Revenue’s Statement of Strategy 2021 to 2023, published in February 2021, outlined a new compliance intervention framework, which took effect from 1 May this year. As a result, an updated code of practice for Revenue compliance interventions has been published, replacing the previous code of practice for Revenue audit and other compliance interventions. The code is a set of guidelines, covering all aspects of tax compliance (except customs), which must be followed by Revenue, taxpayers and tax practitioners when Revenue is conducting compliance interventions.
Push to be proactive
The new framework reflects the changing landscape of compliance interventions with greater emphasis on taxpayer risk profiling. Revenue’s risk profiling of taxpayers has improved substantially and is better targeted thanks to the quantity, quality and timeliness of data, including real-time data, now available from several sources both domestically and internationally.
The new code reduces the opportunity to make an unprompted disclosure and mitigate penalties
The changes also focus on encouraging taxpayers to self-review and correct errors on a voluntary basis. Under the previous code, taxpayers could potentially mitigate penalties by way of a voluntary qualifying disclosure following contact by Revenue.
The new code reduces the opportunity to make an unprompted disclosure and mitigate penalties, thereby encouraging taxpayers to engage proactively in advance of any Revenue intervention.
Levels of intervention
Under the new framework, Revenue has retained a progressive response to risk and non-compliance made up of three intervention levels. These are designed to support compliance and encourage self-review and self-reporting of tax errors. The level at which the intervention is initiated is important, as it determines the type and scope of the qualifying disclosure a taxpayer can make to Revenue in response.
Level 1 interventions are designed to support compliance by reminding taxpayers of their obligations and providing them with the opportunity to correct errors without the need for a more in-depth intervention. These interventions include
- self-review
- profile interview
- bulk issue non-filer reminders
- engagements that fall under the Co-operative Compliance Framework.
Taxpayers may make an unprompted qualifying disclosure when notified of a Level 1 intervention.
Level 2 interventions are used to confront compliance risk based on the circumstances and behaviour of taxpayers. They range from an examination of a single issue within a return to a comprehensive tax audit. There are two types of Level 2 intervention:
- audit (largely unchanged under the new framework)
- risk review (a new concept).
Taxpayers may make a prompted qualifying disclosure when notified of a Level 2 intervention.
A Level 3 intervention involves an investigation in cases where Revenue has reason to believe that there has been serious tax/duty evasion or fraud on the part of a taxpayer.
A taxpayer is not entitled to make a qualifying disclosure once notified of an investigation.
New concepts
A risk review is a desk-based intervention that focuses on a particular issue in a tax return, or risk identified by Revenue’s risk evaluation, analysis and profiling system. It is broadly similar to an ‘aspect query’. However, once a taxpayer is notified of a risk review, they can no longer make an unprompted qualifying disclosure, with respect to the tax and period under review, as they may have previously done when notified of an aspect query.
A risk review will commence 28 days after the date of notification. The notification will set out the tax head (ie corporation tax, income tax, capital gains tax, etc), the issues and the period under review. A taxpayer may still make a prompted qualifying disclosure about tax underpayments up to the commencement of the risk review.
A prompt and proactive response to a risk review notification is advised
Where underpayments are identified, a taxpayer may request an additional 60 days to prepare the prompted qualifying disclosure. This must be done within 21 days of receipt of the risk review notification. Therefore, a prompt and proactive response to a risk review notification is advised.
Practitioners should note that the 60-day extension is available only where underpayments are identified, and Revenue will expect a thorough qualifying disclosure at the end of the extension period. It is important to note that any disclosure made to Revenue must include all underpayments for that particular tax (and not just the particular issue that is the subject of the risk review). Failure to disclose any such underpayments may give rise to significant penalties and publication in Revenue’s tax defaulters list.
Other refinements
Additional updates to the code include the following:
- To self-correct without penalty, taxpayers must now notify Revenue in writing, and practitioners should note that simply amending a tax return on ROS does not satisfy this condition. Therefore, practitioners should notify Revenue, via MyEnquiries, of the intention to submit a self-corrected return.
- Taxpayers now have a minimum of 28 days to prepare for a Revenue intervention. Under the previous code, the minimum period was 21 days.
- The deadline for submitting a notice of intention to prepare a prompted disclosure has increased from 14 to 21 days.
- Taxpayers may now make a qualifying disclosure about tax underpayments in offshore matters, potentially avoiding publication on such matters.
- Penalties will not apply for technical adjustments, innocent errors and cases where total tax defaults are less than €6,000 and are in the ‘careless’ rather than ‘deliberate’ behaviour category of default.
- Publication will not arise in cases where the tax underpayment or refund incorrectly claimed is less than €50,000. Previously, where the combined tax, interest and penalty exceeded €35,000, the settlement was published in Iris Oifigiúil.
In line with recent Revenue policy the measures introduced under the new framework place a greater onus on taxpayers to proactively manage their tax affairs expeditiously. Practitioners should be aware of the impending changes, notify their clients and retain a copy of the new code for future reference.
