Wednesday 31 May 2017

In February 2017 Revenue updated it’s Code of Practice for Revenue Audits and Other Compliance Interventions.

The Revenue work on the basis of what they refer to as Two Strategic Pillars

1. To provide a service to support tax compliance.
2. To confront non-compliance.

They endeavour to do this by providing adequate resources & administrative Structures so that the intended outcome can be planned, predicted and controlled.

Revenue’s recently stated strategy indicates that there will be an increased activity in the areas of recruitment. There will be an increased focus on the enhancement of the level of staff expertise through recruitment but also to focus on the training of existing staff.

Also there is a stated commitment to increase the use of technology through the use of data analytics and risk assessment. Revenue’s aim is maximise the use of technology to as a primary driver of ensuring tax compliance, by more efficient risk identification, risk management and risk investigation.

In 2016, Revenue collected €47,864m in tax revenue. There were 537,204 Revenue Interventions which yielded €555m (1% of total taxes collected). Of these interventions over 6,200 were Revenue Audits which yielded €250m.    

Intervention Summary in tabular form

Revenue – Total Tax Collected

	2016	2015	2014
Total Tax	€47,864,000,000	€45,601,000,000	€41,282,000,000

 

Revenue – Total Interventions and associated Yield

	2016	2015	2014
Interventions (incl. audit interventions)	537,183	461,591	437,181
Yield	€555.6m	€642.5m	€610.4m

 

Revenue – Total Audit Interventions and associated yield

	2016	2015	2014
Audit Interventions	6,173	6,612	7,636
Yield	€247.9m	€327.9m	€338.8m

 

Types of Revenue interventions / Tools / Powers

Revenue interventions come in many guises and the more common types would be:-

• Audits selected by REAP , random (5%) or Re-audit (after 5 years)

Nearly all Revenue audits happen for a reason. Only 5% of Audits are now random, whether Revenue have picked up on an item claimed incorrectly, undeclared income or a discrepancy on a return or returns are late etc, there is probably a reason for prompting the Audit.

• Investigation – criminal prosecution – (severe Revenue power)

One of the most serious Revenue interventions is what is called a “Revenue Investigation”. The commencement of an investigation is not the norm in terms of Revenue intervention and it occurs generally when there is good reason to believe that a serious tax offence has been committed which could result in criminal prosecution. While investigations are rare when you consider the overall number of revenue interventions, they be utilised more frequently and earlier in the intervention process. The Revenue’s “Code of Practice” is there to ensure that individuals know what is to be expected when dealing with Revenue, but in regard to “Investigations” (not audits) it is important to establish that the Code of Practice applies to the particular “Investigation” in question. On the notification of an Audit and if the ‘Investigation Branch’ is mentioned, it is strongly recommended that Legal advice is obtained in relation to all such matters.

• Non-audit interventions (increasingly common) aspect queries etc.

There are a number of ways in which Revenue can interact with a taxpayer. On many occasions the actual Taxpayer is unaware that query has been made raised because the matter was dealt with promptly by the agent directly with Revenue.

• Sectoral reviews (ie Property) – more targeted (contractors)

From time to time the Revenue will select specific areas to examine more closely. These Projects could target specific cash business, high risk compliance businesses or could target specific business sectors.

• Site Visits

Site visits are usually unannounced. The Revenue Auditors will produce identification and outline the purpose of the visit. Revenue, in the past, has targeted all businesses on a particular street in one swoop on a given day (streetscapes). The visits are typically in relation to correct operation of cash points (ie tills), employee registration issues and general record keeping

• Selection of a sector in a particular region.

As with Sectoral Reviews, particular areas of examination or Projects can selected by different Tax Regional areas.

Generally a particular query about the taxpayer’s business come about from various the client compliance actions, say, in regard to registration for the various taxes, in regard to Tax Returns submitted or not submitted. In other cases, it is the Revenue who initiates the correspondence to discuss a particular matter. A large portion of interventions do not lead to the client being subject to a Revenue audit. Often, timely, provision of the information that is asked for will lead to no further action being taken.

