In this Business Post column, Tom Maguire discusses how Tax Audits are being done differently in the Jurassic Economy has been saved
In this Business Post column, Tom Maguire discusses how Tax Audits are being done differently in the Jurassic Economy
The Revenue Commissioners recently published one of their electronic newsletters (e-brief) outlining how their staff are to conduct Revenue audits in the Jurassic economy. In other words, these audits are not going away because of the current crisis.
Last year I wrote in these pages that Revenue had suspended certain audit/intervention activities at the time because of Covid19. Audits, in particular, are intrusions into a taxpayer’s business which are provided for by law. There may or may not be tax issues within that business but that does not get around the fact that questions will be asked and the taxpayer’s time and resources will be taken up answering them and managing the audit process. There will be an opportunity for the taxpayer to make certain disclosures of tax missteps (typically matters bringing about a liability to tax) at audit meetings and this should continue in a socially distant or virtual world. That’s what this e-brief is all about.
The e-brief explains that its purpose is to provide guidance to auditors as to how to conduct Revenue audits remotely during the Covid19 Pandemic. This is to ensure consistency in their approach across all their Divisions. They will also aim to ensure the health and safety of staff and taxpayers/agents as compliance interventions are conducted. There is a Revenue Code of Practice for Revenue Audits & Other Compliance Interventions (“the Code”) and the e-brief should be read in conjunction with it.
Before a Revenue audit gets off the ground Revenue have to inform the taxpayer appropriately. The e-brief explains that in accordance with the Code, twenty-one days’ notice of a Revenue audit is generally given to both the taxpayer and/or agent. The e-brief acknowledges that Revenue staff and taxpayers and their agents are likely to be working from home and because of that “in the first instance staff should try to make telephone contact” with the taxpayer and/or agent to advise them that a “Notification of Revenue Audit” correspondence is being issued to them that day. That’s very important as in many cases it’s not possible for businesses to be checking their post daily right now.
Taxpayers can send Revenue a notice of intention to make a qualifying disclosure (more on that in a second) which gives the taxpayer additional time to prepare for commencement of the audit. Given the importance of a qualifying disclosure to the audit regime the period of time before a Revenue audit is crucial for a taxpayer to self-review their records/returns with a view to establishing the requirement to make a disclosure. The notice of intention to make a qualifying disclosure can afford the breathing space to adequately conduct such a review and be audit ready.
Furthermore, the e-brief explains that it is “imperative” that the “Notification of a Revenue Audit” letter is issued the same day as telephone contact is made with the taxpayer and/or agent. The significance of this is that as and from the date of issue of the “Notification of a Revenue Audit” correspondence to the taxpayer and/or agent, the opportunity to make an ‘unprompted qualifying disclosure’ of tax missteps is no longer available. Such unprompted disclosures are important as they allow for reduced tax geared penalties to be imposed (if they are applicable in the first place) and in addition, the amount of the penalty is a key consideration in the statutory exclusions from tax defaulter publication.
There will remain an initial interview followed by examination of the books and records. The e-brief explains that auditors should ensure that they clearly advise the taxpayer that the audit is now commencing and note this in their working papers. In the case of a desk audit, the audit is considered to have commenced on the day after the period of notice regarding the audit has expired.
The initial interview will take place over video conferencing software prior to the audit commencing. Auditors have to display their powers card to the taxpayer at the beginning of the initial interview as part of their identification and authorisation procedures. The auditor should arrange to receive the books and records, either electronically or the physical copies, before the initial interview is conducted. The e-brief explains that the non-production of records will not delay the commencement of an audit or extend the period in which to make a prompted disclosure.
In order to examine the books and records the auditor should encourage the taxpayer and/or agent to use the Revenue File Transfer Service (Revenue’s password protected secure facility to exchange files with third parties) as much as possible. Where electronic records are not available, the physical books and records should be delivered to the Revenue office. The taxpayer and/or agent should arrange for the delivery of the books and records and the auditor will arrange for them to be returned. Alternatively, the auditor can arrange to collect them once all public health and social distancing guidelines can be strictly adhered to. This includes the use of Personal Protective Equipment (PPE) by the auditor.
The e-brief recognises that handing over books and records may present a difficulty for some taxpayers and auditors should commit to return same within a reasonable period of time which will depend on the volume of physical records that are received. The e-brief goes as far as saying that in order to minimise the risk of Covid19 being present on the books and records they should be left untouched for at least 24 hours after they arrive in the office.
Critically though, the e-brief recognises that hesitancy on the part of the taxpayer to provide books and records “should not automatically be seen” as failure to co-operate fully. However, if the auditor believes that the taxpayer is trying to use the virus on purpose as a means of not providing the books and records as requested then that may be treated as failure to co-operate. This again is a key area for taxpayers to be aware of as co-operation is a key ingredient in determining tax geared penalties. Any settlement letter of offer from the taxpayer has to be submitted to Revenue in writing. A Notice of Assessment outlining additional tax payable, if any, should continue to be issued as normal.
I’ve focussed here on audits but there are separate arrangements for aspect queries and other non-audit interventions. All this is about trying to do a “normal” audit in an “abnormal” world. They haven’t and aren’t going away, but we knew that anyway.
Please note this article first featured in the Business Post on Sunday 14 February 2021 and was re-published kindly with their permission on our website.
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