Tax Law

Revenue Powers & Enforcement

Revenue is entrusted with the authority to collect taxes lawfully owed to the State. Revenue powers, technologies and sophistication in the last twenty years have expanded enormously. In Revenue enforcement proceedings persons may find themselves in grave financial circumstances, facing a creditor with near unlimited resources, who can utilise powers uniquely conferred on Revenue.

This article;
1. Considers the 2014 Revenue Code of Practice for Revenue audits.
2. Examines Revenue powers to obtain information.
3. Considers Revenue’s ability to raise assessments and subsequent appeals.
4. Examines the courts interpretation of tax legislation.
5. Considers the options open to Revenue regarding enforcement.

2014 Revenue Code of Practice for Revenue Audits

The 2014 Code of Practice for Revenue Audits sets out the guidelines to be followed by Revenue, taxpayers and tax practitioners. It states Revenue’s intention

To serve the community by fairly and efficiently collecting taxes and duties and implementing Custom controls.

The key operative words of this mission statement are highlighted. However what is efficient might often not be fair and what is fair might often not be efficient.

It is often overlooked that Revenue investigations are criminal procedures. Admissions may be made by the taxpayer or his advisor which, although made with the best of intentions, can be damaging at a later stage. In June this year a former newspaper delivery man, Mr. O’Reilly, was jailed for failing to remit VAT returns from January 2008 to December 2011. His barrister had submitted to the judge that her client’s case would have been difficult to prosecute had he not “put his hands up straight away”. Judge Nolan in the Dublin Criminal Circuit Court commented that though the unpaid amounts could be viewed as “modest” Mr O’Reilly had “neglected and ignored his obligations to Revenue”. Judge Nolan accepted that O’Reilly was a good family man and a hard worker but noted that everyone suffered if the State did not receive money and sentenced him to 18 months.

The Code of Practice sets out the types of audits and investigations that Revenue undertake;

Revenue Non-Audit Compliance Interventions

These are assurance checks, aspect queries and profile interviews. A tax payer is entitled to make an “Unprompted Qualifying Disclosure” on notification of these interventions.

Revenue Audit

A “Revenue Audit” is an examination of a tax return, a declaration of liability or a repayment claim, a statement of liability to Stamp duty or the compliance of a person with tax and duty legislation. A taxpayer is entitled to make a “Prompted Qualifying Disclosure” before examination of the books and records starts.

Revenue Investigation

A Revenue Investigation is defined as
an examination of the taxpayer’s affairs where Revenue believes, from an examination of the available information, that serious tax or duty evasion may have occurred or a Revenue offence may have been committed. A Revenue investigation may lead to criminal prosecution.

Where a “Revenue investigation” has already started a qualifying unprompted disclosure is not available.

Consultation of the Penalty tables

The penalty tables should be consulted at all stages of an intervention, audit or investigation. They are set out in Appendix 1.

Mechanics of a Revenue Audit

Revenue Audits are set out in Chapter 4 of the 2014 Revenue Code of Practice. They are normally carried out at the taxpayer’s place of business. The Revenue officer will attend and is required to produce evidence of identity. The taxpayer’s agent is expected to attend.
It is important for practitioners to satisfy themselves as to the scope of the audit and the statutory powers on which the Revenue rely and seek copies of the written authorisations.

Revenue Powers to obtain information

Revenue’s powers are similar to that of the Gardaí investigating a crime. A person is investigated, has a right of appeal and the sanctions may ultimately be penal. A person can go to jail as readily for deliberately mislabelling a crate of garlic it when it enters the country as for the theft of it. A table of Revenue powers are at Appendix 2
It is clear that properly authorised revenue officers have exceptionally wide powers. Section 912B is of particular note. It allows an authorised officer to question a person detained in a Garda Station where the offences concerned are serious indictable offences under Revenue law.

Assessments and Appeals

Assessments

Revenue officers have the power to raise assessments under Part 39 of the Tax Consolidation Act 1997. These can be raised where no return has been made by the tax payer or where a return is unsatisfactory.

General Anti-Avoidance Section 811 Tax Consolidation Acts (TCA)

Revenue are empowered to raise a notice of assessment under Section 811A of the Tax Consolidation Acts where they have formed an opinion that a particular transaction is a tax avoidance transaction. .