Audit Selection Process

Revenue are not known for publically stating how cases are selected for audit but what is known they are getting better at it. The potential yield that may be gained from an intervention is also a factor. Apart from the content contained in the Return of Income submitted by the Taxpayer the Revenue have numerous other sources of 3rd party information on the Taxpayer. Information is gathered from say, the Banks, CRO, property registrations, vehicle registrations, social welfare etc.

The following are some of the screening tools that the revenue operate in selecting and instigating cases for audit:-

• REAP – risk profiling

“REAP is Revenue’s risk analysis system. REAP risk-rates Revenue’s customer base across all the main taxes and duties. ‘Risk’ in this context means the risk posed to Revenue’s core business of ‘collecting the right tax and duty at the right time’. REAP has been designed to  analyse a vast amount of data (including third party data) that Revenue has on tax and duty cases and to attribute scores based on the level of risk posed. The REAP system prioritises cases based on risk, enabling Revenue to target its attention on those cases who need it most and minimising contact with compliant taxpayers”. (www.revenue.ie)

The more “Red Flags” the taxpayer accumulates the higher the probability of selection for audit.

• 3rd party Info

The examination of the various print and social media continues to be utilised to assist in the Audit selection process. Also Revenue benefit from GCR Reports (ie Good Citizen Reports).

Other sources of 3rd Party information the Banks, CRO, property registrations, vehicle registrations, social welfare etc.

• Follow-on from existing Revenue intervention

This is why it is always prudent to reply to all revenue queries promptly. Undue delays in response time can cause minor issues to unnecessarily escalate into larger issues.

• Bad Compliance history

A bad compliance history will always rank an individual higher on Revenue’s Audit priority list and will always be deemed a high non-compliance risk.

• Random

As we have already mentioned Random Audits made up 5% approx. of all Revenue Audits. With the assistance of the “REAP” type analytical systems audits are rarely random.

“The main focus of Revenue will continue to be on selecting cases for compliance intervention (Revenue Audit, Revenue Investigation or non-audit compliance intervention) based on the presence of various risk indicators and other information available. In addition to the risk-based programme Revenue undertakes a Random Audit Programme and a Re-Audit Programme”. (www.revenue.ie)

• Sectoral Audits

Revenue have increased their focus on targeting businesses operating in specific industry sectors in specific locations.

"Revenue's annual compliance programme includes the examination of cases from specific economic sectors.  Risk features are identified.  Lessons learned from selected cases are then applied to the sector as a whole, focusing on those taxpayers displaying the risk features.  The REAP risk model is adjusted to take account of the sector-specific risks.  The normal audit / intervention rules, as set out in this Code of Practice, apply to compliance interventions or audits conducted as part of sectoral projects." (www.revenue.ie)

• Use of  “Analytics”

"Real-time risk analytics involves integrating predictive models and associated business rules into Revenue systems to ensure that transactions entering the systems, through any channel, are risk assessed at the time transactions are made."  (www.revenue.ie)

With the adoption by Revenue of Data Analysis Software (DAS), quick analysis can be carried out and inconsistencies can be easily identified even in the largest amounts of data. This software has been tailored and programmed to identify inconsistencies not only within the Businesses own data but can also be compared with the Industry ‘norms’ in which the Business operates. All indications are the Revenue    

• Collaboration between agencies & other Depts.

With the major improvements in the whole area of computerisation over the last decade, it has led to a huge connect between the various information banks that exist from the various sources. For example in the past there was a disconnect between say the Dept. of Agriculture and Revenue in regard to information flow, this is no longer the case with major strides being made in the integration of the computerised flow of information. The information flow from external sources like the Financial Institutions from both within and outside the State is constantly evolving.

• Amnesties

Down the years Tax Amnesties have taken various shapes and forms. One of the latest amnesties was the voluntary disclosure of offshore assets before 1st May 2017.

Some areas of Current Revenue scrutiny

• Contractors    
• Medical consultants
• Construction sector
• High earner capping
• R&D – high “yield” for Revenue
• VAT fraud
• Gaming and Amusement Sector
• eCommerce

Revenue Audit Notification

Generally a taxpayer will be notified by in writing that an audit process has been initiated, one month before the suggested audit date. It is usual that the taxpayers agent will be notified at the same time. The letter will clearly state what type of intervention is due to take place. The letter will contain specifics on the Tax heads being audited, the period involved and where the audit is to take place.