(IR) UK(IR) UK(IR) USA USA USA USA USA UK(C&E) 164 CAN NETH UK(C&E) NETH CAN UK(C&E) UK(C&E) CAN UK(C&E) CAN CAN 162 In contrast, business and legal persons have the obligation to admit the tax administration to any part of their business premises for carrying out audits. 161 Auditors have the legal authority to enter any business premise, except a dwelling house, without a warrant and demand the production of information from taxpayers or from third parties. Auditors need a warrant to enter a dwelling house. Investigators cannot enter a business premise or dwelling house without a search warrant. However, taxpayers or third parties may waive the requirement for a search warrant and provide access voluntarily. 163 Power of search permitted only in criminal investigations in UK Inland Revenue. 164 UK (C&E) need to be able to demonstrate grounds to obtain a warrant or to be able to demonstrate to a court that consent has been given. 90

105 Country (Tax Administration) AUS CAN IRE NETH NZ SWE UK (C&E) UK (IR) USA Summary of Restrictions on Entry and Search Can enter and search any building once officer holds appropriate authorization; private dwellings would only be accessed on very rare occasions. Do not need consent of taxpayer to enter premises but do need consent to enter any dwelling; need court order to search in all cases. Need internal authorization to enter or search a premises, need court order to search any dwelling in the absence of taxpayer consent. Can enter any business premises but not dwellings unless the taxpayer consents. Can search business premises but needs court order (and suspicion of an offence) to search any dwelling in the absence of taxpayer consent. Need authorization to enter and search business premises; need court order to enter and search private dwellings in all cases. Can enter and search (subject to authorization) business premises; need court order to enter and search private dwellings unless taxpayer consents. Need internal authorization to search business premises; need court order to search any dwelling or third party premises unless taxpayer consents. Has no power of entry (ie cannot carry out on-site audit). Can enter and search only in criminal cases and on foot of a court order, which of itself requires the suspicion of an offence. Can enter business premises (location of books and records) but can only search any building with either taxpayer consent or a court order and the latter requires showing probability of there being evidence of a crime All tax administrations with the exception of the IRS in the United States and Inland Revenue in the UK can search business premises without a warrant. 91

106 Seizure and retention of books and records 3.3. The questionnaire responses showed that in general the seizure of books and records is effectively confined to cases where criminal prosecution is envisaged, as all except Sweden explained that an offence would be suspected for this power to be invoked. Notwithstanding this, a warrant was not necessarily required to seize documents in Ireland, the Netherlands, New Zealand, Sweden and UK (C&E), although it would often be sought by the UK (C&E). Country (Tax Administration) AUS CAN IRE NETH NZ SWE UK (C&E) UK (IR) USA Restrictions on Removal of Records Documents and records can only be seized by the police on foot of a warrant; consequently this is only done in criminal prosecution cases. Investigators may only seize documents pursuant to a warrant. The protocols of the statutory criminal code apply to seized records. 165 An authorized officer can seize and retain records to audit returns or to investigate (including with a view to prosecution). An offence would be suspected for records to be seized and there is an administrative time limit on retention of records. Would not seize documents unless an offence was suspected, i.e. only for an authorized officer to investigate with a view to prosecution in specific cases. Do not need court order and there is no time limit on retention of documents. An authorized officer can seize and retain records to audit returns or to investigate (including with a view to prosecution). There are no pre-conditions for use but there is a statutory time limit on retention of records. An authorized officer can seize and retain records to audit returns or to investigate (but not with a view to prosecution). A civil offence would be suspected and there is a statutory time limit on retention of records. The tax authority is charged with examining not punishing and any prosecutions would be undertaken by a prosecutor. An authorized officer can seize and retain records to audit returns or to investigate (including with a view to prosecution). An offence would be suspected for records to be seized and a court order may be sought rather than relying on internal powers. No time limit is stated. An authorized officer can seize and retain records to investigate with a view to prosecution only. An offence would be suspected and there is an administrative time limit on retention of records. This would only occur in criminal cases and on foot of a court order and search warrant. An authorized officer can seize documents and records to investigate tax liabilities, including with a view to prosecution. A warrant would be required and there is no time limit on retention. 165 In Canada, courts draw a distinction between audit and investigation: the former is considered to have a purely civil and monetary purpose while the latter relates to criminal law enforcement and prosecution. 92

107 Appeals 3.4. Most jurisdictions answered that an appeal mechanism for the use of powers was to a court. However, in the United Kingdom a taxpayer may apply to the Tax Appeal Tribunal for an order requiring the Inland Revenue to cease the audit. In this general context, the jurisdictions surveyed do not require the tax administration to provide explanations about the directions of an audit with New Zealand and Australia are exceptions on this point. In Sweden the burden of proof in an audit is on the taxpayer for the first two years of an audit, after that the burden of proof is on the tax administration. Country (Tax Administration) AUS CAN IRE NETH NZ SWE UK (C&E) UK (IR) USA Appeals on use of Powers during Audits Taxpayer can appeal to a court on a point of law. If a taxpayer refuses a demand issued by an auditor, the CCRA may make an application to a court for a compliance order to force the taxpayer to comply; normal routes of onward appeal are available. Taxpayer can seek to have the case reviewed within the tax authority or by an external reviewer; s/he can also appeal a case to an administrative tribunal or to court on a point of law. Separately the taxpayer could ask the Ombudsman to review the case. There are no legal possibilities for a taxpayer to appeal against the use of powers during an audit. An appeal on a point of law on a point of law or on an administrative discretion regarding the use of powers to a court is possible. Taxpayer can appeal to a court, e.g. whether tax advice from lawyer is privileged. The decision to undertake the audit cannot be appealed. Taxpayer can appeal to the tax authority or to an administrative tribunal on a point of law or an administrative discretion (such as on the length of time spent on an audit); in some issues the tribunal has only a supervisory and not an appellate responsibility. An appeal on a point of law on a point of law or on an administrative discretion regarding the use of powers is possible and would be made to a court for a criminal case and to an administrative tribunal for a civil case. Taxpayer can appeal informally to IRS management or use the formal administrative appeals process. A taxpayer can also appeal to a court on a point of law or on an administrative discretion. Penalties and Interest: Power to Mitigate or Compromise 3.5. Most countries do not require penalties to be imposed by a court and most allow for penalties to be mitigated. The exception is Sweden where penalties must be imposed by a court and there is no power of mitigation resting with the tax administration. New Zealand, Australia, the United Kingdom (Inland Revenue), Canada, UK (C&E), the Netherlands and the United States all have an approach to the mitigation of penalties similar that now used in Ireland. UK (Inland Revenue), UK (C&E), Australia, New Zealand, USA and Canada also allow the tax administration to mitigate interest, although this would not happen routinely but, for example, would be an option in litigation or hardship cases. All jurisdictions except Sweden stated that they provide for an appeal 166 on the level of mitigation where mitigation is permitted. 166 Either to the tax authorities or an administrative tribunal or a court. 93

108 Country (Tax Conditions governing the mitigation of Conditions governing the compromise of Administration) penalties interest AUS Authorized officers of the ATO can mitigate Authorized officers of the ATO can penalties in a settlement or for other compromise interest in a negotiation or for unspecified reasons. The decision can be other unspecified reasons. Appeals are appealed to the tax authority, an administrative possible to the tax authority, an tribunal or the courts. administrative tribunal or the courts. CAN Authorized officers of the CCRA can mitigate Authorized officers of the CCRA can penalties in hardship cases or settlements. The compromise interest in hardship cases or decision to impose a penalty can be appealed settlements. The decision to charge interest to the tax authority and the level of mitigation can be appealed to the tax authority and the can be appealed to a court. level charged can be appealed to a court. IRE Agreement is generally reached with the The Irish Revenue has no power to reduce taxpayer and court proceedings are not interest. necessary to recover the penalty. The power to mitigate penalties may be used, under supervision, in a negotiation. The imposition of a penalty and the level of mitigation can be appealed to the tax authority. NETH The Dutch tax authority can reduce penalties. The Dutch tax authority cannot reduce Appeals on the imposition and level of interest. penalties are possible to the tax authority or to a court. NZ Authorized NZ Revenue officers can mitigate Authorized NZ Revenue officers can penalties in a settlement at litigation stage only compromise interest in a settlement at or for hardship reasons. The decision can be litigation stage only or for hardship reasons. appealed to the tax authority, an administrative The decision can be appealed to the tax tribunal or the courts. authority, an administrative tribunal or the courts. SWE In Sweden the imposition of monetary penalties The Swedish tax authority cannot is confined to courts. compromise interest. UK (C&E) UK Customs and Excise can, in supervised UK Customs and Excise can, in supervised situations, mitigate penalties where co- situations, compromise the interest charged. operation is received or there are mitigating The level of interest charged can be circumstances. The mitigation level can be appealed to the tax authority or to an appealed to the tax authority or to an administrative tribunal. administrative tribunal. UK (IR) UK Inland Revenue can, in supervised UK Inland Revenue can, in supervised situations, mitigate penalties during settlements situations, compromise the interest charged. or in hardship cases. The imposition can be The level of interest charged can be appealed to the tax authority or to an appealed to the tax authority or to an administrative tribunal whilst the mitigation administrative tribunal. level can, in addition, be appealed to a court. USA Authorized IRS officers can mitigate penalties in Authorized IRS officers can compromise settlements. The decision to impose a penalty interest in settlements. The decision to and the level of mitigation can be appealed to charge interest and the level charged can be the tax authority or to a court. appealed to the tax authority or to a court. 94

109 Voluntary Disclosure 3.6. A reasonable definition of voluntary disclosure was supplied by the Dutch tax authority in their questionnaire reply: the taxpayer submits a correct and complete tax return or provides correct and complete information or data before s/he came to know, or reasonably should assume, that the inspector is, or will be, cognizant of the incorrectness or incompleteness All jurisdictions except Sweden have a system of voluntary disclosure similar to Ireland. The benefits of a voluntary disclosure are also similar, i.e. no criminal prosecution and lower levels of penalties will apply. Country (Tax Administrative or statutory Conditions and consequences of voluntary disclosure Administration) parameters AUS Not stated. None stated. The disclosure may be used in subsequent prosecution. CAN Both statutory and Taxpayer can correct inaccurate or misleading information, administrative. disclose material not previously reported to the CCRA or file and pay taxes owing if no return had been filed, without fear of penalty or prosecution. Full and complete disclosure must be provided to receive favourable tax consideration under the voluntary disclosure policy. The disclosure may not be used in a subsequent prosecution. IRE Both statutory and Greater level of penalty mitigation, publication of taxpayer s administrative. details will not arise nor will an investigation with a view to prosecution be initiated. NETH Statutory. No administrative fines imposed nor criminal prosecution initiated with regard to the subject of voluntary disclosure. NZ Both statutory and If full details of tax shortfall provided, penalties may be administrative. reduced and the taxpayer s name may not be published. The disclosure may be used in a subsequent prosecution. SWE Neither. Sweden has no scheme of voluntary disclosure. UK (C&E) Statutory. No exposure to penalties although interest will arise. The disclosure may be used in subsequent prosecution. UK (IR) Administrative. If the disclosure is genuinely unprompted, then reduced penalties apply and there is safety from prosecution. The disclosure may not be used in a subsequent prosecution. USA Administrative. If IRS policy statement is met and no fraud, money laundering or criminal activities are determined, then there will be no criminal prosecution and no fraud penalties will be imposed. However the disclosure may be used in a prosecution if these conditions are not met. 95

110 Prosecution of Tax Offences 3.8. The table below sets out the replies in regard to transition from audit with a view to monetary settlement to investigation with a view to prosecution. Country (Tax Administration) AUS CAN IRE NETH NZ SWE UK (C&E) UK (IR) USA Transition from Audit with a view to monetary settlement to Investigation with a view to prosecution Would require referral from audit area of office to fraud area of the office. In Canada, Courts draw a distinction between the audit and investigative functions. Courts view the audit function as having a civil or purely monetary focus while the purpose of the investigative function is viewed as relating to criminal law enforcement and prosecution. A referral to investigate for suspected fraud is made in cases where significant adjustments have been identified or where the circumstances disclose evidence indicative of tax fraud. The referral is not usually made until the audit is complete or substantially complete. Audits are conducted in the same fashion regardless of the presence or absence of suspected fraud. The auditor will normally discuss the case with the Audit Manager and liaise with Investigations and Prosecution Division (IPD) before, with the District Inspector s permission, submitting the case for consideration by the Admissions Committee of IPD. If the case is considered by that Committee to be suitable for prosecution, the audit is suspended and an investigation is commenced by IPD. Investigations with a view to prosecution are carried out by a specific branch of the Tax Administration, the FIOD-ECD (fraud investigation department). Cases are forwarded when there is a suspicion of a criminal fiscal offence where the tax involved exceeds \5,500 (private persons) or \11,500 (business). These limits are administratively agreed between the Director General of the Tax Administration and the Director of Public Prosecution. Once the tax auditor discovers such an offence, the audit is halted and the case transferred to the FIOD-ECD who, after conferring both with the tax administration and the Public Prosecutor s office, start the criminal investigation. In cases where the amount of tax involved is not definite enough the tax auditor has to trend carefully when asking questions because s/he already has suspicion of a criminal offence. Misuse of his/her powers in this stage may have effects on the criminal prosecution. The two are not handled separately unless the matter is referred to the Serious Fraud Office for investigation, for example where the fraud involves over NZ$500,000; or it has been perpetrated by complex means; or is it likely to be of major public interest or concern. When the tax authorities suspect a tax fraud (for example during an audit) they have an obligation to report it to the prosecutor. Where assurance officers identify a case of suspected VAT fraud they will consider the case against guidance, which details the criteria for referral. If the referral criteria are met then a documented referral is made to Investigation. Investigation will make a decision within 14 days whether or not the case will be taken on. If the case is taken on then it may be investigated with a view to criminal prosecution or with a view to the imposition of a civil evasion penalty. Decision making is at a group level within Special Compliance Office, which carries out all investigations in which serious fraud is suspected. Such cases may be dealt with by either the civil or criminal groups within SCO. A clear audit trail of decisions is kept, which details the reason why a case is to be transferred from civil to criminal or vice versa. Through evidence indicating fraud or criminal activity. Once fraud is alleged, the burden of proof shifts to the government. 96

