Input into Revenue Statement of Strategy
Mr Noel Smith
Strategy Management Branch
Strategic Planning Division
Revenue Commissioners
Dublin Castle
Dublin 2
9 October 2007
Dear Mr Smith,
REVENUE STATEMENT OF STRATEGY 2008–2010
We refer to the Chairman's letter of 10 September 2007 in the context of your preparation of a Statement of Strategy of 2008/2010. You have invited comments under a number of headings. It is neither possible nor appropriate for us to offer observations on all of the topics suggested in Mr Daly's letter, nor indeed under all the headings put forward in your existing statement of strategy. However, we would make the following observations based on our practical experience of dealing with Revenue in the administration of the tax system which we hope you will find helpful.
Maximizing compliance, while minimising the compliance burden
CCAB-I is firmly of the view that by minimising the compliance burden, compliance results can be maximised.
The key documents in the compliance process are of course the various returns, either for the direct or for the fiduciary taxes. The level of detail required on tax returns has developed at alarming rate over the past several years. We appreciate that part of this unwelcome growth is due to increasing concern to capture statistics deemed relevant for general exchequer planning.
However, there is also a tendency to seek information from taxpayers which is readily available from other compliance documents required by Revenue.
The inherent difficulty of expanding the amount of compliance detail being sought is that it contributes to the taxpayers’ risk. Tax risk is an expression used widely both by Revenue and by the private sector, but can perhaps reflect different things. We understand “tax risk” for Revenue to mean the loss of taxes properly due for whatever reason. “Tax risk” for the private sector primarily means the exposure to interest, penalties or other sanctions as a consequence of a failure to comply properly, but it also encompasses the risk of paying too much tax.
It seems to us that tax risk increases not only through the complexity of a tax payers own affairs, but by virtue of the extent to which he or she is obliged to operate the fiduciary taxes. We recognise that fiduciary taxes are a necessary element in a modern economy. We are now suggesting to Revenue that a new approach to tax simplification be adopted, the primary purpose of which is the reduction of tax risk as understood by the private sector.
We suggest Revenue adopt as strategy a comprehensive review of the compliance process to ensure that as compliance procedures are simplified, the tax risk for the private sector is minimised. This approach might include:
- Acceptance of categories of income or allowance values, or broad descriptions for statistical purposes
- A more focused analysis of the use of third party information, and the extent to which the level of detail currently sought is necessary
- A recognition that an indicative approach is acceptable in the context of statistical gathering
- Focus on the primacy of the tax payment as settlement, rather than focus on the compliance document which must accompany it
We believe that this would result in administrative simplicity for Revenue as well. In this matter, as indeed in the other matters we are mentioning, we feel consultation with the professions, primarily via TALC, can be constructive.
Combating tax evasion
We take this opportunity to reiterate our view that tax evasion is unacceptable.
Revenue has invested heavily in recent years in its REAP system. We understand that this is a sophisticated analysis tool which permits the risk assessment of tax payers based on a wide range of information available to Revenue. CCAB-I considers that a targeted audit programme is one of the most important tools available to Revenue in combating tax evasion, and fosters confidence overall in the tax system.
In recent years, Revenue have launched special investigations such as the SPIP investigation and the Bogus Non Resident Account investigation to combat mechanisms used in tax evasion. Revenue have also focused on particular industry sectors, perhaps most prominently the construction industry.
We suggest that these blanket type investigations may no longer be appropriate in the context the emerging maturity of the compliance process, and in the context of the sophisticated risk management tools now available for case selection. An over reliance on selecting cases for particular examination based on what the taxpayer does, rather then how the taxpayer conducts its affairs, will be detrimental to the overall compliance process.
We would strongly urge as a part of the strategy that Revenue would focus less on sectoral matters, and instead develop and refine the techniques now available from REAP in selecting cases for intervention.
