The Report of the Comptroller and Auditor General for 2011 delves as usual into some of the inner workings of the Revenue Commissioners. Perhaps of most practical interest for practitioners are his observations in relation to audit and enforcement activity.

Quite a few of the findings are counterintuitive. Contrary to what might be expected, the amount of interest charged on late payments has declined from a level of almost €80m in 2008 to €58m in 2011. Part of the decline is as a consequence of the reduction in the interest rates; the rates changed with effect from July 2009.

As there is a high average yield per audit, and because the targeted audit programme has a non-compliance detection rate of over 70%, this suggests that Revenue risk assessment is relatively effective in targeting high-risk cases. The number of random audits has not declined – there is still about 400 conducted every year. About one third of all random audits have a yield, the overall average is about €6,000. No particular conclusion is drawn from this statistic, not even the obvious one that no matter how compliant the taxpayer, a careful Revenue Auditor will always find something amiss.

Re-auditing, where a taxpayer who had previously been examined will be re-examined within a short period of time seems to be temporarily in abeyance. It seems that another re-audit programme will be commenced in January 2013 to include a sample of 400 cases randomly selected from cases audited during 2010. There is some evidence that audits do not always prompt better compliance behavior immediately afterwards. This is known as the bomb crater effect – the thinking being that just as an enemy shell is unlikely to strike in the same place twice so an existing bomb crater is the place to hide during a barrage, equally Revenue will be unlikely to investigate the same matter twice.

The Comptroller and Auditor General asked Revenue to estimate the proportion of taxpayers who had a civil penalty applied or who were pursued for non-filing of tax returns. The estimates suggest that these penalties applied to less than half of one percent of taxpayers who did not file corporation tax, VAT or RCT returns, 2% taxpayers who did not file income tax returns, and 3.3% of taxpayers who had not returned forms P 35.

The number of cases published under section 1086 of the Taxes Consolidation Act 1997 has dropped from 555 cases in 2007 to 366 in 2011. However, 2011 saw a reversal of the downward trend in the number of cases published year-on-year. Also in more serious instances during 2011, Revenue secured 30 convictions for tax evasion cases and customs and excise evasion cases, roughly in equal proportion. Eight of these resulted in terms of imprisonment being handed down.

The Report goes into quite a level of detail in connection with corporation tax. In 2011, 36,000 companies paid corporation tax. However, two thirds of the total came from just 129 taxpayers. Revenue estimates that €119 billion of losses and capital allowances remain unused at the end of 2010, but just as very few companies account for the bulk of payments, a very small proportion of cases account for the losses forward. Apparently only 50 cases account for 80% of the total value of the losses forward. €119 billion of losses and capital allowances is a very big sum – as the report dryly puts it, “this level of losses may have a significant effect on future corporation tax receipts”.

Generally speaking, Revenue tends to agree to recommendations from the Controller and Auditor General on the conduct of their affairs. However, they disagreed with his suggestion that they should set targets in relation to timeless of taxpayer compliance in terms of both payment compliance and filing compliance. Revenue are of the view that differences in compliance rates as measured by separate payment and return compliance figures would not be significant.

The full text of the report is available on the Office of the Comptroller and Audit General at http://www.audgen.gov.ie