111 3.9. Most countries change tack when proceeding to prosecute for tax fraud and many have criteria for triggering this change, effectively treating prosecutions as a separate function with different powers. The jurisdictions with larger tax administrations have the clearest distinctions. This may result from the fact that prosecution of tax offences is dealt with by a separate part of the tax administration. In the United States prosecutions are dealt with by the Criminal investigation Division of the Internal Revenue Service while in the Netherlands prosecutions are dealt with by the FIOD-ECD (Fraud Investigation Department) of the Belastingdeinst. In the smaller jurisdictions such as New Zealand and Ireland, there are insufficient resources to allow prosecutions to be a completely separate function In relation to the specific powers for prosecution, only the Netherlands and UK(C&E) have given the tax administration a power to arrest suspects. In most countries, as in Ireland, those who obstruct Revenue officials may be arrested by the police authorities. No notice is given of the change from a civil to a criminal investigation in most countries. A mix of responses was given to the question as to whether the same powers were used to investigate tax offences as other offences of fraud. Other Sanctions There is no common approach. Jurisdictions such as the Netherlands and Australia have no other sanctions other than additional tax, interest and penalties and criminal sanctions where appropriate. Sweden and New Zealand have penalties such as trade bans and publication. In Canada, prosecutions may be published in local and national newspapers but specific information regarding tax defaulters is not made available using such methods For criminal prosecution cases, the UK Inland Revenue issues a news release and details are published on the authority s website. The UK (C&E) can and do report, to the Department of Trade and Industry, directors who have been involved in fraud these are considered for disqualification from holding directorships and UK (C&E) will similarly report accountants and solicitors to their professional bodies if they have been involved in fraud. The Netherlands 167 provides that the measure the tax administration can take when taxpayers do not comply with the obligations pertaining to their own taxes is what the authorities call the shift in the burden of proof. This means that the tax inspector may impose an estimated assessment. The taxpayer then has to prove conclusively (heaviest burden of proof) that the assessment is incorrect The response from the United States was that, in the main, other sanctions available in respect of incorrect returns are directed at tax advisers. Tax advisers can be barred from submitting returns to the Internal Revenue Service and, if convicted of tax fraud, lawyers and accountants lose their licence to practice. The approach taken by the Internal Revenue Service is that tax advisers must have a licence to submit returns and must pass as examination to obtain this licence. 167 Netherlands has self assessment for business taxpayers and direct assessment otherwise. 97

112 4. Comparable Powers in Regulatory Authorities Regulatory Authorities 4.1. The individual agencies that completed a questionnaire outlining comparable powers are as follows: The Criminal Assets Bureau (CAB) 168 The Competition Authority Companies Registration Office (CRO) 169 Department of Social and Family Affairs (Dept of SFA) An Garda Síochána (Garda Bureau of Fraud Investigation) Irish Financial Services Regulatory Authority (IFSRA) Office of the Director and Corporate Enforcement (ODCE) Issues for analysis 4.2. The Group attempted to identify the general powers of these agencies in order to make comparisons with Revenue powers. The main headings on which information was sought from the agencies were as follows: Power to carry out investigations Power to require information from third parties Power to require production of records and information Transition to Investigation Power to Investigate a view to prosecution Power to mitigate Levels of fines and penalties Power of entry and search Power to seize documents Appeal Mechanisms Power of arrest and detention Power to summon witness Other measures 168 CAB officers are formally appointed from among the ranks of an Garda Síochána, the Revenue Commissioners and the Department of Social and Family Affairs. These officers serve in the Bureau on secondment from their parent organizations. These powers and duties of these Bureau officers are vested in them by their parent organizations. 169 Provides a complementary role to the ODCE in the area of company law enforcement. 98

113 Power to carry out investigations Agency Type of Investigations undertaken by agency CAB Competition Authority CRO Dept of SFA Criminal investigation of an offence by an individual; Law Enforcement. Criminal investigation of an offence by an undertaking; Law Enforcement; Civil investigation of compliance with Regulations by an individual or company; Civil investigation of a general issue of compliance by a class of person. Law Enforcement. Civil investigation of compliance with Regulations by an individual; Civil investigation of a general issue of compliance by a class of person. Investigation of a criminal offence. Garda Bureau of Fraud Criminal investigation of an offence by an individual; Investigation Law Enforcement. IFSRA ODCE Criminal investigation of an offence by an an undertaking or an individual; Civil investigation of compliance with Regulations by an undertaking or an individual. Criminal investigation of an offence by an individual; Law Enforcement. Power to Require Information from Third Parties 4.3. All the surveyed Agencies except for CRO can obtain information on the accountable person or the claimant s compliance status from third parties, including professional advisors and financial institutions. 170 The accountable person is not generally informed in advance. Revenue likewise can obtain information on the taxpayer s sources of income from third parties, including financial institutions. 171 Power to Require Production of Records and Information 4.4. All the Agencies, except CRO, have the power to require production of records and information. Non-compliance is a criminal offence The agencies, in general, can access a wide range of records, subject to the restrictions set our in the table below, including: All records relating to compliance status; Personal documentation; Documentation of related persons; All documents of a business; Telephone subscriber and billing information There is no provision for automatic reporting by financial institutions. 171 For instance, financial institutions are now obliged to report to Revenue under revised money laundering provisions. 172 CAB; Competition Authority; Gardai; ODCE. 99

114 Agency Restriction on access to records and information CAB Competition Authority CRO Dept of SFA Access to all records listed above, including, telephone subscriber and billing information, subject to warrant. A court order is required for accessing third party records and it is not necessary that that the information is requested from the accountable person in advance. Records are protected by legal professional privilege. Access to all records listed above, including, telephone subscriber and billing information, subject to ten days notice to accountable person. No preconditions apply to requesting records from third parties and notice is not necessary. Records are protected by legal professional privilege. 173 CRO has no powers to require production of records and information by companies except such information as is required by law to be placed by the company on the public register. Inspectors can request production of wage records with no notice although generally notice is given. Access is restricted to records relating to compliance status and all records of a business. The accountable person must be given notice when information is requested from a third party. Garda Bureau of Fraud Garda powers are invoked in criminal investigations. Access is restricted to records relating Investigation to the offence under investigation which may include telephone subscriber and billing information. A court order is necessary to request the records and information from an accountable person or from a third party. It is not a requirement that the information is requested from the accountable person before requesting it from the third party. Records are protected by legal professional privilege. IFSRA ODCE Access to all of the records listed above with the exception of telephone subscriber and billing information. No preconditions apply to access. No preconditions apply to requesting records from a third party. Records are protected by legal professional privilege. Access to all records listed above, including telephone subscriber and billing information, subject in some instances to a court order. The power is invoked in the audit of a person, in criminal investigation and in civil investigation of a general issue subject to a court order. The accountable person must be given notice when information is requested from a third party and a court order is necessary. Records are protected by legal professional privilege. A request can go back 6 years. 173 Disputes as to what is covered by legal professional privilege have to date been arbitrated by a senior legal advisor in the Competition Authority who is a barrister or solicitor. 100

115 Transition to Investigation Agency Transition from audit to establish compliance to an investigation CAB Competition Authority CRO Dept of SFA CAB does not carry out compliance audits. Investigation is triggered by the suspicion of assets derived from criminal activity. Investigations carried out by the Competition Authority begin as criminal and become civil where there is insufficient evidence found to sustain the criminal burden of proof. The Competition Authority can pursue a civil action in the High Court to remedy breaches of section and section 5 of the Act. There is no provision for a fine or sanction of any sort. Regarding summary versus indictable offences, the Authority has the power to bring its own proceedings in relation to summary offences. CRO imposes penalties on the basis that an annual return is being filed late; therefore no audit is involved. Where the return remains unfiled, the offence is on record and accordingly no investigation is required before CRO initiates criminal prosecution for non filing. A summons for non filing of an annual return must be applied for by the CRO within three years of the failure to file. If not, the summons will be out of time and consequently invalid. Cases following investigations, which are recommended by the investigating officer of the Department of Social Family & Affairs to be prosecuted, are sent to the Departments central prosecutions section where a decision to prosecute is made based on available evidence. Garda Bureau of Fraud N/A Investigation IFSRA ODCE IFSRA carry out both regular audits and random audits which can be triggered by complaints or tip offs. Where there is a breach of regulatory requirements, the accountable person must comply or explain. IFSRA have the power to revoke a license. From 2004, it is intended that IFSRA can investigate and fine any regulated entity, subject to an appeal to the Financial Services Appeal Tribunal and onwards to the High Court. Compliance audits are not carried out by the ODCE in respect of companies or directors. The procedure is that following a complaint to the ODCE, an investigation of such persons is made in respect of Company Law offences. ODCE have an administrative limit of 9 weeks on investigation. Under section 107 CLEA (to be implemented) ODCE may accept a penalty in lieu of prosecution. Investigation with a View to Prosecution 4.7. In general, most of the agencies do not treat investigation with a view to prosecution as separate from audit/investigation of compliance status. Some of the agencies have powers which are used exclusively in investigation with a view to prosecution. Only one of the agencies, CAB, is permitted to require production of a wider range of records in an investigation of an offence and also gives notice of wider scope of inquiry (but not to the person under investigation). All Garda investigations are taken with a view to prosecution. CRO has no powers of investigation; while the Companies Acts provide for possible prosecution on indictment for non-filing of an annual return, that power has never been used The Competition Act 2002 makes provision on presumptions and the admissibility of statements in certain documents in both criminal and civil proceedings. Section 12 permits the court to make certain presumptions about the authorship and attribution of certain documents, 174 Cartel inquiries are dealt with in section 4 which provides that certain collusive activities are a breach of the Act. Section 6 provides that any undertaking that does something prohibited by section 4 shall be guilty of an offence and penalties will apply. 101

116 even, for example, where offices or word processors are shared. It permits the court to make assumptions about receipt of documents by third parties. Section 13 allows the court to treat as admissible evidence any statements or assertions in such documents as to collusive actions and agreements. As a safeguard to the defendants rights, such presumptions are rebuttable using a balance-of-probability standard, even in a criminal case. In addition, the judge can decide to weight any such statements admitted into evidence. Mitigation and Penalties 4.9. Most of the agencies have the power to decide not to impose a sanction or not to select a case for sanction. The circumstances under which such effective mitigation applies varies from agency to agency. Agency Mitigation and appeal provisions CAB Competition Authority CRO 175 Dept of SFA The body has power to decide not to impose a sanction or to select a case for sanction. The imposition of monetary penalties is confined to court authorities. The Chief Bureau Officer has power to negotiate a settlement to reduce penalties which must then be formalised by Court order. Appeal against penalties and against mitigation level can be made to the Court. The body has power to decide not to impose a sanction or to select a case for sanction. The imposition of monetary penalties is confined to court authorities. The agency has no power to reduce penalties. Penalties imposed and mitigation level can be appealed to the court. The late filing penalty arises when a return is filed outside a certain deadline, and the Registrar is not formally allocated decision making power on whether to impose the penalty or not. While the Companies Registrar has no formal power to mitigate penalties, CRO considers written requests for waiver of late filing penalties on a case by case basis. There is no provision for appeal to an outside body against the imposition of penalties by CRO. The body has power to decide not to impose a sanction or to select a case for sanction. The imposition of monetary penalties is confined to court authorities. The agency has no power to reduce penalties. Garda Bureau of Fraud The power to decide not to impose a sanction or to select a case for sanction does not Investigation apply to the Gardaí. The imposition of monetary penalties is confined to court authorities. The agency has no power to reduce penalties. Appeal against penalties and against mitigation level can be made to the Court. IFSRA ODCE The body has power to decide not to seek a sanction or to select a case for sanction. The imposition of monetary penalties is confined to court authorities. In the future, IFSRA will have power to reduce penalties in hardship case and negotiation in a settlement. Penalties and mitigation level will both be appealable to an Administrative tribunal and to a court. ODCE has the power to decide not to impose a sanction or to select a case for sanction. Section 109 CLEA 2001 (not yet implemented) allows ODCE to seek inter alia a penalty in lieu of prosecution. The Director may decide not to prosecute a case where compliance has been undertaken. The agency has no power to reduce penalties. There is no provision for appeal against penalties. 175 At the request of its Users Group, CRO Link, CRO is currently undertaking a review as to the merits or otherwise of introducing a more formalised appeals structure in relation to late filing penalty issues. 102