Appeals

In general appeals can be made within 30 days of the date of the notice of assessment by giving written notice. The onus is on the applicant to disprove an assessment. If the Inspector is of the opinion the applicant is not entitled to appeal they may refuse the appeal application and inform the person in writing. A refusal of an appeal application may be appealed in writing to the Appeal Commissioners within 15 days. The Appeal Commissions will obtain a copy of the notice of assessment and they may also refuse the application and again notify the appellant in writing. Unless an application for rehearing is made to the Circuit Court or the High Court the Appeal Commissioners assessment is final and conclusive.

Late Appeals

In general terms where a person is prevented from making an appeal against a notice of assessment within the normal 30 day limit due to absence, sickness or other reasonable excuse an appeal may be made within 12 months of the date of the notice of assessment. An appeal from the Appeal Commissioners must be made to the Circuit court within 10 days of the determination and 21 days of the determination to the High court. This timeframe is strict.

Interpretation of Taxation Statutes by the Courts

In the Supreme Court in O’Flynn Construction at paragraph 70 O’Donnell J upheld that the same principles of statutory interpretation applied to taxation statutes as to other non criminal statutes. The court stated this was acknowledged implicitly in McGrath v McDermott. The court applied a purposive interpretation to taxation legislation.

A purposive interpretation is where the court looks to interpret the statute with the view as to what the legislature intended when enacting it. Lord Simon explained this approach in Maunsell v Olins

The first task of a court of construction is to put itself in the shoes of the draftsman- to consider what knowledge he had and, more importantly what statutory objective he had…. being thus placed…. The court proceeds to ascertain the meaning of the statutory language
The alternative literal or constructionist approach is a literal interpretation which applies to criminal matters and which is a strict interpretation.

Revenue Enforcement

Revenue’s enforcement powers were enhanced by the Finance Act (No 2) in 2008. This centralised Revenue’s enforcements powers in the revised sections 960A- 960P. For reference they are set out in Appendix 3.

Dedicated Enforcement Unit

Revenue maintains, as one would expect, a dedicated enforcement unit. The main measures are;

  • Bankruptcy
  • Forced Sales of property
  • Committal to Prison
  • Mareva Injunctions
  • Garnishee orders
  • Receiver by way of equitable execution

Publication

Revenue has an obligation to publish a list of defaulters pursuant to Section 1086 TCA within three months of the end of each quarter unless a qualifying disclosure is accepted or where the sum does not exceed €33,000 or 15% of the tax ultimately due.

Practical Recommendations

  • Advisors should satisfy themselves whether the Revenue intervention is an audit or an investigation
  • Practitioners should satisfy themselves of the scope of the audit, the statutory authority and whether the information sought is within the scope of that written authority.
  • A pre-audit check should be carried out to ensure that liabilities are identified, if they exist and what category of behaviour they will likely fall into. The penalty tables should be consulted.
  • It is crucial to take detailed contemporaneous minutes of all meetings and telephone calls and keep full records of all inter-parties correspondence. They may be required for court at a later stage.
  • It is important, where litigation is contemplated to consult a solicitor at an early stage.
  • Professional legal advice should be sought before making any disclosures, and prompted disclosures should be carefully considered and structured. They should be made in writing and no admissions should ever be made orally.

Conclusions

Revenue investigations are penal. Revenue prosecutions are penal. Practitioners should adopt the approach that audits are the first step in this penal process. In classic criminal proceedings defendants have the benefit of legal aid, literal interpretation of statute and a body of law that balances the right of the individual against the requirements of criminal justice system. We are all familiar with the criminal concept of innocent until proven guilty. In Revenue proceedings defendants have no such automatic rights. They suffer from a purposive interpretation by the courts of tax statutes, and cannot apply for legal aid at the initial Revenue investigation stage. Revenue can raise assessments and certificates in lieu of a return and indeed bring enforcement proceedings based on those assessments and certificates. The burden to overturn those assessments is on the taxpayer. It is arguable that the burden has shifted, in taxation matters, to the position that you are guilty until proven innocent.

This Article Appeared in the 2015 November Issue of the Irish Law Gazette

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