12 June 2015
The recent media coverage of the leaking of overseas bank account information raises interesting questions in relation to the use by Revenue of information obtained in this way. However, even without such leaks, the Irish Revenue has wide information gathering powers. Over recent years, Revenue has focused on offshore bank accounts and has used its powers to obtain detailed information from banks including, for example, details of non-Irish credit card transactions. But how exactly does Revenue obtain this information? What are the powers at their disposal when it comes to information gathering? For those impacted the consequences can be significant, but importantly can differ depending on whether Revenue or the taxpayer makes contact first.
The Irish Revenue’s information seeking powers are already provided for under Irish legislation and have been consistently strengthened over the years with the addition of new powers. Examples of such powers are:
Technology now plays a huge role when it comes to the selection of cases for an audit. Cases selected for a Revenue Audit are based on certain risk factors. Through Revenue’s Risk Evaluation Analysis and Profiling (REAP) system, which risk rates taxpayers, and through Joint Investigation Units, where Revenue work with other Governmental Departments using shared facilities to access data, Revenue can quickly target what they consider to be high risk cases. The REAP model is also adjusted to take into account risks relevant to specific industry sectors where Revenue can identify where non-compliance has been high in the past. Revenue also operates a Random Audit Program wherein all taxpayers stand an equal chance of being selected for a Revenue Audit. However, materiality and high risk cases are the key factors in Revenue Audit selection.
With the increasing move towards the Automatic Exchange of Information (AEOI) with other countries, Revenue’s information-gathering powers have extended internationally. Measures that facilitate AEOI include:
EU Savings Directive – the EU Savings Directive, a measure introduced in 2005, requires EU member states to automatically exchange information on interest paid to EU resident individuals.
The OECD Common Reporting Standard (CRS) – the CRS is a set of global standards for the exchange of financial information by financial institutions.
EU Directive on Administrative Cooperation – this Directive provides that EU member states should engage in AEOI relating to residents of other EU member states on five categories of income:
Double taxation arrangements - exchanges of information are also provided for under certain double tax agreements and in some cases, Revenue can request information on bank accounts from foreign tax authorities under certain scenarios.
Making a disclosure of previously unreported income or undeclared tax to Revenue will often significantly lower the level of penalties applied. These reductions in penalties will vary depending on various factors including:
However, particular care is needed in respect of undisclosed foreign bank accounts as Revenue, in certain circumstances, can limit the mitigation available.
A ‘qualifying disclosure’ involves a written disclosure to Revenue setting out the details of a tax default, accompanied by a payment of the tax due plus interest. One of the biggest concerns for taxpayers who want to regularise their tax affairs is whether any settlements are made public. One of the benefits of making a ‘qualifying disclosure’ is that where the disclosure is accepted by Revenue, the taxpayer will not be included in the regular published list of tax defaulters.
With the increase in Revenue’s detection powers and international developments in promoting tax compliance, the volume of information available to Revenue (both from local and international sources) is increasing. This, combined with Revenue’s increased use of technology to select cases for audit, may be a cause for concern for those with undisclosed tax liabilities. Taxpayers with such concerns should consider making a qualifying disclosure to Revenue before Revenue contacts them first. By taking such a proactive approach, penalties can be significantly mitigated and embarrassing public settlements or any further action by Revenue can be avoided.