117 Maximum Combined Levels of Fines and Penalties Agency Other than deliberate fraud Deliberate Fraud CAB Unlimited Confiscation Competition \3,000 (summary) \4,000,000 or 10% of turnover whichever is Authority 176 \250,000 (indictment) greater Statutory Limits Statutory Limits CRO 177 \3, Statutory and administrative limit IFSRA \630,000 Statutory Limit No enforcement of criminal offence; matter (never used) would be passed to Gardaí ODCE \1,904 (summary) \12,697 (in most cases) \12,697 (Indictable) \253,947 (Fine for insider dealing on Statutory Limits indictment) Statutory Limits Court intervention is necessary to recover penalties in the case of Dept of Social and Family Affairs and the Competition Authority. Power of Entry and Search Two of the agencies, Dept of Social and Family Affairs and CRO have no power of search. Of the seven agencies, only IFSRA has the power to search business premises, dwellings with business and third party premises without warrant. (IFSRA needs a warrant for private dwelling and third party dwelling.) The agencies surveyed were asked about the power to enter and the power to search with regard to the following: Business Premises Dwellings with Business Private Dwelling Third Party Premises Third Party Dwelling 176 The Competition Authority can pursue a civil action in the High Court to remedy breaches of section 4 of the Act. There is no provision for a fine or sanction of any sort. (Cartel inquiries are dealt with in section 4 which provides that certain collusive activities are a breach of the Act. Section 6 provides that any undertaking that does something prohibited by section 4 shall be guilty of an offence and penalties will apply.) Regarding summary versus indictable offences, the Authority has the power to bring its own proceedings in relation to summary offences. 177 The limit of the fine is statutory, being imposed by the Companies Acts. The limit of the late filing penalty is administrative, being fixed by the Minister for Enterprise, Trade and Employment by Companies (Fees) Order made pursuant to the Companies Acts. 103

118 CAB 178 Agency Competition Authority CRO Dept of SFA Restriction on Entry and Search A court order is necessary to enter any premises or dwelling and there must be suspicion of offence. A search warrant/court order is required to search any premises in the audit of a person. A court order/ warrant is required to enter or search any premises or dwelling listed above. No power of entry or power of search. Inspectors can, on production of their I.D/Authority enter any employers premises. Where such access is denied without a reasonable explanation, an obstruction case against the employer would be considered. Inspectors also call to individuals homes to investigate and/or review entitlements to S.W benefits. They do not in such instances have a power of entry but are generally invited in by the customer. No power of search. Garda Bureau of Fraud A court order is necessary to enter any premises or dwelling and there must be suspicion Investigation of offence. A search warrant is required to search any premises or dwelling. IFSRA ODCE A private dwelling and a third party dwelling can only be entered on suspicion of an offence, with agency authorisation and with court order/warrant. No precondition other than agency authorisation is required for search or entry of business premises, dwellings with business and certain third party premises such as warehouses holding business records. Agency authorisation and a court order are necessary to enter and/or search any business premises, or dwelling and there must be suspicion of an offence. The accountable person s consent is not required The comparable position with Revenue is that Revenue can enter a business premises without a warrant to examine some or all the aspects of a person s tax records. Revenue 179 has the power to search premises for particular records defined in the legislation which the authorised officer has reason to believe have not been produced, although their production has been requested. The search power and the power to copy or remove records from the premises supplement the basic entry and inspection power An authorised officer in Revenue 180 cannot enter a private residence or the portion of premises used as a private residence without the consent of the occupier unless on production of a warrant issued by a Judge of the District Court authorising the officer to so enter. The approval of an Assistant Secretary is necessary to request a warrant from a District Court Provision is also made that a Judge of the District Court may issue a search warrant if satisfied by evidence given on oath that there are reasonable grounds for suspecting that a person may have failed or may fail to comply with any provision of the Taxes Acts A judge of the District Court may issue a search warrant, on hearing evidence of a Bureau officer who is a member of the Garda Síochána, if he is satisfied there are reasonable grounds for suspecting that evidence of or relating to assets or proceeds deriving from criminal activities is to be found in any place. A Bureau officer, who is a member of An Garda Síochána not below the rank of superintendent, may issue a search warrant in circumstances of urgency where it is impracticable to apply to a judge of the District Court for same. In such circumstances, the search warrant issued shall cease to have effect after a period of 24 hours has elapsed from time of issue. In this section, place includes a dwelling. 179 Section 903, 904 and 905(2)(a)(iv)(B) of the TCA Section 905(2)(e) TCA Section 905(2A) TCA

119 Power to Seize Document and Records Agency Restrictions on removal of records CAB Competition Authority CRO Dept of SFA Garda Bureau of Fraud Investigation IFSRA ODCE CAB can seize records to investigate with a view to prosecution and in specific cases. An offence must be suspected and a court order obtained. No time limit applies to the retention of records. This power is invoked in criminal investigations and civil investigations of a general issue. It is only available to an authorised officer. A warrant is required to seize documents/records. Statutory time limit applies to the retention of records after seizure. No power to seize documents/records. No power to seize documents/records. Records can be seized to investigate with a view to prosecution. A warrant/court order is necessary. No time limit apples to the retention of records. The power is invoked in criminal investigations and in civil investigations of a general issue. No preconditions apply to seize documents and no time limit applies to the retention of records after seizure This power is invoked in criminal investigations to audit compliance and to investigate with a view to prosecute. It is only available to an authorised officer. There must be suspicion of an offence and a court order/warrant is required. A statutory time limit of 6 months, or until such time as proceedings commenced within that time conclude, applies. In the absence of the commencement of proceedings, any extension beyond six months requires an application to the District Court. Appeal Mechanisms 182 Agency Appeal on use of Powers CAB Competition Authority CRO Dept of SFA Garda Bureau of Fraud Investigation IFSRA ODCE An appeal can be made to the Gárda Complaints Authority or to a court on a point of law or on the administrative discretion regarding the use of powers. There is no specific appeal mechanism. The use of powers can be challenged by way of judicial review in the High Court. The case can be reviewed internally. All decisions of the Registrar of Companies may also be judicially reviewed by the High Court. Appeals can be made to the Social Welfare Appeal Tribunal. An appeal can be made to the High Court on a point of law. An appeal can be made to a disciplinary body or to court on a point of law. An appeal can be made to the High Court. In future, an appeal will be available to the Financial Services Appeals Tribunal with a further appeal to the court. An appeal to court is always available by way of judicial review of the discretion regarding the use of powers. The Directors power and functions are liable to judicial review. 182 Judicial review of administrative decisions is also an option and is the most common challenge to the exercise of Garda Powers. 105

120 Power of Arrest and Detention Four of the seven agencies, ODCE, the Competition Authority, CAB and Gardaí have the power of arrest and detention of suspected offenders for purposes of obtaining information, including questioning of suspect. In addition, the same agencies have power of arrest and detention of suspected offenders for purposes of advising of a criminal charge. Members of the Garda Síochána are seconded to ODCE, the Competition Authority and to CAB and have use of these Garda powers essentially. Most powers used by Gardaí are exercisable only by members of the An Garda Síochána. IFSRA may use Gardaí to secure an arrest. (The comparable position with Revenue is that an authorised officer in Revenue may be accompanied by a member or members of the Garda Síochána and any such member may arrest without warrant any person who obstructs or interferes with the authorized officer in the exercise or performance of duties.) 183 In the various agencies the power of arrest is generally restricted to certain offences but is also used by ODCE for certain compliance issues. Gardaí usually have power to arrest offenders who obstruct them in the performance of their duties. Power to Summon Witnesses While some of the bodies have power to summon witnesses and examine under oath, the use of this power is mostly confined to civil investigations of a general nature e.g. intelligence gathering. The power is invoked in a criminal investigation only in CAB and the Competition Authority. Agency Power to summon witness CAB Competition Authority CRO Dept of SFA Garda Bureau of Fraud Investigation IFSRA ODCE CAB invokes this power in the audit of a person and in criminal investigation. The power is not invoked by CAB in civil investigations of a general issue. The Competition Authority invokes the power in matters of criminal investigation and civil investigations of a general issue. Used extensively in civil investigations. Witness offered the same immunities and privileges as a witness to the High Court. Summons evidence can be used as general intelligence in regard to criminal investigations. CRO does not have the power to summon witnesses and examine them under oath. A Social Welfare inspector has power to interview 184 but not the power to summon or question under oath. Gardaí do not have power to summon witnesses and examine them under oath. In general, Gardaí prosecute at the suit of the Director of Public Prosecutions and witness summonses are usually served to secure the attendance of a witness in court to give evidence on behalf of the prosecution in criminal case. Investment Intermediaries Act 1995 (not used). The ODCE does not generally invoke this power in civil investigations of a general issue; in exceptional circumstances, under section 8 of the CA 1990, an inspector may examine a person under oath. The ODCE does not invoke the power in criminal investigations. Section 22 of the CA 1990 provides that an Inspector s report under section 7 or section 8 shall be admissible in civil proceedings as evidence without further proof until the contrary is shown but section 10 case has clarified that compelled evidence is not admissible in criminal proceedings. 183 Section 906 TCA The Social Welfare Consolidation Act 1993 provides that a social welfare inspector shall have power to examine either alone or in the presence of any other person, as he thinks fit in relation to matters on which he may reasonably require information, every person whom he find on any premises or place liable to inspection, or who he has reasonable cause to believe to be or to have been an insured person, and to require every such person to be so examined and to sign a declaration to the truth of the matters in respect of which he is so examined. 106

121 Other Measures The majority of the agencies make provision for additional measures other than those mentioned previously. In certain circumstances, ODCE may restrict or disqualify persons under the provisions of the Companies Act IFSRA make provision for withdrawal of license and publication. The Department of Social and Family Affairs maintain that coverage of local court hearings in the local nationwide papers and naming defendants along with case outcomes has a deterrent effect. The CRO may invoke a statutory power to strike the name of a company off the register where the company has failed to file an annual return. A strike off notice is published in Iris Oifigiúil and a list of companies struck off is published on the CRO website. 107

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123 CHAPTER 7 Full List of the Group s Recommendations Effectiveness of Revenue Powers (1) In view of the Group s difficulties in establishing linkages between the usage of powers and desired outcomes, the Revenue Commissioners should put in place a systematic approach to assess the effectiveness of Revenue Powers; the approach could be based on internationally recognised criteria of tax administration performance measurement, which might include the trend over time of the cost to the taxpayer of complying with the use of powers. (2) Revenue, in line with their re-organisation and re-structuring, should establish Regional Powers Officers in each of the five regions. This officer (at least at Principal Officer grade) would be accountable for the coordination of the operation of powers in line with Revenue guidelines. All requests to use more intrusive powers would be routed through their office therefore ensuring consistent treatment throughout each region. This should enable better co-ordination and management information and monitoring of the powers. It may also facilitate the identification of linkages between their actual use (indeed the request or intention to use could be recorded) and measurable outcomes in terms of improved compliance. (3) A better targeting of the powers should be possible in order to improve the cost/yield ratio given that the rates of nil targeted audits have increased in recent years and are running close to 40%. (4) Compliance costs resulting from the use of powers ought to be reduced where possible. The compliance cost burden on taxpayers should always be actively considered by policymakers as an issue in relation to the effectiveness of powers and by Revenue in relation to the usage of powers. (5) The Revenue Commissioners should periodically, say every three years, include a section on the effectiveness or otherwise of their powers in their annual report to the Minister for Finance. Appropriate Balance of Revenue Powers Authorisations (6) The powers legislation should specify in all cases the levels of third party and internal authorisations required to activate any of the above powers from Chapter

124 (7) Regarding S900 and S901 one or more of the following should exist for the activation of these information powers: a failure on the part of the taxpayer or notice is given of audit or investigation. (8) S906A should provide that the authorised officer should first request the information from the taxpayer; that the taxpayer be given an opportunity to authorise or mandate the information sought (unless this would prejudice a prosecution); and if the taxpayer fails to so authorise, then the Revenue officer should apply to the High Court for approval to direct this information be given. 185 (9) The full authorisation requirements in regard to the use of S906 should be made legislative. Search in Regard to Establishment of Tax Liabilities 186 (10) The power to search without warrant in S903, S904 and S905(2)(a) should be made subject to a warrant from the District Court. (11) A search warrant of the premises of a professional, 187 where the professional is a third party, should specifically restrict the search to files of a particular client or class of clients. (12) A legislative precondition should be stated that the search should be limited to the records relevant to the determination of a tax liability of a particular taxpayer or taxpayers or class of taxpayers. (13) In investigations into additional tax liability, the present statutory professional privilege under section 905(2)(c) should apply (14) Where an ex parte warrant is sought to establish a tax liability, the warrant of the District Court should provide that in the event of a dispute about the relevance of any documents or records obtained as a result of the search, they should be retained by the Revenue solicitor for five days in his/her capacity as an officer of the court to permit the taxpayer the opportunity to appeal to the Appeal Commissioners to determine any allegation as to the relevance of the records so removed to any tax liability. Criminal Investigation with a View to Prosecution 188 (15) There should be a stand alone power of criminal search. (16) A search warrant issued in respect of the premises of a professional, where the professional is a third party, should specifically identify the client or clients whose documents Revenue are entitled to obtain. (17) The current provisions of S905(2A) should stand in this context except for the condition regarding an anticipated beach of the tax code i.e. reasonable grounds for suspecting that 185 Basis of application would be as in S907 and S908 ie that Revenue have reasonable grounds for suspecting that the taxpayer may have failed or may fail to comply with any tax provision and that that would result in significant tax liabilities not being discharged. 186 Currently S903, S904, S905(2)(a)(iv)(B). 187 See case of Niemietz v Germany [1993] 16 EHRR 1997 for comments regarding lawyer/client confidentiality and searches 188 See also Chapter 5 regarding Prosecution Powers and Chapter 4 regarding retention of documents. 110

