As previously reported in these pages, the European Court of Human Rights (ECHR) has cast some doubt on the legality of our rules on the publication of tax defaulters. This “name and shame” stick has been used in the past and it will take a Finance Bill to remove it. So we’re in a wait and see moment right now. But that doesn’t mean that Revenue don’t have other sticks to encourage lawful compliance with our tax code. These include tax geared penalties and interest because in the end, money talks.

The ECHR case was LB v Hungary. This dealt with the publication of the taxpayer’s personal data, including his name and home address, on a list of major tax debtors on the website of the National Tax and Customs Authority for failure to comply with his tax obligations. The taxpayer argued that the publication infringed his right to respect for private life as protected by Article 8 of the Convention. In an “isn’t it ironic” Alanis Morrissette moment the court acceded to the taxpayer’s request “not to have his name disclosed” in its decision. Hence “LB”, although we know the taxpayer was born in 1966 and lives in Budapest!

The court held that the particular Hungarian legislation was a breach of Article 8 of the Convention for the Protection of Human Rights and Fundamental Freedoms. That article says that everyone has the right to respect for their private and family life, home and correspondence. It continues that “There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others”.

The concurring judge put the matter succinctly “Public curiosity, and still less indiscriminate public naming and shaming, are not “public interests” which can legitimately “compete” with the interest of an individual, even a tax debtor, in not disclosing his or her home address to anyone to whom he or she does not wish to disclose it. So what was the interest with which, as the majority maintain, Parliament should have struck a “fair balance” vis-à-vis this individual interest? The answer is: there was none”.

You have to remember here that the information available to the Court was that in twenty-one of the thirty-four countries (which the court listed as including Ireland), public authorities may disclose publicly the personal data of tax debtors. Our law says that Revenue can publish a list within 3 months of the end of each quarter, of the name, address, and occupation of each taxpayer on whom a fine or penalty was imposed or determined by a Court in respect of tax or duty related matters during that quarter.

Publication can apply where Revenue has agreed with a taxpayer not to initiate procedures for the recovery of any fine or penalty and has accepted a settlement of any claim by Revenue for 1) payment of tax or duty, 2) payment of interest on that tax or duty, 3) a fine or other monetary penalty in respect of that tax or duty including penalties in respect of the failure to deliver returns or other documents in connection with that tax or duty, and 4) payment of any surcharge, where applicable. There are certain monetary exclusions and various Ts and Cs apply.

So, if our legislature decides that publication was off the table as a form of stick to deter non-compliance with the tax code then what else can be done? Other tools in Revenue’s toolbox include tax-geared penalties up to 100% of the tax due and interest may apply on top of that. Double the tax plus interest and maybe criminal prosecution for serious evasion.

Revenue’s code of Audit practice classifies their interventions under three risk levels with the type of disclosures available to a taxpayer varying at each level. The document colour-codes the respective levels with Level 1 being green, Level 2 being amber and Level 3 being red reflecting the corrective options, disclosure position and penalties applicable at each level.

A Level 1 Intervention allows for an ‘unprompted qualifying disclosure’ to mitigate penalties. Under a Level 2 Intervention the ability to make an unprompted qualifying disclosure is gone and only a ‘prompted qualifying disclosure’ is available. Level 2 means either a Risk Review or a Revenue Audit. The level of tax-geared penalties that can apply is different for unprompted and prompted qualifying disclosures. The quantum of penalties will depend on such circumstances as the category of default involved (either careless or deliberate behaviour), the level of co-operation shown throughout and the presence of any prior infractions.

A Level 3 Intervention comprises a Revenue Investigation and no disclosure will be accepted for the matter(s) under investigation. A ‘Revenue Investigation’ is an examination of a taxpayer’s affairs where Revenue believes, from a review of available information, that serious tax or duty evasion may have occurred, or a Revenue offence may have been committed and may lead to a criminal prosecution.

Under Revenue’s code, a ‘Risk Review’ is a Level 2 Intervention, meaning the ability to make an unprompted qualifying disclosure is not available. Therefore, where Revenue conducts such a review, it will be important that taxpayers review their affairs in detail to establish whether there is a requirement to make a prompted qualifying disclosure to address any underpayment of tax or incorrect tax treatment of income, gain or expense.

My colleague Fiona McLafferty, who leads our Tax Controversy practice, notes that a key point here is that taxpayers understand what is required in making a prompted qualifying disclosure, because if the opportunity to make such a disclosure is missed this can lead to higher tax-geared penalties. Alanis Morrisette says “It's the good advice that you just didn't take, And who would've thought it, it figures”. Let’s not get ironic shall we.

As Fiona notes it’s important to carry out a self-review or health check to examine how the business is managing its tax obligations. In short, let’s be careful out there.

Please note this article first featured in the Business Post on Sunday, 30 April 2023 and was re-published kindly with their permission on our website.