The Irish Revenue Commissioners (“Revenue”) published their revised Code of Practice for Revenue Compliance Interventions (the “Code”) on 11 February 2022. The Code represents a further significant development in Revenue’s approach to confronting non-compliance which remains one of its key strategic priorities.
The Code applies to all taxes and duties except customs and replaces the current Code of Practice for Revenue Audits and other Compliance Interventions. The Code applies to interventions notified from 1 May 2022.
The introduction of the Code follows a consistent and steady investment by Revenue in its IT and analytics systems, an increasingly sophisticated Risk Evaluation, Analysis and Profiling System (REAP) and an expanding Tax Appeals Commission (TAC) office which has grown from just 2 Commissioners and 4 staff in 2016 to 6.5 Commissioners and 27 staff during 2021.
Three Levels of Compliance Intervention
The Code introduces substantial changes to Revenue’s approach to compliance interventions and prescribes a three-level compliance intervention framework. A taxpayer’s ability to mitigate interest and penalties depends on which level of compliance intervention is applicable.
The three levels of compliance intervention are:
(i) Level 1: At this level taxpayers are reminded of their obligations and provided with the opportunity to correct mistakes without the cost of a more involved inquiry. Level 1 interventions will only occur where Revenue has not already engaged in a detailed examination or review of the matters under consideration. Forms of Level 1 compliance interventions include reminders on outstanding tax returns, profile interviews, requests to self-review and engagements under the Cooperative Compliance Framework.
Taxpayers should note that Level 1 intervention will not constitute a Revenue inquiry. As such, once a Level 1 intervention has been initiated, the taxpayer can self-correct or make an unprompted qualifying disclosure depending on the circumstances. Taxpayers should note that simply amending a tax return on ROS will not constitute notification to Revenue in this regard. Written notification to Revenue is required.
(ii) Level 2: Level 2 interventions will focus on confronting compliance risks and will consist of risk-based reviews and checks on data provided by taxpayers in their tax returns. Level 2 interventions include Risk Audits and a new form of Revenue inquiry called a ‘Risk Review’.
This change represents one of the most important aspects of the Code. The ‘Risk Review’, described by Revenue as a “focused intervention to examine a risk or a small number of risks on a return”, essentially replaces the aspect query which will no longer exist. Crucially, a taxpayer in a ‘Risk Review’ scenario will no longer have the opportunity to make an unprompted qualifying disclosure once a Level 2 notification has been issued. Instead, taxpayers will have 21 days from the date of notification of the intervention to notify Revenue in writing of its intention to prepare a prompted disclosure. The intervention will be considered to have started 28 days after the date on which a notification letter is issued to the taxpayer.
(iii) Level 3: Level 3 compliance interventions will consist of a Revenue investigation focusing on high risk practices and cases of suspected fraud and tax evasion. Once an investigation commences, the taxpayer is disallowed from making a qualifying disclosure in relation to the matters under investigation.
Advice for Clients
In light of the introduction of the Code, it is more important than ever that taxpayers conduct regular and robust self-reviews of their tax affairs to identify any risks. In this way, taxpayers will mitigate the extent of their exposure to tax penalties by preserving the ability to self-correct and make an unprompted disclosure.