125 a person may have failed or may fail to comply with any provision of the Acts from which the element of futurity should be deleted. Appeal Commissioners (18) To protect against unjustified disruption to taxpayers there should be limits on the length of audit and an appeal to the Appeal Commissioners against breaches of the limit or an appeal to stay an audit to ensure that audits do not go on for an unreasonable length of time. (19) The Appeal Commissioners should be given jurisdiction, subject to these arrangements being practicable in terms of resources available to the Appeal Commissioners, to hear appeals during an audit in regard to: Revenue s right in law to seek particular information; Breach of proposed statutory limits on audit and/or request to stay an audit; and Unreasonable disruption to business from the removal of current records and equipment. (20) Every such appeal shall be conditional on the taxpayer 189 paying any tax which is not in dispute. Penalties (21) The Group recommends the incorporation of the 2002 Code of Practice penalties scheme into the tax acts with some additional elements: Mitigation to be permissible within the bands outlined in Revenue s 2002 Code of Practice for Revenue Auditors. Category of Innocent Error, attracting no penalty, to be recognized and to be distinguished from that of Insufficient Care on the basis that the taxpayer has a good track record of tax compliance for the three previous years. The abolition of the 200% tax-geared penalty for fraud, as it is considered an anachronism and possibly un-enforceable. Categorization and mitigation will be, as heretofore, by agreement and this should be explicit in the legislation and explained in any correspondence between Revenue and the taxpayer. In the absence of agreement, categorization of the incorrect return will initially be deemed to be Gross Carelessness. For a categorization of Insufficient care or Innocent Error to apply the taxpayer must prove these categorizations before the Appeal Commissioners, with the usual onwards route via a re-hearing in the Circuit Court and to the High Court on a point of law. For a categorization of Deliberate Default to apply, Revenue must prove it before the Appeal Commissioners. 189 Currently taxpayer must pay tax in accordance with the information on his/her return. 111

126 A legislative provision to allow Revenue pursue in court the amount of penalty they consider they are entitled to, i.e. not the full amount. Current penalties regime should remain in place for all legacy cases as previously defined. Interest (22) The Group agreed that a fixed interest rate would be more easily administered in the Irish system and that the fixed rate should be sufficiently high to discourage businesses from deferring their tax payments to Revenue. On balance, they recommend a rate of 10% which represents the current Euribor rate of 2.5% plus 7.5%. (23) That the 2% per month penal interest rate for fraud and neglect cases be abolished on the basis that it is effectively redundant. (24) That a limit be placed on the period for which interest will be charged on the lines of the approach followed in BNR cases under paragraph 4.3 of Revenue Statement of Practice SP Gen 01/01 effectively a roll up provision. (25) That the interest charged on overdue tax be capable of compromise to a rate to restore the time value of the money in defined situations, and that the time value of money be expressed by reference to the Consumer Price Index, similarly to what is done for Capital Gains Tax Indexation purposes. (26) Defined situations would be as follows: Innocent Error, based on similar proposition to that relating to penalties, in that a good track record of tax compliance for the three previous years would mean the full interest rate would be compromised on the basis that the payment would be deemed to have resulted from an innocent error. This will be a rebut-able presumption before the Appeal Commissioners and onwards. Statutory recognition for a meritorious appeal case, so that where a taxpayer made a genuine but mistaken interpretation of a tax provision and a substantial interest charge was now due as a result of a determination of the Appeal Commissioners, the taxpayer could apply to the Appeal Commissioners to ask that only the time value of the funds should be restored to Revenue. If this was not found by the Appeal Commissioners then Revenue would receive the full 10% rate. (27) That each of these compromise situation carve-outs to the standard interest-charging regime would be capable of appeal to the Appeal Commissioners for a determination. (28) Current interest regime to remain for legacy cases as defined heretofore. Voluntary Disclosure (29) That voluntary disclosure should be defined in and its consequences regulated by primary legislation supported, where necessary, by subordinate legislation and administrative directions. 112

127 (30) To qualify for voluntary disclosure the following should be required: Disclosure in writing. Payment of 80% of the estimate of the additional tax within a reasonable time. The provision to Revenue of full details concerning the disclosure within a reasonable time. In default of agreement the time appropriate for the delivery of such information to be determined by the Appeal Commissioners. (31) Any dispute to whether the disclosure is voluntary or otherwise complies with the requirements of legislation and any relevant directions to be determined in the event of a dispute by the Appeal Commissioners. (32) That full voluntary disclosure should confer on taxpayers other than those involved in legacy case stipulated rights including the following: Publication: exemption from publication of names as provided in S1086 of the TCA Prosecution: non-selection of the subject matter of the disclosure for prosecution. Penalties: the right to enjoy the prescribed rights of penalty mitigation under the new proposed regime. (33) Where Revenue propose to undertake the audit of a company separate notice should be given to the directors of the company so as to ensure that such directors are not deprived of an opportunity to make a voluntary disclosure in respect of their own affairs. If no such notice is given to the directors the period in which voluntary disclosure may be made by him or her shall not terminate with the audit of the company. (34) The verification by Revenue officials of a particular item should be clearly designated as a verification audit and such audit shall not terminate any right to make an effective voluntary disclosure at a later time. Voluntary Disclosure and Prosecution (35) The Group recommends that the practice of Revenue not prosecuting revenue offences admitted in the course of voluntary disclosure should be continued. (36) There should be no disclosure of information obtained by Revenue from a voluntary disclosure to other agencies save as may be required by law. Publication of Tax Defaulters (37) That the exemption limit aforesaid be increased to not less than \50,000. (38) That the existing exemption limit be retained in respect of legacy cases as hereinbefore defined. 113

128 Disclosure of information to Director of Corporate Enforcement and other Agencies (39) There should be legislative protection from prosecution for a tax offence in a voluntary disclosure case. (40) That the Revenue Commissioners should not be required to provide information to the Office of the Director in relation to the subject matter of a voluntary disclosure. (41) In relation to information provided by Revenue to the Director under the Act of 2001 the Group recommends that a procedure similar to that operated by the Disclosure of Information for Taxation and Other Purposes Act 1996 should be introduced to address the information exchange interface between Revenue and the Director. (42) To the greatest extent consistent with legal obligations, the taxpayer should be notified of any information passed by Revenue to any other regulatory agency in relation to his/her affairs. Removal and Retention of Taxpayer s Records (43) There should be an express statutory limit on how long the tax authorities can retain books and records taken from a taxpayer. 190 The Group recommends that this should be one month. (44) Where the removal of records and computing equipment would prevent the taxpayer carrying on his or her business in an orderly manner, then Revenue should be able to examine the records at the taxpayers premises. (45) A right of appeal to the Appeal Commissioners should be provided where the taxpayer feels removal of records and computer equipment prevents him carrying on business. (46) If there is a dispute over the appropriateness of documents taken by Revenue, the Revenue Solicitor should hold the records for one week to allow for adjudication on the appropriateness of the relevance of the records. Compliance with Orders (47) It should be provided that any unreasonable request for information should be capable of being objected to before the Appeal Commissioners. (48) Where Revenue make a verification audit check, this will have no implications for a taxpayer (who is a third party in the matter under investigation) in relation to voluntary disclosure and this should be notified to the taxpayer. (49) The Group notes that the Revenue Commissioners have said they will consider applying the civil service redress scheme when it comes into operation. There may be some merit in making a payment in acknowledgement of the inconvenience caused where a customer has been significantly inconvenienced by Revenue error, inaction or delay. 190 i.e. Not just for a reasonable time as in Section 905(2)(a)(D) of the Taxes Consolidation Act, Competition Authority and Companies Office 6 months. 114

129 (50) In all cases where information is provided by a third party subject to a statutory provision, it should be made explicit that the information provider cannot be sued for breach of client confidentiality. Streamlining of Powers The overall approach to streamlining which they recommend is that: (51) The gradation of powers from less intrusive to more invasive should be made transparent in the legislation in line with the transitions from audit to investigation and investigation with a view to prosecution. (52) The legislation should specify what third party supervision and internal revenue authorisation levels 191 are required to activate the more intrusive powers. (53) Existing prosecution powers 192 should be separated from the other powers. This will protect the rights of the taxpayer but should also help with the alignment of procedures to ensure that evidence collected in a revenue investigation does not become tainted by selfincrimination and therefore inadmissible in a criminal trial. Also there should be an appropriate power of search under warrant for use in criminal cases. (54) The appropriate avenue of appeal applying to each of the three categories above should be clear from the legislation. Need for Further Powers General Right to obtain information (55) The right of Revenue to obtain the documentation and information relevant to the establishment and collection of all taxes (subject to appropriate safeguards and authorisations) and the duty of taxpayers to provide such documentation and information must be accepted and should be incorporated into legislation. Automatic Reporting to Revenue (56) The recommended scheme for automatic reporting is: For all new accounts/investments in Irish financial institutions the institution should be required to obtain and record the account holder s/investor s personal public service number (PPSN), or foreign equivalent, and include such number in the automatic reports made to Revenue. Deposit takers (i.e. Irish banks, building societies, credit unions and the Post Office Savings Bank) would be required to make an automatic annual report to Revenue in respect of all resident individuals who earn deposit interest in a tax year the report to include the name and address of the beneficial owner of the interest, the account 191 A number of sections already do this e.g. S901, S902A, but other significant powers are subject only to internal instructions for authorisation in the Revenue Operations Manual e.g. S900, S904A, S905 (apart from S905 (2A) and S905 (2)(e). 192 currently S905 2A and S908A TCA 1997 are used exclusively for prosecution cases. 115

130 number(s) and for new accounts the PPSN and the gross amount of such interest (no de minimis figure is proposed principally to deter account splitting); Irish life assurance companies and collective funds would also be required to make an automatic report to Revenue of all policies/investments which are cashed in, matured, redeemed, surrendered, transferred or otherwise disposed of by resident individuals in a tax year the report to include the name and address of the beneficial owner of the investment at the time of cashing-in etc., the account/policy number(s) and for new investments the PPSN and the amount involved; In future details of all payments made by Government Departments and their Agencies to taxpayers referenced by PPSN numbers should be transmitted to Revenue. Subject to the provisos that: The statutory obligations as aforesaid should not take effect until the Minister for Finance has been satisfied that the information technology systems of the Revenue Commissioners are capable of receiving and handling such information and utilising it effectively. Every taxpayer should have available on request particulars on the information supplied to Revenue in accordance with the proposed obligation. Revenue, the Department of Finance and representatives of the financial institutions should review the operation of automatic reporting not less than three and not more than five years after the introduction of the obligation to ensure the system is operating effectively and economically. It should be determined that there are no unduly adverse social or economic consequences of this proposal. If policymakers consider that the lack of a de minimis provision would have social and economic consequences, a threshold for interest reporting could be determined by Ministerial order subject to such safeguards as might be considered necessary. Offshore Assets and Overseas Payments (57) Revenue should be given the power to obtain documentation and records in the power, possession or procurement of a non-resident entity over which a person resident in this jurisdiction has control. The existing statutory definition of control should apply in this context. (58) Revenue should first seek the information from the taxpayer direct and, only if the taxpayer refuses, then make an application to the High Court. (59) The Court may refuse the application if it is satisfied that it is impracticable for the taxpayer to procure the required documentation or records. Payments for services provided from countries with which Ireland does not have a tax treaty (60) Taxpayers to satisfy Revenue that payments for services provided from countries with which Ireland does not have a tax treaty are bona fide commercial transactions in the absence of which tax can be assessed at standard income tax rates on the payment this would operate like a deemed withholding tax. 116

131 (61) Provision for the refund of the tax if and when the Irish resident taxpayer satisfies Revenue that the payment was bona fide made for services properly provided for the trade carried on by the taxpayer by a supplier whose identity was established to the satisfaction of Revenue. Additional Prosecution Powers (62) Revenue investigators should be permitted to question persons detained in Garda custody in connection with an arrest-able revenue offence. (63) A power for Revenue to access telephone records in criminal investigations subject to authorisation by a Revenue Commissioner. (64) The Group does not recommend granting to Revenue Authorities the powers of search and production available under recent criminal justice legislation but would encourage further studies to be undertaken in relation thereto by the Law Reform Commission or otherwise 194 independently from the urgency attaching to the annual Finance Act. Appeals and Reviews of Revenue Powers Appeal Commissioners 195 (65) The jurisdiction of the Appeal Commissioners should be extended in the light of the statutory amendments proposed to include appeals regarding: the categorisation of penalties; the application of interest rates in certain defined situations, and the facts defining a voluntary disclosure. (66) In addition the Appeal Commissioners should be empowered to adjudicate in a Monday morning type session: whether Revenue have a right in law to seek particular information, breach of proposed statutory time limits on audit and/or a request to stay an audit and unreasonable disruption to business from the removal of current records and equipment. Subject to the provisos that these arrangements are practicable in terms of resources available to the Appeal Commissioners and the taxpayer being required in all cases to pay the tax which is not in dispute. 194 Certainly there should be consultation with the policy area of the Department of Justice Equality and Law Reform which has been involved in preparation of legislation regarding Garda powers. 195 These recommendations are repeated from Chapter 3 for completeness. 117