On a related issue, it seem to us that Revenue's activities in countering evasion have more often or not been directed at taxpayers who are already “in the system”. Compliant taxpayers can find it hard to see evidence of attempts by Revenue to identify citizens who are completely below the Revenue radar, or taxpayers who have income generating activities which are completely undeclared. We feel it would be an important component to the Revenue strategy to have a cogent plan of action towards combating the shadow economy.
Self assessment cases
Legislation in 2005 which broadened the definition of “chargeable person” in TCA97 s950, and as applied by Revenue's published practice, has effectively doubled the number of individual taxpayers who fall into the self assessment procedures. It is difficult to reconcile a stated intention to reduce the compliance burden and achieve simplification with this backdrop.
We feel it may be necessary to consider procedures for a third category of taxpayer – that is to say, those who are neither “traditional” PAYE cases nor “traditional” self employed cases. There must be a middle ground for such taxpayers which permits Revenue to engage necessary risk evaluation techniques, while at the same time not exposing tax payers to the sanctions now available to Revenue under the full blown self assessment procedure. The distinctions are further blurred where the taxpayer has obligations to operate fiduciary taxes, however limited in extent.
We suggest your strategy should encompass a more granular view of the status of taxpayers, moving away from the two simple extremes of employed versus self employed, so that more appropriate approaches to compliance, intervention and collection can be developed.
Collection of Taxes
It is tempting for other arms of the State to become reliant on Revenue, because of your interaction and data concerning so many citizens, either:
- For information to support their activities, for example as with the arrangements with the Office of the Director of Corporate Enforcement, or
- For enforcement of sanctions, for example as in the denial of interest relief in cases of failure to comply with the Private Residential Tenancies Board registration requirements
In the first example, we understand that a Memorandum of Understanding between your office and the ODCE governs a fair and orderly transmission of information, such that the useful Revenue practice of Qualifying Disclosure is not prejudiced. We understand that this sensible approach is being examined as good precedent for adoption in similar circumstances by other Revenue Authorities.
The second example does neither Revenue nor the PRTB little credit. It suggests that the PRTB's ability to enforce compliance and the sanctions available to it are both inadequate. It deflects Revenue's attention from the proper collection of tax on rental income in accordance with the long standing and accepted rules for arriving at a taxable surplus.
We would like to see a clear statement in your strategy that Revenue will attempt not to be deflected in its mission to collect taxes and duties in a fair and efficient manner.
Taxpayers’ Charter of Rights
The Institute of Chartered Accountants in Ireland, one of our member bodies, has already written to you in relation to this matter in the context of your Strategy Statement, and a copy of their letter is attached as an appendix.
We wish you well as you work on your Statement of Strategy for the next three years. We will be happy to amplify any of the points raised in this letter should you so require.
Kind regards
Yours sincerely
Marie Barr
Chairperson CCAB-I Tax Committee
APPENDIX
Mr Frank Daly
Chairman
Office of the Revenue Commissioners
Dublin Castle
Dublin 2
13 June 2007
Dear Chairman
Revenue Statement of Strategy 2008–2010
I am conscious that Revenue is considering its Statement of Strategy for 2008 and onwards. I am writing on behalf of this Institute, as stakeholders in the administration of our tax system, to offer our perspective on matters which perhaps are already under consideration.
Chartered Accountants comprise the single largest constituency of tax agents by a considerable degree. Perhaps even more significantly, as two thirds of our membership are in the business arena (as distinct from accountancy practice), our members operate the fiduciary taxes, budget for and make business tax payments, and are involved in the major business decisions taken by their companies.
We are aware that the first key goal in your Statement of Strategy 2005–2007 has been met in some important respects. High profile investigations and compliance campaigns have fostered compliance, and we would largely agree with your observation on launching your 2006 Annual Report that compliance has become part of the mindset. Your second key goal concerned your own organisational capabilities. While this of course is of interest to us, it perhaps has lesser significance than the more outward facing third goal regarding Revenue's contribution nationally and internationally.
