Galway Solicitor's Bar Association - PowerPoint Presentation

Slide1

Galway Solicitor's Bar Association

Revenue Audit Code of Practice – Capital Taxes Perspective Julie Burke & Clare McGuinness 20th May 2016 Slide2

OverviewRevenue interventions – CAT/CGT & Stamp Duty

Review of claims for reliefs Primary issues arising2015 Audit Code of Practice – Key changesFocus on co-operationReporting of advisers to professional bodiesSlide3
Slide4

Non-Audit (e.g., assurance check/aspect query)

Routine check

Taxpayer

entitled to make an unprompted qualifying disclosure

No publication

Revenue Audit

usually arranged in advance by appointment for the specific purpose of examining the books and records of the professional – “exercise of routine powers”.

Taxpayer

entitled to make an prompted qualifying disclosure

No publication

Revenue Investigation usually an unannounced visit where information is requested on arrival and no search warrant has been obtained – “exercise of non-routine powers”.Taxpayer not entitled to make an any type of qualifying disclosure Increased penalties and publication likely Potential prosecution Revenue Investigation with a view to criminal prosecution Revenue will present a search warrant on arrival and the visit will be unannounced. Such visits are usually confined to specific cases where evidence of fraud is available to Revenue in advance – “exercise of non-routine powers”.

Types of Revenue InterventionSlide5

Assurance Check (Non-Audit)

Frequently based on apparent discrepancy in data held by Revenue

Can arise from claim for a relief/repayment

Aspect Query

(Non-Audit)

Frequently

used where a relief has been claimed

Back-up documentation usually requested

May be pre-cursor to an audit

Revenue Audit

Examination of a tax return, declaration of liability or a repayment claim No longer possible to make a unprompted qualifying disclosure but can make a prompted qualifying disclosureTypes of Revenue InterventionSlide6

Consequences of Revenue InterventionAssurance Check/Aspect Query (Non-Audit) If Revenue discover an underpayment, underpaid tax must be paid together with interest and potentially penalties

Opportunity to minimise penalties by means of Self-correction Innocent Error Unprompted Qualifying Disclosure Full co-operation Audit If Revenue discover an underpayment, underpaid tax must be paid together with interest and penalties “Tax-geared” penalties will be applied - opportunity to minimise penalties by making a prompted qualifying disclosure in advance of the commencement of the audit

full co-operation

Potential

publication on the list of tax defaulters Slide7

Methods of Correcting Tax Defaults

Self Correction without a penalty Innocent Error Technical Adjustment Qualifying DisclosureSlide8

Self Correction without a penalty Taxpayer can ‘self-correct without penalty’ any return, subject to the following conditions;There has been no contact from Revenue in relation to the relevant return The

taxpayer must notify Revenue of the adjustments to be made either in writing or ROSThe taxpayer must include a computation of the correct tax or duty and statutory interest payableTimelimits: CAT - 12 months of the due date for filing the returnStamp Duty - 12 months of the specified return date’. [Section 14A (1) Stamp Duties Consolidation Act, 1999]Local Property Tax: 12 months of the due date for filing the returnSlide9

Innocent Error A tax default of a person that was not deliberate; and was not attributable in any way to

the failure by the taxpayer to take reasonable care to comply with his or her tax obligations shall not render that person liable to a penalty.Factors that Revenue will consider in this regard include;whether proper books and records have been maintained the frequency with which errors, which individually could be viewed as innocent occur. the compliance record of a taxpayer. Whether the error being corrected is immaterial in the context of the overall tax payments made by the taxpayer