132 Administrative Reviews (67) Revenue should continue to have an internal review function which would deal with issues about the exercise of Revenue s powers and believes that the related recommendations about Powers officers in each region should assist these internal reviews in dealing with complaints concerning the use of Revenue powers. (68) The Group also believes that the External Reviewers should continue the role of quality assurance on the internal customer service function effectively Revenue conduct issues but recommends that they should have a profile more visibly independent of the Revenue Commissioners and that their role should be better publicised. 118

133 APPENDIX A European Convention of Human Rights Act 2003 The European Convention of Human Rights Act 2003 was passed by the Oireachtas in June The Act shall come into operation on a day, no later than six months after the passing of the Act, appointed by the Minister for Justice, Equality & Law Reform. Prior to incorporation, cases under the Convention have to be pursued directly with Strasbourg. After commencement cases may be pursued in the District Court and then to higher courts. Under Section 5(1) of the Act, if no other legal remedy is adequate or available, the High Court or Supreme Court may make a declaration stating that a statutory provision or rule of law is incompatible with the State s obligations under the Convention. Section 5(2) provides that such a declaration will not affect the validity of the incompatible statutory rule or its continuing operation. A declaration of incompatibility (a) (b) Shall not affect the validity, continuing operation or enforcement of the statutory provision or rule of law in respect of which it is made, and Shall not prevent a party to the proceedings concerned from making submissions or representations in relation to matters to which the declaration relates in any proceedings before the European Court of Human Rights. [9] In cases of incompatibility with the convention, the Act makes provision as follows: Section 5(3) provides that The Taoiseach shall cause a copy of any order containing a declaration of incompatibility to be laid before each House of the Oireachtas within the next 21 days on which that House has sat after the making of the order. Section 5(4) of the Act provides Where (a) (b) a declaration of incompatibility is made, a party to the proceedings concerned makes an application in writing to the Attorney General for compensation in respect of an injury or loss or damage suffered by him or her as a result of the incompatibility concerned, and 119

134 (c) the Government, in their discretion, consider that it may be appropriate to make an ex gratia payment of compensation to that party ( a payment ), the Government may request an adviser appointed by them to advise them as to the amount of such compensation (if any) and may, in their discretion, make a payment of the amount aforesaid or of such other amount as they consider appropriate in the circumstances. Section 5(5) provides In advising the Government on the amount of compensation for the purposes of subsection (4), an adviser shall take appropriate account of the principles and practice applied by the European Court of Human Rights in relation to affording just satisfaction to an injured party under Article 41 of the Convention. [10] Section 6 of the Act provides that before a court decides to make a declaration of incompatibility the Attorney General and the Human Rights Commission shall be given notice of the proceedings in accordance with the rules of court. The Attorney General shall be entitled to appear in the proceedings and to become a party thereto as regards the issue of the declaration of the incompatibility. 120

135 APPENDIX B The Eskort System Background In 1995, the Common Registration System (CRS) was introduced which amalgamated all the different tax heads into one common system. Within the CRS, information on the taxpayer under each tax head is maintained. While the majority of the information is supplied by the taxpayer himself in paper form, as in claim forms and tax return forms, which must then be converted to electronic form, information also comes in the following forms: Electronically with the Personal Public Service Number (PPSN) from, for example, Financial Institutions for the purpose of SSIA s; Tax relief at source on mortgage interest payments; Electronically without the PPSN names and addresses of individuals who are paid dividends from, for example, any Irish PLC. Paper form, such as Form ST21, completed by solicitors on behalf of individuals in relation to property transactions and submitted to Stamp Duty Section of Revenue; Some information is given voluntarily by third parties e.g. tapes of rent subsidies paid to landlords by the Health Boards. Risk Analysis Team Revenue has commenced processing Risk Analysis data by means of a computerized system known as Eskort. Eskort is a Swedish product in use already in South Africa, the United States and some Eastern European countries. The goal of the Risk Analysis team is to become experts in all areas and to coordinate and collect the expert knowledge using software. Risk covers all areas, debt management, audit, compliance etc. Risk arises through error, tax avoidance, tax evasion and fraud and is manifested through non-reporting, false reporting, non-payment of tax etc. The objective of the Risk Analysis program is to analyse all Revenue customers across a number of profiles by applying rules to the data available. The profile of an individual will be built through cross referencing data across the different tax heads and information submitted from other sources. Profiles of individuals will be presented based on scores with regard to their risk to Revenue for track record, potential tax at risk, confidence in rules, observation count, secondary profile, and confidence in rules based on feed back from officers. 121

136 Timetable for the Risk Analysis system A pilot program aimed at VAT and Payroll compliance will be run in October It is proposed to extend the system to Income Tax and Corporation Tax in early 2004 and finally to Relevant Contracts Tax, PAYE, Customs and Excise and Capital Taxes data to the system before Current approach to Risk Analysis Revenue has been tackling risk through different systems of type profiles. Returns and accounts are manually screened and selection for audit is done manually. This has proved successful in that targets have been met; over 16,000 audits are carried out per annum yielding \350million in However, using the manual approach does not always make the best use of skilled officers, not all available information is used, not all cases are screened, risk evaluation is not consistent and the risk is not evaluated in the context of the overall revenue risk. The move to a risk based selection identifies the risks, evaluates the degree of risk and determines the necessary action. This has a number of advantages; it is comprehensive (all data is included), equitable (the same rules apply to each taxpayer) and consistent. Over time, it is hoped that it will become flexible and adaptable. As a result, less manual screening will be required by Revenue and non-compliance will not provide an opportunity to escape the process. There will be minimum contact with the compliant taxpayer, more focus on the taxpayer rather than on the individual return submitted, a transparent and equitable approach and better targeting of audits. Scoring System All taxpayers will be scored based on a set of complex rules. There will be a tolerance limit and no risk will apply to those under a certain level. There is human intervention at the end of the risk analysis process and that it will be up to the audit manager to make a decision based on the score. Using this method, any errors should be picked up by the audit manager/selector before an audit starts. Revenue will compare like with like by means of setting ratios based on gross profit rates. Exchange of Information Information held by Revenue on the system can, in certain defined circumstances, be made available to other bodies or other tax authorities. While certain information can be given to Dept Social and Family Affairs, information on income is not transmitted. Certain information can be given to other organisations such as to the Garda Síochána under CAB Act 1996 and to the ODCE where there is a suspicion of a company law offence. In addition, Double Taxation Treaties provide for the exchange of certain information. 122

137 APPENDIX C Irish Response to Jurisdiction Questionnaire Revenue Powers Group 5-9 South Frederick Street, Dublin Please tick appropriate box: 1. Powers of Revenue authority to establish tax liabilities Country: Ireland 2. Type of tax administration: (a) Self Assessment X (b) Direct assessment By all taxpayers Business taxpayers X Only certain taxes 3. Obligation on taxpayer to file annual/periodic return On notice Without notice X (a) Consequences of not filing/late filing return Interest Penalty Administrative fine Court fine Imprisonment Other Sanction X X X X* If rare please put * beside above. Can tax authorities require further information Yes X No Mandatory basis X Only on notice X (b) Potential consequences of incorrect returns due to innocent error* or negligence Interest Penalty Administrative fine Court fine Imprisonment Other Sanction X X *Comment: In the case of innocent error only interest applies 123

138 (c) Potential consequences of incorrect returns due to deliberate fraud Interest Penalty Administrative fine Court fine Imprisonment Other Sanction X X X X* 4. Is information on taxpayer s sources of incomes available from third parties Yes X No Including financial institutions (re individual taxpayer) Yes X No only if reasonable suspicion of non compliance X Is taxpayer informed in advance Yes X No Automatic reporting by financial institutions Reference by public reference number Comment: The Financial Institutions are now obliged to report to the Revenue under revised money laundering provisions. Are there fines/penalties on third parties for failure to file returns on taxpayers? Yes X No Only if on notice 5. Upper level of cost to taxpayer of fines, interest and penalties as a percentage of tax liability, please tick appropriate effective max (a) Innocent Error 50% 100% 200% 300% 400% Is this limit statutory X Administrative Comment: Penalties are not charged for innocent error. Interest is charged at a daily rate equivalent to 1% per month. (b) Negligence 50% 100% 200% 300% 400% Is this limit statutory X X Administrative Comment: Interest is charged at a daily rate equivalent 1% per month. Penalties of 100% can be mitigated. Under the Audit Code the penalty for insufficient care is 20% and this can be mitigated to 3%. 124

139 (c) Deliberate Fraud 50% 100% 200% 300% 400% Is this limit statutory X X Administrative Is intervention of court necessary to recover penalties Yes No Comment: Interest is charged at a daily rate equivalent 1% per month. Under the Audit Code 100% penalty is applied for deliberate default and this can be mitigated to 10%. In the absence of an agreement with the taxpayer, intervention of court is necessary to recover penalties. 6. Use of statutory powers (i) Are there discretionary powers Yes X No (ii) Power to require production of books, documents and records (a) From taxpayer Consent required By court order Notice required X (b) Are these preconditions before power is used Yes X No Comment: Taxpayer must have been given reasonable opportunity to deliver. (c) How many years can a request go back years Comment: No restriction in the case of Fraud. Generally the audit will be on a recent year. (d) From third party With consent of taxpayer By court order On notice to taxpayers X X Must tax authority request information from taxpayer before requesting information from third party? Answer: No Comment: There are certain third party returns which must be submitted to the Revenue under legislation. 125

140 (e) Are records protected by professional privilege Yes X No Prescribed by statute X legal professional privilege X Both legal professional privilege and statute X Covering accountancy profession? Comment: Some records of some professionals (legal, medical) are protected by professional privilege. Once the records form part of the business records they are made available for inspection. Generally Inspectors allow the names of clients to be suppressed. (f) Can tax authorities access: 1. All records relating to tax liability X 2. Personal credit card account 3. Personal bank accounts 4. Records of related persons X 5. All records of a business X 6. Records relating to resident controlled foreign entities 7. Details of property, including non-business assets X Comment: Where there is a link to business transactions the personal bank accounts and credit card accounts can be examined. (iii) Power of entry permitted Business premises Dwellings with business Dwelling Business Premises Dwelling of a third of a third party party X By invitation No X No Comment: Power of entry to a place of business is permitted. The residence of the taxpayer cannot be entered unless by invitation. Entry to a private residence without consent requires the approval of an Assistant Secretary (to request a warrant) and said warrant from a District Court. Preconditions for entry Consent of taxpayer Revenue Court order Suspected authorisation offence Business premises X Dwellings with business X Private dwelling X X Third party premises X Third party dwelling X X 126

141 (iv) Power of search permitted Can tax authorities search: Business premises Dwellings with Dwelling Business Dwelling of a business Premises of a third party third party X X Limited to specific cases: Yes X No Do objective criteria have to be satisfied Yes X No Preconditions for Search Suspicion of Consent Authorisation Court order Warrant offence Business premises X Dwelling with X X business Private X X dwelling Third party premises X Third party X X dwelling (v) Power to seize documents/records Is this available: (a) To audit returns Yes X No (b) To investigate tax liabilities Yes X No (c) To investigate with a view to prosecution Yes X No (d) Only to an authorised officer Yes X No (e) Only in specific cases Yes No X Preconditions for seizure of documents/records: (Please tick which apply) (a) If offence suspected X court order warrant (b) Do time limits apply for retention of records by tax authorities after seizure Yes X Statutory No Administrative 127

142 7. Audit/Investigation of tax liabilities with a view to monetary settlement (a) Does tax administration issue audit code of practice Yes X No After consultation with tax practitioners? Yes X No (b) Tick which one of these statements is true (i) Once audit begins, burden of proof on taxpayer (ii) Burden of proof is always on taxpayers X (iii) (iv) Burden of proof is on taxpayers when offence suspected None of above. (c) How is the transition from audit/investigation of tax liabilities to investigation with a view to prosecution handled? The auditor will normally discuss the case with the Audit Manager and liaise with Investigations and Prosecution Division (IPD) before, with the District Inspector s permission, submitting the case for consideration by the Admissions Committee of IPD. If the case is considered by that Committee to be suitable for prosecution, the audit is suspended and an investigation is commenced by IPD. (d) Types of audit: Is notice given Yes X No In all cases X (i) Single tax (e.g. VAT, income tax) X (ii) All taxes X Which type is most commonly used? (i) (ii) X Note: (There are specific programmes for each tax type) (e) Criteria applying to audit: (i) Length of statutory limit on duration of audit (ii) Length of administrative limit in duration of audit X (iii) What criteria trigger audit Risk Specify: Cases are selected for audit following the screening of returns made by the taxpayer and information held within the tax district. There is also a random audit programme whereby taxpayers are selected for audit on a random basis. (f) Must tax authorities give explanations in writing to tax payer during audit if requested (e.g. why particular documentation relevant to a tax liability) Yes X No Only on a point of substance Only in certain circumstances Specify: This is to fulfil the Charter of Rights requirements rather than there being legal reasons for doing so.

