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Revenue audits exposed Back  
The Revenue Commissioners have prepared a report on the conduct of Revenue audits and anti-evasion measures generally. It raises worries that larger companies are being unduly penalised.
Revenue audit selection
In a document published by the Department of Finance, the Revenue Commissioners have explained how they select cases for audit. Quite a wide variety of techniques are used to select cases. The techniques used include:
• Analysing companies by size; the extent to which they handle cash; type of business carried on; number of employees.
• Knowledge of particular practices affecting tax risk eg cash payments to employees in some industries, sophisticated executive remuneration packages in others.
• Review of tax returns.
• Review of websites, trade magazines, newspapers.
• Exchange of information between branches of the Revenue.
That sounds like a thoroughly sensible approach. However there is one aspect that strikes a wrong note. The report reveals that approximately 2000 of the largest taxpayers (largely corporates) are ‘screened’ each year and audited every second year. In other words, the largest businesses are kept under continuous review and have a very high level of frequency of audit. In contrast no particular target for periodic audit is set for other taxpayers who are subject to review only over a three to four year period ‘depending on the perceived risk and available staff resources’.
In the year 2000 the Revenue carried out 2,270 ‘comprehensive audits’. If there are 2,000 major businesses being audited every second year, it would imply they could account for approximately 44 percent of the audits.
An audit in a major plc can last several weeks. It can absorb a significant amount of the time of the finance management in the company. It seems oppressive to visit this upon large businesses every second year while smaller businesses, by virtue only of their smaller size, may escape audit for several years, or indeed indefinitely.
It would be surprising if the 2,000 largest businesses in the country were either the most negligent in the conduct of their taxation affairs, or were prime suspects for engaging in evasion. Those factors might justify audit as frequently as every second year. Surely size in itself does not. If a business is reasonably careful in dealing with its taxes, and does not seek to evade taxes, the mere fact that it is a major taxpayer does not in itself justify such treatment.
It may be that innocent errors made in handling taxes such as VAT and PAYE by major businesses will involve greater sums than tax evasion in a small business might, by reason of the difference in scale. Some regard has to be had to that factor. But there is more involved than absolute amounts. The quality of an error also matters. It is important that the risk of being audited is greatest for those who choose to evade tax, rather than for those who have the misfortune of rendering the greatest service to the State in terms of paying over tax. By way of comparison with the every second year audit for large businesses, taxpayers actually caught with their hand in the taxman’s till stand only a one in ten change of being subsequently re-audited under a special programme for re-auditing past offenders.

Information reporting
The report describes some of the huge volume of information which taxpayers have to report to the Revenue each year. Reporting this information to the Revenue is an expensive overhead for business. This might be justified if good use is made of it. The following is what is stated regarding that expensively obtained information. ‘All the information received from these varied sources is made available to the Special Enquiry Branch to strengthen its hand in the fight against evasion.’
How comprehensively is this information used? How much of it is actually required or ever referred to? Is the expense imposed on the business community of providing all of the information justified by the use made of it? The report does not address these questions but the comment quoted above from the report does not go as far as saying that any use is made of the information, notwithstanding that it is ‘made available’.
One ingenious use of the information is noted. The returns by business people regarding payments for services, returns by letting agents regarding rents collected, returns by persons who are nominee holders of securities, and returns relating to interest income may all be used by the Revenue to detect a taxpayer’s assets of which Revenue might not otherwise be aware, when they wish to serve an attachment order to collect overdue taxes. An attachment order freezes the asset in question and in due course causes it to be paid over to the Revenue.

Given the emphasis on detecting evasion which has arisen from the various tribunals, it might be expected that the resources of the Revenue would have been significantly expanded. However the statistics relating to the years 1996 to the year 2000 show an increase of only 22 staff in the audit area. In the same period 36 staff were diverted to the DIRT and Ansbacher projects. Taking that into account, it is difficult to see any real increase in Revenue resources in that period of five years.
A computerisation project which would bring together the vast masses of information accumulated by the Revenue about each taxpayer, would enable the work of the Revenue audit teams to be more effective, is still at development and testing stage.

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