Statutory interest on the outstanding tax will

apply.Slide10

Technical AdjustmentAn adjustment that arises from differences in the interpretation or the application of legislation.No penalty if Revenue are

satisfied that;due care has been taken by the taxpayer, andthe treatment concerned was based on a mistaken interpretation of the law or practice, and did not involve deliberate behaviour.Factors to consider;court decisions and published Appeal Commissioner decisions that are relevant to the point at issuethe expertise available to the taxpayer in terms of legal, accountancy and tax advice and applied to the position taken by the taxpayer,the

complexity of

the technical

issue and the relevant legislation

Statutory

interest on the outstanding tax will

apply.Slide11

Qualifying DisclosuresWhat is a Qualifying Disclosure A disclosure of complete information in relation to, and full particulars of, all matters occasioning a liability to tax that give rise to a penalty,

Must be made in writing, is signed by or on behalf of the taxpayer Must be accompanied by: a) A declaration, to the best of that person’s knowledge, information and belief, that all matters contained in the disclosure are correct and complete b) A payment of the tax or duty and

interest

on late payment of that tax or duty

.

A

qualifying disclosure may be unprompted or prompted. Slide12

Qualifying DisclosuresUnprompted Qualifying Disclosurea) before any audit or investigation had been started by Revenue, or

b) where the person is notified by Revenue of the date on which an audit or investigation into any matter occasioning a liability to tax of that person will start, before that notification.Prompted Qualifying DisclosureA disclosure made in the period between -the date on which the person is notified by Revenue of the date on which an audit will start, andthe date that the audit starts.‘The date on which the person is notified’ is the date of the ‘Notification of a

Revenue Audit

’ letter

.

Benefits of making a Qualifying Disclosure

-

Reduced penalties

- Assurance in respect of non-prosecution

- Non-publication on the list of tax defaulters Slide13

Qualifying Disclosures – Scope All qualifying disclosures (prompted and unprompted) in the deliberate behaviour category of tax default must

includeall liabilities to tax, duty and interest, in respect of all taxes and periods, where liabilities arise, as a result of deliberate behaviour, that were previously undisclosedPrompted qualifying disclosures in the careless behaviour category of tax default, must include all liabilities to tax, duty and interest in respect of the relevant tax

and periods

within the scope of the proposed compliance

intervention

Unprompted

qualifying disclosure in the

careless

behaviour category of tax default, must includeall liabilities to tax, duty and interest in respect of the tax and periods that are the subject of the unprompted qualifying disclosure.Slide14

Penalties – types Surcharge (s1084 Taxes Consolidation Act 1997/s53A CATCA 2003)

Late filing of a return Deliberately or carelessly filing an incorrect returnFixed Penalties Incorrect returns Failure to keep recordsFailure to make returns

Tax Geared penalties Slide15

Tax Geared Penalties S1077E Taxes Consolidation Act 1997

Can be mitigated based onUnprompted Qualifying Disclosure Prompted Qualifying Disclosure Category of default (deliberate/careless behaviour)Full Co-Operation Tax Geared Penalty will cover Fixed penalty for filing

incorrect

return

Late filing surcharge where a return was filed on or before the specified return date Slide16

Categories of Default Deliberate BehaviourNot defined in legislation

Intent to default Actions of taxpayer likely to result in tax default and cannot be explained by carelessnessCareless Behaviour with/without Significant Consequences“failure to take reasonable care”Significant ConsequencesMonetary test -tax underpaid exceeds 15% of the tax correctly payable Slide17

Penalty Table

 Unprompted Qualifying Disclosure

Prompted Qualifying Disclosure

No

Qualifying Disclosure

CATEGORY OF

DEFAULT

Penalty

Penalty –

Full Co-operationPenaltyPenalty –Full Co-operationPenaltyPenalty –Full Co-operation

Careless behaviour

without

significant

consequences

20%

3%

20%

10%

20%

15%

Careless behaviour with

significant

consequences

40%

5%

40%

20%

40%

30%

Deliberate

behaviour100%10%100%50%100%75%

Note:

A

higher level of penalty may apply for second, third and subsequent prompted/unprompted disclosures by a taxpayer.