143 (g) Is there appeal available during audit regarding use of powers Yes X No If so to which forum: Tax authority Administrative tribunal Court Review by Principal in The review does not affect the A re-hearing of a case can Customer Services Branch legal right to have the point of take place in the Circuit Court. along with an External contention listed for hearing A case can be listed for Reviewer. by the Appeal Commissioners. hearing in the High Court on a point of law. Can appeal cover: Point of law re use of powers Administration discretion re Only certain powers use of powers Yes 8. Power to mitigate Comment: The taxpayer can ask the Ombudsman to review his case where appropriate. (a) Is the imposition of monetary penalties confined to court authorities Yes No X Comment: In general, agreement is reached with the taxpayer on the level of penalty to be applied, thus obviating the necessity to involve court proceedings for recovery. (b) Do the tax authorities have power to reduce penalties Yes X No (c) Do the tax authorities have power to reduce interest Yes No X (d) In what circumstances does the power to mitigate apply Hardship cases only Negotiation in a settlement X (e) Is the power of mitigation available To authorised officer only Only in supervised situations X (f) What is the appeal mechanisms for interest or penalties None Tax authority X Administrative tribunal Court (g) Is there an appeal mechanism against mitigation level Tax authority X Administrative tribunal Court None 129

144 9. Do you have a system of voluntary disclosure? (a) Yes X Written (b) No Oral X Are the parameters described in (a) legislation X administratively X (b) What consequences flow from voluntary disclosure Comment: Greater level of penalty mitigation. Publication of Taxpayer s details and Settlement details does not arise. Revenue will not initiate an investigation with a view to prosecution. (c) Can a voluntary disclosure be used in any subsequent prosecution? Yes (see above at c. A voluntary disclosure is not made under caution) No X Where a satisfactory disclosure is made Revenue will not initiate an investigation with a view to prosecution. 10. Investigation with a view to prosecution (a) Is this treated as separate from audit/investigation of tax liabilities? Yes X No (It can be referred from an Audit) (b) Are there powers which are used exclusively in investigation with a view to prosecution Yes X No (c) Are tax authorities permitted to require production of a wider range of records in an investigation of a tax offence Yes X No (d) If so, is notice given of wider scope of inquiry at that point? Yes No X (e) Do tax authorities have the power of direct arrest and detention of suspected tax offenders for purposes of obtaining information (including questioning of suspect) Yes No X Comment Power of arrest in certain circumstances provided in Sec 27(11) VATA1972 but only for purposes of charge. (f) Is this restricted to: X certain taxes on court warrant certain offences (g) Have the police authorities the power to arrest without warrant offenders who obstruct tax authorities Yes X No 130

145 (h) Are the same powers used by the relevant authorities to investigate tax offences as other criminal cases of fraud Yes No X When Revenue are investigating they generally have to rely on Revenue powers only. If Gardaí were investigating they have a greater range of powers including Revenue offences. 11. General (i) Are there other special restrictions (e.g withdrawal of licences, prohibition from carrying on a profession) or measures (e.g. publishing names of tax defaulters in newspapers or annual reports of revenue authorities which can be used against tax defaulters) Yes X No Comment: There are tax clearance certificates required in order to obtain a licence to operate certain businesses. There is also provision to publish the name, address, settlement details and a description of the settlement in the Official Government production (Iris Oifigiúil) where a settlement exceeds \12,700 and includes tax, interest and penalty. Similar provisions arise for taxpayers who are prosecuted having failed to submit returns. Can we use the above information provided by you in a published document Yes X No 131

146

147 APPENDIX D Acknowledgements The Group Wish to Thank the Following for their Contribution to the Review 1. Accountancy Group West 2. Irish Bankers Federation 3. Law Society 4. Institute of Taxation 5. Consultative Committee of Accountancy Bodies Ireland 6. Office of the Director of Corporate Enforcements 7. Office of the Comptroller and Auditor General 8. Director of Public Prosecutions 9. Irish Financial Services Regulatory Authority 10. Office of the Ombudsman 11. The Office of the Revenue Commissioners 12. Criminal Assets Bureau 13. Mr. C. Enright 14. Mr. P. Walsh 15. Mr. J. Maher 16. Mr. L. Wrigley 17. Mr. P. Lynch 18. Mr. & Mrs. Moroney 19. Mr. P. Hannigan 20. Those who made confidential submissions. 133

148 Agencies and Jurisdictions who completed the Questionnaire Agencies 1. An Garda Síochána (Bureau of Fraud Investigation) 2. The Competition Authority 3. The Department of Social and Family Affairs 4. The Office of the Director of Corporate Enforcement 5. Irish Financial Services Regulatory Authority 6. Criminal Assets Bureau 7. Companies Registration Office Jurisdictions 1. United States of America 2. Sweden 3. Australia 4. The Netherlands 5. Ireland 6. United Kingdom 7. New Zealand 8. Canada 134

149 APPENDIX E Sections Mentioned in Submissions Taxes Consolidation Act 1997: Section 432 Meaning of associated company and control Section 808 Power to obtain information Section 811 Section 849 Section 873 Section 900 Section 901 Section 902 Section 902A Section 903 Section 904 Section 905 Section 905(2A) Section 905 (2) Section 905(2)(a)(B) Section 906 Section 906A Transactions to avoid liability to tax Taxes under Care and Management Proof that person is a Commissioner or officer Power to call for production of books and information Application to High Court for production of books and information Info to be furnished by third party: request of an authorised officer Application to High Court: information from third party Power of inspection: PAYE Power of inspection: tax deduction from payments to certain sub contractors Inspection of documents and records Application to a Judge of District Court for a search warrant Power of entry, examination, search and removal of records Power of search Authorised officers and Garda Síochána Information to be furnished by financial institutions Section 907 Application to Appeal Commissioner: information from financial institutions Section 908 Section 908A Section 909 Section 910 Application to high court seeking order requiring information: financial institutions Revenue offence: power to obtain information from financial institutions Power to require return of property Power to obtain information from Minister of Government 135

150 Section 917B Section 1002 Section 1052 Section 1053 Section 1054 Section 1061 Section 1065 Section 1066 Section 1077 Section 1078 Section 1080 Section 1084 Section 1085 Section 1086 Return by settler in relation to non- resident trustees Deduction from payments due to defaulters of amounts due in relation to tax Penalties for failure to make certain returns Penalty for fraudulently or negligently making incorrect returns Increased penalties in case of bodies of persons Recovery of penalties Mitigation and application of fines and penalties False evidence: punishment as for perjury Penalties for failure to make returns, etc and for fraudulently or negligently making incorrect returns Revenue offences Interest on overdue income tax and corporation tax Surcharge for late returns Corporation tax- later returns: restriction of certain claims for relief Publication of names of tax defaulters Parts 38 and 47 (Chapter 4) in the Taxes Consolidation Act 1977 Part 38 Revenue Powers Part 47 Revenue Offences Reference to other Legislation in Submissions Finance Act 1983 Section 18 Information to be furnished by financial institutions Criminal Assets Bureau 1996 Section 14 Search warrants Companies Act 1990 Section 8 Section 10 Section 14 Section 20 Section 21 Investigation of company s affairs on application of Minister Production of documents and evidence on Investigations Appointment and powers of inspectors to investigate ownership Entry and search of premises Provision for security of information Competition Act 2002 Section 45 Authorised officers and their powers 136

151 Company Law Enforcement Act 2001 Section 17 Section 18 Section 20 Disclosure of information Information relating to offences under Companies Act maybe disclosed to director or officer of director Entry and Search of premises Section 23 Amendment of Section 10 of Act of 1990 Section 30 Repeal /substitution of Section 20 of the Act in 1990 Ombudsman Act 1980 Section 5(1)(a)(ii) Section5(1)(a)(iii) The person affected by the action has a right conferred by or under statute (within the meaning of Section 3 of the Interpretation Act 1937)of appeal, reference or review to or before a court in the state(not being an appeal, reference or review in relation to a decision of a court) The person affected by the action has a right of appeal, reference or review to or before a person other than department of state or other person specified in part 1 of the First Schedule to this act. Criminal Justice Act 1984 Section 5 Section 6 Section 7 Access to solicitor and notification of detention. Powers of Garda Síochána in relation to detained persons. Regulations regarding treatment of persons in custody. Criminal Justice Act 1994 Section 51 Taking of evidence in State for use outside State. Criminal Justice Act 1997 Section 57 Disclosure of Information Comptroller and Auditor General 1993 Section 3(7) Shall examine the accounts of the receipt of revenue of the State collected by the Revenue Commissioners and the accounts of such other persons who receive money which is payable into the Exchequer as he considers appropriate Finance Act 1974 Section 59 Power to obtain information Criminal Justice (Theft & Fraud Offence) 2001 Section 48 Section 52 Search Warrant Order to produce evidential material 137

152 Criminal Law Act 1997 Section 4 Arrest without warrant Postal and Telephone Services Act 1983 Section 98 Prohibition on interception of telecommunications messages Value Added Tax Act 1972 Section 27 Fraudulent returns 138

153 APPENDIX F Revenue s Statutory Powers to Establish Tax Liabilities Section 172 (f) Section 172 Section 182 Section 235 Section 236 Section 238 Section 239 Section 244(a) Section 258 Section 263 Section 267 (f) Section 435 Section 446 Section 453 Section 470A (7) Section 472 A (7) Section 472(7) Powers in relation to the obligation of intermediaries in relation to relevant distributions Inspection of dividend withholding tax Returns of company buying own shares Inspection of exemption to promote changes Inspection of art object Assessment of annual payment Assessment of payments by resident companies Control of tax relief at source Assessment of interest on special savings accounts Inspection of non resident declarations Inspection of credit unions Request for information on close companies Request for information on IFSC Request for information on manufacturing relief Inspection of records of long term care insurers Inspection of records of long term care insurers Request for information on Trade Union subscriptions Section 472 (7) (1) Power to require information in electronic format Section 473 (9) (a) Power to require information on rent relief Section 482 (7) Section 486B (8) Section 505 Section 508 Section 510 Entry to significant buildings and gardens Request for information on renewable energy Require information on investments in corporate trades Require information on designated funds Require information on profit sharing schemes 139

154 Section 645 Section 730G Section 737(5) Section 739(F) Section 783(5) Section 784E Section 804 (4) Section 808 Section 811 Section 812 (4) Section 848M (4) Section 848R (11) Section 849 Section 858 Section 868 Section 871 Section 872 Section 880 (5) Section 881 (2) Section 882 (2) Section 884 (2) Section 887 (5) Section 889 Section 890 (2) Section 892 (2) Section 897 (2) Section 898 (4) Section 899 Section 900 Section 901 Section 902 Require information on development land dealing Assessment and appeals: life assurance companies Request for and examination of records of unit trusts and offshore funds Assessments and Appeals: Units trusts and offshore funds Power to make regulation to interalia require information on approved trust schemes (Retirement Annuities Power to raise assessments in relation to qualifying fund Requirement to furnish Revenue Commissioners with particulars as they think necessary in relation to the estates of deceased persons in course of administration Power to obtain information in relation to transfer assets abroad Power to control anti-avoidance Require information on income and gain from securities Assessment of gains on special savings accounts Require information on special savings accounts Care and Management Evidence of authorisation Execution of warrants Power to combine certain returns and assessments Information matching within revenue Require partnership returns Require return from married persons Require return from trust companies Require corporation tax return Require information on record keeping software Require third party return Request return of interest paid Request information on nominee holders Request information on emoluments paid Request Copies of rates and valuations Inspector s Right to make Enquires Power to call for production of books, information etc Application to High Court: production of books, information etc Information to be furnished by third party; request of an authorised officer

155 Section 902A Section 903 Section 904 Section 904A Section 904B Section 904C Section 904D Section 904F Section 904G Section 904H Section 904I Section 905 Section 906 Section 906A Section 907 Section 908 Section 908A Section 909 Section 910 Section 91 Section 912 Section 914 (2) Section 915 (2) Section 916 Section 917 Section 917L Section 918 Section 919 Section 920 Section 922 Section 923 Application to High Court: Information from third party Power of Inspection: PAYE Power of Inspection: tax deduction from payments to certain subcontractors Power of Inspection: returns and collections of appropriate tax Report to Committee of Public Accounts: publication etc Power of Inspection (returns and collection of appropriate tax): Assurance companies Power of Inspection (returns and collection of appropriate tax): investment undertakings Power of Inspections: claims by authorised insurers Power of Inspections: claims by qualifying lenders Power of Inspections: claims by qualifying insurers Power of Inspection: qualifying savings managers Power of Inspection: Returns and collections of dividend withholding tax Inspection of documents and records Authorised officers and Garda Síochána Information to be furnished by financial institutions Application to Appeal Commissioners: Information from Financial Institutions Application to High Court seeking order requiring information: financial institutions Revenue offence: power to obtain information from financial institutions Power to require return of property Power to obtain information from Minister of the Government Valuation of Assets: power to inspect Computer documents and records Require returns from Stockbrokers etc Require returns by nominee shareholders Require returns by party to settlement Require returns on non-resident companies Exercise of powers Making assessment to income tax Assessment to Corporation Tax Grant relief or allowance Assessment without a return Function of certain assessors 141

