The revised Code, in force since 1st May 2022, introduces a number of changes to Revenue’s approach including a new three tier-system, the introduction of a risk review and more limitations on making unprompted qualifying disclosures writes Deloitte’s Anna Holohan. She outlines recommendation for taxpayers in light of the new code with full cooperation the key in mitigating penalties.

In February 2022 Irish Revenue published a new “Code of Practice for Revenue Compliance Interventions” (the Code) which has since come into effect as of 1 May 2022. This document outlines that the Code “sets out a compliance intervention framework intended to provide a consistent graduated response to taxpayer behaviour, ranging from extensive opportunities to voluntarily correct mistakes up to the pursuit of criminal sanctions for cases of serious fraud or evasion.”

The revised Code introduces a number of changes to Revenue’s approach to compliance interventions from previous iterations of the Code. Most notably the revised Code introduces three levels of compliance intervention, introduces a risk review, and limits more than previously the ability of taxpayers to make unprompted qualifying disclosures. In addition, the Code outlines the procedure for a self-correction in writing.

What is the Code?

Broadly the Code sets out the opportunities for self-correction or disclosure that taxpayers have, the types of compliance interventions that can be conducted by Irish Revenue, what a taxpayer should do if they are notified of an intervention, the levels of penalties that can apply and the rights of the taxpayer during a Revenue intervention, including details of the appeal process.

What does the revised Code apply to?

The Code applies to all compliance interventions notified on or after 1 May 2022.

The previous “Code of Practice for Revenue Audit and other Compliance Interventions” continues to apply to all interventions open or notified prior to 1 May 2022.

The revised Code applies to all taxes and duties (except Customs), and includes all forms of withholding taxes, including applicable interest and penalties.

What are the three levels of compliance interventions?

The Code outlines that there are now 3 levels of compliance interventions. Any notification of an intervention will detail the level the relevant intervention is at.

• Level 1

Level 1 compliance interventions include self-corrections and unprompted qualifying disclosures. Broadly this level assists a taxpayer in bringing their affairs into order voluntarily.

As this level is voluntary, the penalties are lowest at this level and there is an option to make an unprompted qualifying disclosure.

The Code outlines that any activities conducted through the Cooperative Compliance Framework are classified as level 1 interventions.

The Code outlines that self-corrections can continue to be made (subject to the usual time limits). The Code notes that any such self-corrections must be made in writing and that the submission of an amended return on ROS is not sufficient to qualify as written notification. Separate written notification must be provided in addition to any amendment made on ROS.

• Level 2

Level 2 compliance interventions include both risk reviews and audits.

Risk reviews are a new type of intervention introduced in the revised Code. They are a focused intervention to examine a risk or a small number of risks on a return. Broadly, they are akin to what was previously termed ‘aspect queries’ however, a significant difference exists as any disclosure made would be classified as ‘prompted’.

On the other hand, audits are a more in-depth review of a taxpayers’ tax affairs.

Unlike level 1 interventions, there is no option for a taxpayer to make a self-correction or an unpromoted qualifying disclosure once they have been notified of a level 2 compliance intervention. However, a prompted qualifying disclosure can be made within 28 days (with the possibility of requesting an additional 60 days) of a notification of a level 2 intervention.

A prompted qualifying disclosure may allow a taxpayer to mitigate penalties and/or avoid prosecution or avoid publication on the list of tax defaulters.

• Level 3

Level 3 compliance interventions comprise of revenue investigations. At level 3 there is no option to make either a prompted or unprompted qualifying disclosure. However, a taxpayer can seek to mitigate penalties by cooperating fully with a level 3 intervention.

The code outlines that the levels of intervention are not to be considered as a sequence of actions. Revenue may initiate an intervention at any level.

Recommendations

While the revised Code contains a number of changes, a couple of key points are that (i) where a taxpayer receives a level 2 notification from Revenue (which would previously have been an aspect query), there is no option to make an unprompted disclosure and (ii) the timeframe for responding to Revenue is tight with only 28 days (with a possible extension) to provide the information requested by Revenue or to make a qualifying prompted disclosure.

While no taxpayer wants to be the subject of a Revenue intervention or audit, there are steps that a taxpayer can take to ensure that any intervention is as painless as possible.

First, taxpayers should make themselves familiar with the revised Code. As discussed above, there are significant changes included in the revised Code and being familiar with the detail included in the Code will allow a taxpayer to proceed in the best possible manner.

Secondly, taxpayers should conduct regular health checks and self-reviews of their tax affairs to ensure that they are identifying any irregularities as soon as possible and seeking to regularise same. This can allow for the mitigation of penalties and the avoidance of publication and prosecution.

Thirdly, if a taxpayer receives a notification of an intervention, the taxpayer should take note of the scope and level of intervention (level 1, 2 or 3) and consider if a self-correction or qualifying disclosure is open to them.

Finally, cooperation is key. The Code outlines that a taxpayer must fully cooperate in order to mitigate penalties.

This article was originally published on Finance Dublin on the 4 July 2022, and was kindly re-published with their permission