In the context of these outcomes, we wish to make two suggestions for your next Statement of Strategy.
Simplification and compliance costs
The emphasis of compliance and enforcement is by definition on the non compliant taxpayer. We would suggest to you that this attention now needs to be rebalanced – back towards the compliant taxpayer. There is considerable evidence that it is more difficult for compliant taxpayers now than three years ago to meet their tax obligations. To take one example, the changes in the definition of Chargeable Person have doubled the number of taxpayers who may fall into the self assessment net, and created a body of marginal cases. At the same time the self assessment forms have become more complex, to the point where the Form 11 cannot be completed by the average taxpayer without technical assistance. Similar examples can be drawn from other taxheads and from the fiduciary taxes.
We are therefore very encouraged by your observation at the launch of Revenue's 2006 Annual Report that you intend to redouble your efforts to reduce the regulatory burden and simplify procedures, and that this will be a key theme of your Statement of Strategy for 2008–2010. We strongly endorse your intention.
Charter of Rights
As the complexity of tax has developed, so too has the range of powers available to your officers to investigate, demand and seize information, and the obligations for taxpayers to operate the fiduciary taxes and the self assessment system. We would not dispute that there were, and may continue to be, serious irregularities on the part of some taxpayers. The results of the various special investigations have borne this out. However, the availability of powers and the assignment of compliance obligations must be balanced with due regard for the rights of the taxpayer who under self assessment must deal honestly and openly with Revenue.
This is not merely a local concern, it is an international concern, reflected in actions taken by Revenue Authorities in other jurisdictions. These may in part have been prompted by the Practice Note prepared by the OECD Committee of Fiscal Affairs Forum on Tax Administration in 2003.1
1General Administrative Principles – GAP002 Taxpayers’ Rights and Obligations.
We would point to the Canada Revenue Agency, which has in recent weeks published its 15 Point Bill of Rights. This is a farsighted initiative to assure the taxpayer of their entitlements, both in the obvious areas of confidentiality and impartiality and also in the less obvious areas of information provision and timely warnings. The initiative is further supported by the appointment in Canada of a Tax Ombudsman and a published commitment by the CRA to smaller businesses.
The Revenue Commissioners have, unusually, been out of step with these international developments in best practice. The 1989 Charter of Rights was a significant document in the administration of the tax system.2
2The Joint Oireachtas Committee on the Strategic Management Initiative (November 2001) went so far as to recommend the appointment of an officer with specific responsibilities to ensure that the Charter was met.
It has also been used in defence of the taxpayer in the Irish Courts.3
3Terence Keogh vs The Criminal Assets Bureau, Revenue & The Collector General (Supreme Court, May 2004).
However it was withdrawn in 2004 in favour of a Customer Service Charter.
The differences between a “Charter of Rights” and a “Customer Service Charter” are not merely semantic. Rights cannot be abrogated other than by due process. The Customer Service Charter apportions obligations to the taxpayer which are largely already enforceable under tax law, but without a corresponding enforcement mechanism for the taxpayer in terms of Revenue obligations. Further, the timing of a document entitled “Customer Service Charter”, at a time when Revenue customer service was not meeting the targets you had set for yourselves following restructuring, was somewhat unfortunate.
Taking these factors into account, allied with comparable developments in other jurisdictions, we feel it is in all our interests to re-align the existing document, back to its original status as a Charter of Rights. The existing high level of confidence in Revenue's fairness of approach, as evidenced for example in your January 2007 survey of SME's, would be bolstered by this action.
I trust you will take these suggestions on board as you finalise your Statement of Strategy. You might contact our Director of Taxation, Brian Keegan, at the Institute if you require anything further.
Finally I would take this opportunity to acknowledge the excellent liaison which you and your officers facilitate with our Institute through TALC and the many other contacts we have.
Kind regards.
Yours sincerely
Vincent Sheridan
President