Slide18

Failure to

fully

co-operate with

compliance intervention

Revised Code of Practice – November 2015

Revenue Operational Manual – March 2015

Impact on penalty payable by client where deemed not to have co-operated

Obstruction by taxpayer (Section 4.4 of Code)

Co-Operation

Slide19

Failure to

co-operate fully

with compliance intervention, e.g.

Failure to communicate with Revenue in a timely, responsible and reasonable manner

Failure to meet agreed deadlines

Failure to reply fully to Revenue queries

Actions to be taken where there is failure to co-operate

Agent cases and non-agent cases

Important to respond to correspondence and document steps taken to co-operate

Revenue Operational Manual Slide20

Wide ranging and subjective nature of the factors that can constitute “non-co-operation”

No recognition of the mutual obligations on Revenue to engage in a timely and reasonable manner

Lack of redress for a taxpayer/ practitioner

The interaction with the Audit Code and its implications for qualifying disclosures

Reference to the possibility of an investigation being commenced

Revenue Operational Instruction Slide21

Reporting to Professional Bodies

Section 851A(7) Taxes Consolidation Act 1997 Revenue Operational Manual – November 2015 Only serious cases will be referred by Revenue

Report will only be made

after

the intervention is finalised

Report will not be raised or discussed with the agent

Referral must be approved by the relevant Assistant Secretary Slide22

Valuations

Capital Gains Tax Valuations In the absence of supporting evidence, a professional opinion will not, of itself, prevent the application of penalties. Revenue acknowledgement that it may be difficult for taxpayers to obtain accurate valuations depending on the prevailing economic environmentSeparate criteria for determining penalty applicable where under-valuation usedStamp Duty & CAT Valuations – Surcharges for Under-Valuations

Section 53 CAT Consolidation Act, 2003

Section 15 and 16 Stamp Duties Consolidation Act, 1999Slide23

Frequent Issues Queried/audited by Revenue - CAT

Section

19 – 25 CATCA - Discretionary Trusts

Discretionary trusts which appear to be created under a deceased’s will - increased interaction between probate office and Revenue leading queries being raised

Section

86 CATCA – Dwelling House Exemption

Free use of property for period of occupation

Availability of dwelling house relief where beneficiary receives a specific bequest of a property and in addition receive an interest in the residue which contains a property. Slide24

Frequent Issues Queried/audited by Revenue - CAT

Section

90 – 102 CATCA – Business Relief

The basis for valuations of businesses

Proof

that property continues to be relevant business property for 6 years after the date of the gift/inheritance.

Paragraph

7, Part 1, Schedule 2, of the Act – Favourite Nephew Relief

Proof

required that beneficiary worked substantially on a full-time basis

the five year period GeneralIncreased scrutiny of prior benefits declared in CAT returns Transactions not required to be included in a return (e.g., share swap) but are subsequently queried by Revenue Slide25

Gifts to Children

CAT Treatment of Receipts by Children from their Parents for their Support, Maintenance or Education

S82 CATCA 2003 as amended by Finance Act

2014

Small gift exemption

Interest free loans -free use of property

the highest price a prudent lender/depositor could get in the open market from prospective prudent

borrowers

Revenue example – interest rate of 1.5%

Net/gross of DIRT

Terms of loan Slide26

Frequent Issues– Stamp Duty

Expression of Doubt Facility

“Not genuine”

Revenue Technical Service

Reluctance to provide clear response (full facts provided)

Lengthy timeframe

for

response

Communication directly with taxpayer Slide27

Appeal Commissioner Determinations - 2016

Consideration Paid in respect of a

gift (AC Ref: 03TACD2016)

Availability

of business relief (AC Ref:

02TACD2016

)

First floor

over

pharmacy Relevant business property? Burden of proof on taxpayer Balance of probabilities Slide28

QUESTIONS??

Julie Burke 01 605 4235julie.burke@rdj.ieClare McGuinness 01 605 4237clare.mcguinness@rdj.ie