| A review group is currently examining Revenue powers. |
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| A high level review group is currently examining the powers possessed by the Revenue. Inadequate powers in the past may have contributed to tax evasion. Are the current powers adequate, and are safeguards needed for compliant taxpayers? |
<Review starts
On 20 March 2003 the Minister for Finance announced the members of the high level group he has established to assess the powers available to the Revenue Commissioners. The group is headed by Mr Justice Francis Murphy, until recently a member of the Supreme Court. It includes notable tax practitioners, and senior Revenue officials. In appointing the group, the Minister noted that their remit was to take stock of Revenue powers so as to reassure the Government and public at large that they are meeting the needs of the taxation system, and are being used fully as the Oireachtas intended. However the formal terms of reference make it quite clear that the worry is not so much that the Revenue are not using the multitude of powers they have, as to ensure that the powers they have are adequate, and that there are proper protections in place against misuse.
The powers of the Revenue are undoubtedly extraordinarily wide. However anecdotal evidence suggests that they have been used mostly with restraint and prudence. There appears to be little unease in the business community at the manner in which the Revenue use their powers.
What change is needed?
Despite the fact that the Revenue have used their powers with discretion it is nonetheless worthwhile considering some changes to the present regime.
Take for instance the right of the Revenue to interrogate a taxpayer about his tax affairs. Under Finance Act 2003, in a provision expected to be brought into operation in September, generally that right will be limited to a period of approximately four years after a taxpayer has filed a tax return. In a modern age four years is quite a generous period of time to give anybody to deal with a matter. No similar time limit is allowed to taxpayers in making their returns - generally these are due in within ten months of the end of a tax year and severe penalties will apply where the return is not made. The period for a company is even shorter - nine months.
Nonetheless, if the Revenue believe that there has been fraud or neglect, the time limit for reopening the affairs of a taxpayer goes out the window. In principle they could go back to 1922 if they believe there was fraud or neglect.
An immediate reaction might be that if somebody has committed fraud, they can scarcely complain that the Revenue were a bit tardy in noticing that fact. That would be a reasonable reaction. But what about neglect? Neglect is a very different matter from fraud. If a taxpayer has been careless but honest in making his tax returns, should he be as exposed to having past tax years opened back to 1922, as is one who has deliberately gone out of his way to defraud the Revenue?
Same size fits all
Is it fair that the same rules should apply to a business and to a private person, as regards the length of time available to the Revenue to query a tax return? There are legal and commercial reasons why a business needs to keep almost all of its records for in excess of six years. There is no reason why a private person should keep financial records for any lengthy period. The average private person is very poorly equipped to file or store records. Have you ever tried finding a six-month-old bank statement? You know you have it somewhere but it's probably in the back of the socks drawer.
Would it not be more reasonable to expect the Revenue to respond to receipt of a tax return from an individual within a period of, say, 1 year from its filing?
Seizure of records
The Revenue have the power to enter a business premises and remove all books, records, and computer equipment and files found in the premises. This is rarely done but it is legally permitted.
In practice the removal of the entire records of a business would bring that business to a complete halt. It would be unable to pay its creditors, collect its debts, or possibly even pay its wages. There must be strong grounds for arguing that the power of the Revenue to seize records in this fashion needs to be balanced with an obligation to immediately provide either comprehensive copies at no cost to the taxpayer, or all reasonable access to the records as required to carry on a business.
Who is the target?
The Revenue Commissioners may trawl through the records of a business for reasons other than a wish to verify that the tax returns of the business are accurate. Their real target may be to obtain information about the suppliers and customers of the business in order to check on the tax returns of those third parties.
A Revenue audit involves expense and disruption to a taxpayer. That is something which a business may have to put up with as a reasonable matter, when it is their own tax return that is being verified. However it seems entirely unjust that they should be obliged to bear the cost and disruption of a Revenue audit when the target is somebody else. Would it not be reasonable to require the Revenue to financially compensate a business if it wishes to carry out a Revenue audit primarily for the purpose of obtaining information about third parties?
Apart from any other consideration, if the Revenue have to pay for accessing records where the target is a third party, it will concentrate their minds on how essential such access is.
Paying for the courts
If the Revenue raise an assessment on a taxpayer under any tax head, the taxpayer may appeal against the assessment if he believes it to be incorrect. That appeal is initially to the Appeal Commissioners, and may thereafter go to the Circuit Court. While such an appeal is likely to put the taxpayer to some expense in attending or being represented before these tribunals, he is not at risk of having to meet the Revenue's costs.
If however the taxpayer were to win his case before the Appeal Commissioners or the Circuit Court, he is placed at risk that the Revenue will appeal the matter further to the High Court. If the High Court rule in favour of the Revenue, the taxpayer has to pay the Revenue's costs. This is the normal rule in civil litigation ie the loser pays for all.
But what is happening here? If the High Court rule in favour of the Revenue and reverse a decision of the Appeal Commissioners or of the Circuit Court in favour of the taxpayer, what the High Court is doing is saying that the Circuit Court and/or the Appeal Commissioners got it wrong. The Appeal Commissioners and the Circuit Court are organs of the State. If one organ of the State (the High Court) has to intervene to correct errors by other organs of the State (eg the Circuit Court) why should the businessman have to pay for cleaning up the mess?
The cost of an appeal against an incorrect assessment is a real obstacle to a citizen exercising his rights of appeal. The greatest worry facing a person contemplating an appeal is that they might succeed in their appeal before the Appeal Commissioners or Circuit Court but be dragged to the High Court by the Revenue at an expense they cannot afford.
Conclusion
Scandals such as the DIRT scandal would probably never have occurred had the Revenue had adequate powers at all times. They now have adequate powers and to date have used them sensibly and sparingly. The challenge is to build in sufficient safeguards so as to ensure that they will not overstep the mark in the use of their powers in the future. The price of liberty is vigilance. |
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| Article appeared in the October 2003 issue.
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