156 Section 924 Section 926 Section 931 Section 948 Section 956 Section 1034 Section 1036 Section 1048 Section 1057 Section 1059 Section 1065 Section 1078 Section 1079 Section 1080 Section 1082 Section 1083 Section 1086 Section 1089 Section 1094 Additional Assessment following fraud or neglect Estimation of certain amounts Capital Gains Tax Assessments Schedule E Appeals Right to make enquires within powers Assessment of non-residents Control of non-residents Assessment of executors and administrators Fine for obstruction of officers in execution of duties Power to add penalties to assessments Mitigation of penalties Revenue offences Duties of relevant persons in relation in relation to certain offences Interest on overdue income tax and corporation tax Interest on overdue income tax and corporation tax in cases of fraud or neglect Application of section 1080 to 1082 for capital gains tax purposes Publication of names of tax defaulters Status of interest on certain unpaid taxes and duties Tax clearance certificates in relation to certain licenses Appeals Section 305 Section 372 (AT) Section 381 Section 447 Section 531 (17) Section 638 Section 658 (8) Section 659 (7) Section 671 (14) Section 697 Section 748 (4) Section 787(15) Appeals against determination of capital allowance Appeals on questions on urban relief Appeals on determination of loss relief Appeals on questions on IFSC Appeals on R C.T. Appeals on apportionment on CGT Appeals on farm building allowances Appeals on farm pollution control allowance Appeals on mining allowance Appeals on shipping tonnage tax Appeal on purchase and sale of securities Appeal in relation to relief on qualifying premiums of retirement annuities 142

157 Section 787D (1) Section 793 Section 806 (9) Section 824 Section 933 Section 945 Section 949 Appeal in relation to relief in respect of a contribution to a PRSA Appeal in relation to recovery of tax from trustee and payment to trustee of excess tax recoupment Appeal against a decision by Revenue Commissioners in relation to change in income tax on transfer of assets abroad Appeals on residence Appeals against assessments to Income Tax and Corporation Tax Appeals against Capital Gains Tax assessments Appeals against any determination of claim Capital Acquisitions Tax Consolidation Act 2003 Section 45(a) Deem secondary accountable person liable to tax Section 45(12) Power to inspect public records Section 46(7)(a) Require return of property Section 46(7)(b) Inspection of property and records Section 46(8) Require Additional Returns Section 46(12) Require Nil Returns Section 47(2) Require return under oath Section 48 Require information for purposes of Act Section 49 Assessment Value Added Tax Act 1972 Section 18 Power of entry and inspection Section 20&23(a) Power to require security Section 27 Power of arrest and seizure Section 37 Power to deem Section 20 Power to prevent unjust enrichment 143

158

159 APPENDIX G Extract from OECD Report Improving Access to Bank Information for Tax Purposes 2000: Table Types of Information Automatically Reported by Banks to Tax Authorities Types of Information Automatically Reported by Banks to Tax Authorities Opening / closing Interest paid and to Account balance Other of accounts whom it is paid at year end Austria X Belgium X 1 Canada (in most instances) where tax withheld must be reported Denmark X X X X 2 Finland X 3 X France X X must report all income from capital Greece X X Hungary 4 X Ireland X 5 Italy X 6 Japan X Korea X tax withheld from interest paid Netherlands New Zealand paid to residents X Norway interest accrued at X interest on loans year end Portugal use of household savings for other purpose 145

160 Types of Information Automatically Reported by Banks to Tax Authorities Opening / closing Interest paid and to Account balance Other of accounts whom it is paid at year end Spain X X 7 Sweden X X interest on loans United Kingdom X 8 United States X 9 X Where banks have to withhold tax on income from capital, they have to declare the type of income, the taxable income and the justification of the tax exemption if any. The identity of the beneficiary must not, however, be provided to the tax administration. 2. Where information on interest paid by a taxpayer to the bank and the debt claim on which the interest is paid, information on transfer of bonds and securities has to be reported. 3. The following types of interest must be reported by banks: interest paid by the client to the bank and the balance of the capital at the end of the year; interest paid on deposits that are not subject to the withholding tax on interest income; and if interest is paid to a non-resident, the tax administration gets annual reports which are then sent for control purposes to foreign countries by the tax administration. 4. Banks are required to report to the tax administration the date an account is opened, the account number, name 4. and address of the account holder within 15 days of the opening of the account. Except when deposit interest retention tax has been deducted or where paid to a non-resident person on foot of a statutory declaration by the person to that effect (which must be retained for Revenue inspection). 6. Banks must transmit to the Ministry of Finance RAD Models concerning withholding taxes on dividends paid to non-residents when the bank acted as a broker in the transaction. All information relevant to transactions to and from abroad concerning money, securities and bonds over 20 million. 7. Any income paid by banks or from any foreign securities when these institutions have received them in deposit or to operate them as account managers. The reporting requirements also cover: the issue subscription and transfer of securities including public debt, the transfer of mortgage securities in which credit institutions intervene. 8. Except where individuals have made a declaration that they are not ordinarily resident in the United Kingdom and request that the information should not be passed to the Inland Revenue. 9. For U.S. persons who are not exempt recipients and non-residents aliens who are residents of Canada. Banks also required to report certain other types of interest paid to U.S. persons. 10. Suspicious transaction reports and currency transaction reports. 146

161 APPENDIX H Extracts from OECD Report Taxpayer s Rights and Obligations 1990 Control and Search Powers of Tax Authorities Tables 9A, 9B Administrative Discretion of Tax Authorities Table

162 Table 9(A) [Question II.3 (a) (b) (c) (d) (g) Supplementary Q.1] Control and Search Powers of tax authorities Powers of entry to: Search warrant required Seizure of documents 4 Country General information Extend to Powers on the Business Dwellings Business Dwellings Limited to Warrant Powers to obtain powers 1 third parties 2 production of premises premises required inf. from other records, etc. 3 govt. depts. Australia To obtain all Yes. To produce Full and free access at all times/all No, but in fraud cases Seized only when warrant Yes, unless relevant information. records, etc., reasonable times. Custodians to warrants can be used. used, however, can copy specifically from taxpayer provide reasonable assistance. No documents under general excluded. including fishing notice required. access provisions. expeditions. 5 Austria To obtain all Yes. Taxpayer must Full and free access. Yes, limited Yes. Penal Yes. Yes. relevant information. produce records to penal procedure. etc. procedure. Belgium To obtain all Yes. Taxpayer must Full/free access In particular No. Yes. Penal No. Yes, except public relevant information. produce records, at reasonable instances procedure. credit, statistics and etc. times. 5 a.m.-9 p.m. postal cheque institutions. Canada To obtain all Yes. Taxpayer and Full and free access. No. Yes. Reasonable Yes. Limited. relevant information. others must suspicion. produce records etc. Unrelated persons if judicial approval. Denmark To obtain all Yes. Taxpayer must Full and free access. Yes. Yes. Penal Yes. Yes. relevant information. produce all procedures. records, etc. Finland To obtain all Yes. Taxpayer must Full and free If penal crime Yes. Yes. Criminal Yes. Yes, excluding info. relevant information. produce all access. suspected cases. on which other records. etc. dept. cannot testify. 148

163 Table 9(A) (continued) [Question II.3 (a) (b) (c) (d) (g) Supplementary Q.1] Control and Search Powers of tax authorities Powers of entry to: Search warrant required Seizure of documents 4 Country General information Extend to Powers on the Business Dwellings Business Dwellings Limited to Warrant Powers to obtain powers 1 third parties 2 production of premises premises required inf. from other records, etc. 3 govt. depts. France To obtain all Yes. Taxpayer must In general possible consent of Yes. Yes. Reasonable Yes. Generally, yes. relevant information. produce records, taxpayer sometimes required. suspicion of etc. fraud cases. Germany To obtain all Yes. Taxpayer must No general power but can enter if Yes. Yes. 6 Tax fraud. Yes, as for third relevant information. produce all fraud suspected or for normal parties. records, etc. inspection. Greece To obtain all Yes. Taxpayer must Full and free No. Yes. Tax fraud and No. Yes. relevant information. produce records, access during reasonable etc. normal working suspicion. hours. Ireland To obtain all Yes. Taxpayer must Full and free access at pre-specified No. No. None. No. Yes. relevant information. produce records, times. etc. Italy To obtain all Yes. Taxpayer must Full and free Prior judicial Yes. Yes. Documents Only in case Yes. relevant information. produce records access during authorisation. and written of opening etc. normal working evidence safe, sealed hours. cannot be envelopes, reproduced. etc. Japan To obtain all Yes. Taxpayer must Full and free access where deemed No. No except Criminal Yes. Yes. relevant information. produce records necessary. criminal cases cases. etc. Netherlands To obtain all Yes. Taxpayer must Full and free access, but occupant Yes. Yes. Criminal No. Yes, unless relevant information. produce records, must agree unless written warrant. cases. specifically etc. prohibited. New Zealand To obtain all Yes. Taxpayer must Full and free access, including third No. No. Criminal No. Yes unless relevant information. produce records party premises. cases. specifically etc. prohibited (e.g. Statistics Department). 149

164 Table 9(A) (continued) [Question II.3 (a) (b) (c) (d) (g) Supplementary Q.1] Control and Search Powers of tax authorities Powers of entry to: Search warrant required Seizure of documents 4 Country General information Extend to Powers on the Business Dwellings Business Dwellings Limited to Warrant Powers to obtain powers 1 third parties 2 production of premises premises required inf. from other records, etc. 3 govt. depts. Norway All information Yes. Taxpayer must Full access, but Taxpayer must No. Yes. Criminal No. Normal rules, but relevant on a produce records force cannot be normally be cases. under review. specific tax-payer etc. used. present. and certain information on unrelated taxpayers. Portugal To obtain all Yes. Taxpayer must Full and free Only with the No. Yes. Documents No. Yes. relevant information. produce records access. consent of may be taken etc. taxpayer or with for a limited a warrant. period of time. Spain To obtain all Yes. Taxpayer must Full and free Yes, if Yes. None. No. Yes. relevant information. produce records access with taxpayer etc. taxpayer s resists. consent. Sweden To obtain all Yes. Taxpayer must Full access, but Taxpayer must Yes. Yes. Serious fraud. Yes (by tax Yes, except relevant information. produce records force cannot be normally be officer). defence exchange, etc. used. present. foreign relations depts. Switzerland To obtain all Yes, for Taxpayer must Access only Yes. Yes. Reasonable Yes. Yes. relevant information. certain produce records under certain tax suspicion. groups. etc. investigation. Turkey To obtain all Yes. Taxpayer must Access limited to Only with Yes. Yes. Reasonable Yes. Yes. reasonable produce records business hours. warrant. suspicion. information. etc. 150

165 Table 9(A) (continued) [Question II.3 (a) (b) (c) (d) (g) Supplementary Q.1] Control and Search Powers of tax authorities Powers of entry to: Search warrant required Seizure of documents 4 Country General information Extend to Powers on the Business Dwellings Business Dwellings Limited to Warrant Powers to obtain powers 1 third parties 2 production of premises premises required inf. from other records, etc. 3 govt. depts. United Kingdom To obtain all Yes. Taxpayer must Can reasonably enter if serious Yes. Yes Serious fraud. Yes. Yes. relevant information. produce records fraud suspected and warrant issued. etc. subject to decision by Commissioner (including fraudulent accounting). United States To obtain all Yes. Taxpayers must Entry with the consent of taxpayer Yes. Yes, unless Tax offence. Yes. Generally yes. relevant information. produce records, or through court order. taxpayer etc. consents. Note: This table does not cover the requirements as regards the type and form of accounting records that taxpayers must keep In most countries the tax legislation contains provisions which enable the tax authorities to gain access to information and to require the production of documents by the taxpayer. Many, but not all countries, can exercise these powers vis-à-vis third parties. Generally limited to third parties who are linked in some way to the taxpayer. Generally covers books, documents, papers and contracts and includes requiring the taxpayer to attend and give evidence. In all cases, limited to information relevant to the assessment of tax. But formal notice must contain the name of the taxpayer. Where there is a risk of evidence disappearing, a court order is not necessarily required to conduct a search. 151

