| Come up and see me sometime: The Revenue's LCD division arranges meetings with major taxpayers |
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| The Large Cases Division (LCD) was created to deal with the 300 largest corporate groups in the country, and the 200 wealthiest individuals. These major taxpayers have recently been in receipt of 'Mae West' type letters from the Revenue Commissioners, urging an early meeting. Will it be all tea and sympathy? |
<Reorganisations
The “Large Cases Division” is a unit of the Revenue Commissioners created in 2002. In that year the Revenue Commissioners carried out a significant reorganisation of their various divisions.
Prior to that the various taxes for which the Revenue Commissioners were responsible were administered by a number of semi autonomous units within the Revenue Commissioners. The Capital Taxes division handled stamp duty and capital acquisitions tax. Indirect Taxes handled VAT, customs duties, excise duties, and vehicle registration tax principally. Direct Taxes handled income tax, corporation tax, and capital gains tax.
Any particular taxpayer might have separate dealings with all of these divisions and traditionally there was little exchange of information between the various divisions.
The Revenue Commissioners are now moving towards a situation where any particular taxpayer will be dealt with by a single division in respect of all of the taxes for which the Revenue Commissioners are responsible. All information in relation to all tax heads for that taxpayer will be centralised on a computer system so that Revenue officials dealing with the taxpayer can get an overview of their total taxation position.
Big Cases Division
The basic structure of the reorganisation involved the creation of five regional divisions dealing with taxpayers according to the geographic area in which they are located. Those divisions deal with all taxes for each taxpayer. However in addition to those five regional divisions, a Large Cases Division was created.
That Large Cases Division was planned to have the 300 largest corporate groups in the country, and the 200 wealthiest individuals, within its care and management. Broadly speaking you qualified for the large cases division if you were a company with a turnover in excess of €127m, or an individual with wealth in excess of €50m, or with income in excess of €1,270,000.
In addition to looking after the biggest and the wealthiest, the Big Cases Division will also have responsibility for dealing with “anti-avoidance schemes” over the full range of taxes and duties.
We may well be heading towards the situation where, in addition to having been at the best schools, and being in the best golf clubs, it will be essential hallmark of social status that a person be able to boast that they are dealt with by the Big Cases Division!
Lets Meet
This is the background to the spate of letters that have recently issued, inviting companies, and high net worth individuals, to meet with their designated “Revenue handler”.
The invitation to a meeting emphasises the Revenue’s wish to get to know the taxpayer, and to be of service to the taxpayer. No doubt that is a sincere ambition but it should not be forgotten that the primary function of the Revenue Commissioners, and of the Big Cases Division within it, is the collection of taxation. The Big Cases Division will do well when it collects additional taxation from its customers, and will be seen as doing badly, if it does not collect additional taxation from its customers. It is not a social club for the high net worth individuals, or a chat room.
It therefore has somewhat conflicting aspects. It can be of help to a taxpayer in smoothing the functionings of the tax collection system, which at times can be bureaucratically painful. On the other hand, its more important function is extracting cash out of the taxpayer, something which the taxpayer typically also finds to be painful.
Why pick on big taxpayers?
The decision to focus resources on the largest companies and wealthiest individuals is not necessarily an implied criticism of those companies and individuals. It does not mean that they are seen as potential tax evaders. They are simply the source from which the Revenue gets a disproportionately large amount of its total revenue. It is the area where any problem in making timely tax return, in making payments, or a downturn in business, will most severely impact the revenues of the State.
A downturn in business of a major employer will impact VAT receipts, PAYE receipts, corporation tax payments, PRSI payments, excise duties and possibly customs duties. It is natural that the Revenue do not want to be taken by surprise by sudden changes in the volume of taxation receipts. They want the earliest possible warning and therefore wish to stay close to the major taxpayers.
The sheer volume of taxes that go through the largest companies in particular means that errors or other glitches, even if small, can have a large impact, whereas a bigger error proportionately in a small business may have a negligible impact on overall state revenues. It is therefore understandable that the Revenue are anxious to monitor the correctness of tax reporting and payment of the largest cases.
There is a fine line being walked here by the Revenue Commissioners. Their interest in the largest sources of revenues is natural. But that interest, when expressed through frequent Revenue audits, imposes a cost on those taxpayers. All of the evidence available to date - for example the bogus non-resident account investigation - suggests that it is not the large businesses and employers in the State that engage in tax evasion. While it may be true that a proportionately small error in a large taxpayer can cost the Revenue more than blatant tax evasion by a smaller taxpayer, there is a reasonable feeling that taxpayers who are doing their best to be compliant should not have to put up with a greater degree of Revenue oversight and intrusion than do taxpayers with an established propensity for evasion.
The Big Cases Division is in its early days. Hopefully it will satisfy its “customers” that the burden of being the State’s largest sources of revenue will not also be accompanied by becoming a target for quite disproportionate interference by the Revenue.
It might be agued that the existence of a close relationship between a major taxpayer and the Big Cases Division should ensure that the Revenue provide as trouble free a service as is possible to that taxpayer. That could include giving rulings on difficult tax points, concessions where such are justifiable etc. That might seem a reasonable possibility, but experience to date suggests that it may not work out that way.
Discourage tax planning?
There may also be a belief in the Revenue that close monitoring of large taxpayers by a dedicated division will discourage those large taxpayers from tax planning ie from planning to minimise their taxation liabilities lawfully. If there is such a belief, it merely highlights what has been said before, that in essence the objective of the Revenue Commissioners is diametrically opposed to that of any taxpayer. The Revenue Commissioners wish to maximise tax collection. A sensible taxpayer wishes to minimise his liability to taxation.
Inevitably that suggests that whereas every taxpayer should have a co-operative and cordial relationship with the Big Cases Division, or any other division of the Revenue Commissioners, it would be quite wrong to believe, as one Revenue official suggested to a large taxpayer, that the Revenue is a stakeholder in each company. They are not. It is the shareholders and employees of the company who are the only stakeholders in the company. The Revenue Commissioners are tax collectors, not stakeholders.
Taxpayer and Revenue have a common interest in the smooth functioning of the administrative machinery of tax collection, and there their common interests end. There is plenty of room for co-operation between the taxpayer and Revenue but there is no place for the Revenue in the boardroom of a company, or at meetings between a taxpayer and his tax adviser.
But there should be a place for the tax advisor at any meeting between a taxpayer and the Big Cases Division. |
Paul McGowan is chairman of the tax practice in KPMG.
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| Article appeared in the January 2004 issue.
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