Mr Brian Lenihan T.D. Minister for Finance Government Buildings Merrion Square Dublin 2

19 September 2008

Re: Regulations for Mandatory Electronic Filing and Payment

Dear Mr Lenihan

I write to you on behalf of CCAB-I, the Consultative Committee of Accountancy Bodies-Ireland, to express our concerns on the Regulations which bring into effect mandatory electronic filing (“e-filing”) and payment (“e-payment”), in the context of the requirement that current regulations must be laid before Dáil Éireann.

Commencement Order and Regulations

Section 164 of Finance Act 2003 introduced a new Section 917EA of the Taxes Consolidation Act 1997 on mandatory electronic filing and payment of tax.

There are two aspects to give practical effect to these provisions:

1. Commencement Order which must be signed by the Minister for Finance, and
2. Regulations which must be made by the Revenue to oblige certain taxpayers to file electronically or pay electronically.

You signed a Commencement Order (S.I. No. 308 of 2008) which brought the provisions on mandatory e-filing and e-payment into operation with effect from 28 July 2008.

Tax Returns and Payments (Mandatory Electronic Filing and Payment of Tax) Regulations 2008 (S.I. No. 341 of 2008) were made by Mr. Michael O'Grady, Revenue Commissioner on 22 August 2008. S.I. No. 341 of 2008 gives effect to TCA97 s917EA. These Regulations apply to companies, and not just to their mainstream Corporation Tax liabilities, but to all returns and taxes for which the ROS regime operates, including VAT and PAYE.

Companies affected after 1 January 2010

1 January 2009 marks the commencement of mandatory e-filing and e-payment for private sector companies handled through Large Cases Division. We gather that Revenue are writing to the companies affected, notifying them of the new requirement.

The particular difficulties we wish to highlight will arise from 1 January 2010, at which time “a company which, at any time on or after 1 January 2010, is required under any provision of the Companies Acts to append audited accounts to its annual return¹” This is a large constituency of companies.

The Audit Exemption threshold (broadly turnover less than €7.3m and assets less than €3.65m) may have provided Revenue with a rule of thumb in establishing a cut-off point between sizeable business entities and other businesses-their original documentation had spoken of companies “not exempt from an audit requirement under Irish company law”.

As the Regulations are phrased however, the subtleties in the Companies Acts concerning the application of the Audit Exemption could apply mandatory e-filing and e-payment to smaller companies. The saver within the Regulations (Schedule 2 paragraph 2) may be the stipulation concerning appending audited accounts to the CRO Annual Return - small companies for the purposes of the Companies Acts for example can have different reporting requirements with the CRO.

Two further issues complicate the matter:

• a late return made to the Companies Registration Office disqualifies the company from claiming the audit exemption in respect of the accounts attached to the particular return as well as the following year's annual return, even if the company meets the other qualifying criteria for the audit exemption in respect of the financial years covered by the accounts attached to both returns.
• On the face of it, this requirement can impose a retrospective obligation to file electronically and the application of penalties to tax compliant companies.
• the Regulations are quite clear on the premise that once a company is caught in the mandatory e-filing and e-payment net, there they will remain, irrespective of any increases in the audit exemption thresholds.

Penalties for not adhering to the Regulations

A penalty of €1,520 will be applied to the companies and agencies concerned for failure to file and pay electronically. The first return affected by the mandatory pay and file through ROS is the December 2008 P30 which must be submitted by 14 January 2009.

If a company or agency fails to file and pay electronically but otherwise continues to meet its filing and payment obligations, then the level of penalties will be severe: 1 Corporation Tax return and 2 payments; 7 VAT returns and 6 payments; 13 PAYE returns and 12 payments would result in a total penalty of €62,320. To compound this, the return is treated as an incorrect return and so is subject to a late filing surcharge of up to €63,485 in accordance with TCA97 s1084. Due to the lack of clarity in the Regulations as they currently stand, companies may not be aware of their obligations and so unwittingly be caught for this level of penalty. We believe these Regulations will have to be amended to ensure sufficient clarity so that this does not happen.

The Revenue Chairman has already indicated that the implementation of Mandatory Electronic filing will not be characterised by an emphasis on the penalty regime attaching to it. We accept this indication in good faith. But this does not mean that Regulations which apply such severe penalties should not be crystal clear as to their scope and application.

Revenue On-line Service (ROS) was developed by Revenue through consultation, and with responsiveness to practical difficulties which arose. Over the past several years it was adopted, voluntarily, by accountants in practice and business alike, because it made commercial sense to do so. This resulted in a higher level of voluntary electronic tax compliance than in any comparable economy. Rather than Revenue continuing to develop the system and gaining greater market share through better meeting taxpayer's requirements, we are now being obliged to pay and file by electronic means. It is difficult to see how this measure will contribute to the ongoing development of the system and the provision of taxpayer service.

We would welcome an opportunity to meet with you to discuss our concerns. If you require any further information in relation to this letter, please do not hesitate to contact me.

Kind regards

Yours sincerely,

Brian Keegan

Director of Taxation, Accountants in Ireland

1. SI No. 341 of 2008, Sch 2.