166 Table 9(B) [Question II.3 (e) (f) (h)] Control and Search Powers: Limitations and Penalties Country Professional secrecy rules Possibility of appealing against the use Other limitations Penalties on non-compliance with of control and search powers authorities control and search powers Australia Legal advisor client privilege applies Ordinary appeals procedure. Taxpayer can complain to Ombudsman. Taxpayer For failure to comply (fine) and for to limited range of documents. can also complain to Privacy Commissioner. Collector obstruction (fine + imprisonment). must abide by Information Privacy Principles (see Table 6). Austria Accountant/lawyers client privilege. Ordinary appeals procedure. Taxpayer can refuse to provide information on For failure to comply: administrative relatives or if provision of information risks penal fine. prosecution of that person. Belgium Banks, credit and saving institutions Ordinary appeals procedure. None. For failure to comply (fine). (except if they are suspected of taking part in a fraudulent scheme). Liberal professions (subject to appeal). Canada Solicitors client privilege. Ordinary appeals procedure. None. A penalty and/or prison term can be imposed for failure to comply. Denmark None. Yes. (The Inland Revenue Directorate None. Fine or in serious cases imprisonment. and then the Inland Revenue Department). Finland None. Ordinary appeals procedure. None. Fines. France Doctors, lawyers (with some Ordinary appeals procedure. Administration cannot initiate a new control on a tax Fine for persons who violate secrecy limitations). which has already been controlled. code and disclose information concerning taxpayers. Greece Bank secrecy. No (however, in limited cases taxpayer None. Fines. may appeal to the court against abuse of authority). Germany Liberal professions, priests, lawyers. Taxpayer may lodge an objection. Relatives of taxpayers not required to provide Ordinary appeals procedure. information as are others if subject to penalties. Taxpayers have right to hearing before administrative decision taken. 152

167 Table 9(B) (continued) [Question II.3 (e) (f) (h)] Control and Search Powers: Limitations and Penalties Country Professional secrecy rules Possibility of appealing against the use Other limitations Penalties on non-compliance with of control and search powers authorities control and search powers Ireland Banking. Professional communications. None. None. For obstruction (fine/imprisonment). Italy Generally, liberal professions and bank Generally. None. Records, etc., not produced at the secrecy. time of audit cannot be subsequently taken into account. Japan None. Ordinary appeals procedure. None. Penalties for failure to comply. Netherlands Very limited scale (ministers of religion, If decision is not in accordance with Suspects have rights provided by the Criminal Code. Fines. barristers, etc., medical practitioners). principles of proper administration. New Zealand Legal profession. None. None. Penalties for failure to comply. Norway None. Ordinary appeals procedures. None. Fines. Portugal Bank secrecy, though tax authorities Ordinary appeals procedures and to No, unless those in connection with bank secrecy, Fines. can contest. Liberal profession. Ombudsman. client privilege, etc. Spain Liberal professions. The Spanish legislation does not None. Administrative fines. provide for a specific appeals procedure against the use of such powers, but taxpayers are entitled to use the ordinary appeals procedure when they think that the tax authorities powers are not performed within the law. Sweden Liberal professions may withhold Appeal to administrative court if None. Fines. sensitive information. information is sensitive (seizure). None if no coercive measures used. 153

168 Table 11 (contd.) [Question II.5 (a)-(d) [Supplementary Q.4] Administrative Discretion Country Power to determine the tax base where information Discretion to waive or reduce tax liability Power to negotiate level of tax penalty provided is insufficient or clearly incorrect or allow grace periods Ireland Authorities are dissatisfied with the submitted return. None on tax legally due except when Remission of penalty if voluntary disclosure formally written-off. Statutory grace period of is made and the comprehensive replies are two months for income tax purposes and made promptly. one month for corporation tax. Italy Taxpayer fails to file a return. When information Payment by instalment for companies can No. provided by taxpayer is incomplete, false or inexact. be allowed to maintain employment level or to ensure provision of public services. Japan Taxpayer fails to keep proper accounting books. Postponement of tax by not more than one No. year if tax creates undue hardship due to e.g. illness, natural disaster, or close of his business. Netherlands If a tax return is not filed or in case a tax return is In cases of hardship all or part of debt may When making a reassessment or additional suspected to be incorrect and records are unreliable, be waived. Upon request payment may be assessment the tax inspector should or if the taxpayer does not comply with the obligation deferred or paid by instalments. ascertain the degree of fault and in fraud to produce information or records for inspection. cases the so-called recidive in determining the amount of the administrative fine. There are directives for waiving administrative fines. The regional director of taxes has the power to waive the administrative fines. New Zealand Taxpayer fails to file a return. Authorities are In cases of hardship, tax may be paid by Remission of penalty if voluntary disclosure dissatisfied with the return. Non-resident controlling instalments or it may be written off. is made by a taxpayer. business is recognised as if it produces insufficient income or excessive losses. Norway Taxpayer fails to file a return or the record produced The tax can be mitigated or remitted on *Remission of additional tax if voluntary by taxpayer does not correspond to a justifiable base. application from the tax payer if it obviously disclosure is made in early stage of is inequitable to demand payment. assessment. Instalments may be allowed. 154

169 APPENDIX I Current Sources of Information to Revenue A. Returns of Information (1) Informant Reports (Good Citizen Reports) (2) Forms 46G fees and commissions s889 (3) Returns relating to property Forms Rent 1 (Claim for Rent Relief) s473 Forms 8-3 (letting agents) s 888 Rent Subsidy Returns from the Health Boards s910 particulars delivered ST21s (4) Capital Taxes Returns Forms AC67 (Inland Revenue Affidavit) (5) Third Party Returns Forms 8BB return by intermediaries in relation to the opening of a foreign bank account s895) Form 8D/C return by intermediaries in relation to investment in offshore life policies and collective funds S 896 Form 21 R return by nominee holders of securities s 892 Form8 2return by person in receipt of income of others s890 Forms 8BA return of interest paid without deduction of tax s 891 (6) Lists of New Taxi Licence Holders (7) Information from foreign revenue authorities received under the Mutual Assistance Procedures (8) Information received from other Government Departments under the Powers contained in ST 910 TCA 97 (9) Misc Databases eg High Value Cars/ Antiques /Register of boats etc. 155

170 (10) Access to Land Registry Electronic Access Service Computer system and Companies Registration Office. (11) Returns of Dividend Withholding Tax s172k (12) Returns by Special Savings Incentive Account Managers s848q (13) Returns by auctioneers etc. s914 B. Statutory and International Disclosure Mechanisms Disclosure of Certain Information for Taxation and Other Purposes Act 1996 Section 1 of the Disclosure of Certain Information for Taxation and Other Purposes Act 1996 provides for the disclosure of information by the Revenue Commissioners to gardaí not below the rank of chief superintendent or to a body set up under statute or by the Government to target the assets of criminals, where the Revenue Commissioners have reasonable grounds to suspect that a person may have derived profits from unlawful activity, and that the information would assist an investigation, or that it is in public interest. Central Bank and the Financial Services Authority of Ireland Act 2003 Central Bank and the Financial Services Authority of Ireland Act 2003 made provision for the exchange of information between the Revenue Commissioners and the Irish Financial Regulatory Authority. The Act provides that named employees and officers of the Regulatory Authority (IFSRA of the Central Bank) must advise certain specified relevant authorities, 196 including the Revenue Commissioners, where they suspect the occurrence, by a supervised entity, of a criminal offence (tax evasion and failure to report money laundering of the proceeds of tax evasion are criminal offences) or a breach of either the Companies Acts or the Competition Act Information contained in the report may only be used by Revenue, or the specified authority, for specified purposes. This obligation does not apply where the entity concerned has already reported the matter to Revenue or where EU law obligations of professional secrecy prohibit the disclosure. In the event that EU law prohibits the disclosure, the Financial Services Regulator must issue a disclosure notice to the entity concerned and advise Revenue that the notice has issued. In this case, the financial institution must disclose the fact it has been put on notice in this way in the Directors annual report. In addition the Financial Services Regulator may disclose information to the Revenue such that no other supervised entity can be recognised. Revenue must comply with EU professional secrecy rules in relation to the information received by it from the Authority under section 33AK. Under section 33AK(9) where in the opinion of Revenue there is information which may related to the commission of an offence or a failure to comply with an obligation under specified legislation, that matter must be reported to the Financial Services Regulator. 196 Section 33 AK(3) provides for information disclosure to an Garda Síochána, the Director of Corporate Enforcement, the Competition Authority and other such bodies, in addition to Revenue. 156

171 Company Law Enforcement Act 2001 Reporting of Offences The ODCE provides Revenue with information 197 obtained pursuant to the exercise of company law powers which would be regarded as relevant to Revenue in investigation of possible tax evasion. The reciprocal provision in section 18 of the Company Law Enforcement Act 2001 enables Revenue to provide the ODCE with information in relation to possible company law offences. Data Protection Act 1988 The Data Protection Act 1988 also imposes conditions regarding transfer and disclosure of personal data. However, there is provision for waiver of protection from disclosure of personal data under section 8(e) and section 8(b) of the Act where the disclosure is required by or under any enactment or by a rule of law or order of a court, or where required for the purpose of preventing, detecting or investigating offences, apprehending or prosecuting offenders or assessing or collecting any tax, duty or other moneys owed or payable to the State, a local authority or a health board, in any case in which the application of those restrictions would be likely to prejudice any of the matters aforesaid. Criminal Justice Act 1994 (as amended) The Auditing and Accounting Regulatory Authority Bill 2003 provides that company information can be communicated to Revenue by the supervisory authority where the supervisory authority believes that information is connected to the functions of the body to which the disclosure is made. Criminal Justice (Theft and Fraud Offences) Act 2001 Section 59 of the Criminal Justice (Theft and Fraud Offences) Act 2001 provides that if a person in auditing the accounts of a firm or in assisting with the preparation of any material relevant to the keeping of the accounts of the firm, and finds that an offence under the Criminal Justice (Theft and Fraud Offences) Act 2001 (sections 8, 12 to 15, 49(1) and 52(8) may have been committed by the firm concerned or by an officer or employee of the firm, the person should, notwithstanding any professional obligations of privilege or confidentiality, report this fact to a member of the Garda Síochána. The Auditing and Accounting Regulatory Authority Bill 2003 Confidential Company Information Section 31 of the Auditing and Accounting Regulatory Bill 2003 deals with the issues of confidentiality of information obtained by the supervisory authority. It also sets out the specific bodies, including the Revenue Commissioners, to which information can be communicated where the supervisory authority believes that information is connected to the functions of the functions of the body to which the disclosure is made. 197 Section 21Companies Act 1990 (as amended) 157

172 Directors Compliance Statement Section 43 of the Auditioning and Accounting Regulatory Authority Bill 2003 introduces an obligation on directors of a company to prepare a compliance statement concerning the company s policies respecting compliance with its obligation that these be in writing, be approved by the board of directors obligations under company law, tax law or any other statutory law which would have a material impact on the company s financial statement. It also introduces an obligation that these be in writing, be approved by the board of directors to include in their annual report that they are responsible for securing the company s compliance with their relevant obligations and what procedures they have in place to achieve such compliance, confirm that they have, where necessary, reviewed the procedures and give their opinion on the extent to which that have secured compliance with their obligations. Duties of relevant persons in relation to certain revenue offences section 1079 TCA 1997 Under section 1079 Taxes Consolidation Act 1997, all auditors and tax advisers who become aware in the course of their normal work of material tax evasion or non-compliance committed by a client company must report this to the company and request that the matter be rectified or that the company should report the office to Revenue. It further provides that, if at the end of 6 months, it is not established to the satisfaction to the auditor of adviser that the matter has been so rectified or reported, the auditor or adviser must cease to act as auditor, or cease to advise the company in tax matters, for a period of either three years from the date of the (auditor/adviser s) report to the company or until the auditor or adviser is satisfied that the matter has been rectified or reported, whichever is the earlier. Any resignation under this section must also be reported to Revenue. Nothing in the section is to prevent a person assisting or advising a company in preparing for or conduction legal proceedings, either civil or criminal, which are extant or pending at the end of the 6 month period in question. The list of reportable offences all relate to serious tax evasion. The question of whether there is material tax evasion is a matter for the auditor or adviser in any particular case to assess taking account of his/her own professional standards and the requirements of the section. The section was introduced in 1995 arising out of a recommendation in the Beef Tribunal Report. At the time the section caused considerable disquiet in the tax and accountancy professions. (It should be noted that the Code of Ethics of the various accountancy and tax adviser bodies have sections dealing with procedures where tax evasion is discovered). Tax Information Exchange Agreements The 1998 OECD Report entitled Harmful Tax Competition: An Emerging Global Issue identified the lack of effective exchange of information as one of the key criteria in determining harmful tax practices. The OECD Project on Harmful Tax Practices resulted in 31 jurisdictions, including Ireland, making commitments to the principles of transparency and effective exchange of information. Following these commitments, an OECD Model Agreement on Exchange of Information in Tax Matters for the purpose of promoting international co-operation through effective exchange of information was drawn up as a template for Tax Information Exchange Agreements (TIEAs). The Model Agreement sets out minimum standards in relation to effective exchange of information between OECD Member countries and committed jurisdictions. 158

173 A Tax Information Exchange Agreement will not only facilitate exchange of bank information but will also provide access to information about the ownership of companies, partnerships and trusts. TIEAs allow such information to be obtained even if the jurisdiction from which information is requested does not need such information for its own tax purposes. Information can also be exchanged without regard to whether the conduct being investigated is considered a crime in the jurisdiction from which information is requested. Mr. Frank Daly, Chairman of the Revenue Commissioners, announced in his speech on International Financial Services Tax Compliance that Finance Act 2003 contained an important provision extending revenue powers to facilitate cross border exchange of information. Notwithstanding that there may be no domestic interest involved in a particular case, revenue powers can in future be used to obtain information relevant to tax liabilities in countries which Ireland has a tax treaty. Under the terms of any such agreement, the committed jurisdiction will be obliged to exchange information relevant to criminal tax matters from 1 January 2004 and from 1 January 2006 for civil tax matters 159