Dealing with Tax Professionals to Achieve Improved Compliance with the Laws

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Dealing with tax professionals to achieve improved compliance with the laws

Introduction

The majority of taxpayers in Ireland use tax professionals in some shape or form, and for this obvious reason the Irish administration recognises that they play a very important role in the Irish tax system. As well as helping to make the system run smoothly, they play a key role in influencing and shaping the tax compliance behaviour of their clients. This influence may be positive or negative, because of their professional knowledge of our tax system and its nuances.

Through their representative bodies, tax professionals also have an important role in developing our tax system. They are influential in forming public opinion and general attitudes as to the fairness and equity of the tax system and our administration thereof.

Because of their influential role and the unique position they have in influencing taxpayer behaviour, we recognise that they are one of the primary ingredients in our pursuit of our main corporate goal:

“To ensure that everyone complies with their tax and customs responsibilities”.

We therefore spend a lot of time engaging with them using a combination of methods and through many different forums in our efforts to achieve improved taxpayer compliance.

Our Strategy

Our strategy in relation to dealing with tax professionals is laid out in our recent Statement of Strategy 2005-2007. We call it our strategy of building relationships and partnerships. Because of the fact that the phrase "tax professional" encompasses persons with a variety of roles and responsibilities, we as a tax administration have had to have a multifaceted response to ensure our strategy works.

You will find a copy of our corporate strategy on our website

I would like to give you some background on how our building relationships and partnerships strategy came about. Our relationship with tax professionals is one that has evolved over the last 20 years. Prior to the introduction of a Self Assessment system for businesses in Ireland in 1988, the relationship was very much an adversarial one characterised by mutual distrust and suspicion. We did not see ourselves as being engaged on the same mission.

The position today is the opposite. Today, support, service and consultation are the norm. Revenue recognises that our tax professionals have a key role and that is why we have developed sophisticated consultative mechanisms to help us engage with this wide community.

Before I tell you more about our approach, let me give you some relevant facts about the Irish tax system.

Ireland's Tax System

Context

Our tax system is concerned with direct and indirect taxes, customs and duties. We have taxes on income and on capital transactions as well as taxes on goods and services. We also fulfil our EU Customs obligations.

Businesses (limited companies and individuals) pay tax on a self-assessment basis. There are approximately 460,000 self employed individuals and 130,000 limited companies on our register.

On the other hand, people whose main income is from an employment, pay tax under a cumulative Pay As Your Earn, PAYE system. There are approximately1.8m taxpayers or 2.25m employments that are dealt with under this PAYE system.

The Irish Revenue administration is governed by an independent Board of Revenue Commissioners and is characterised as a single tax and customs organization dealing with all taxes and duties. Like all organisations it is founded on its people. We have approximately 6,500 employees with us working on our shared mission.

Revenue has recently undergone a major organisational restructuring. Essentially, we have rebuilt our organisation around different groups of taxpayers. These groups consist of taxpayers in each of four geographic regions and a national large taxpayer group. Apart from collection and debt management functions which remain centralised in our Collector General's Office, virtually every other area of interaction between the taxpayer and Revenue in all taxes and duties and across all programmes is managed from one of these new Divisions.

Our Tax Professionals

Context

In Ireland, a wide range of tax professionals such as accountants, lawyers, tax consultants, businesses and freight forwarders acting on behalf of their clients, our taxpayers, interact with Revenue offices. These tax professionals perform a wide variety of functions.

The variety of professionals providing a great deal of tax advice or engaging in compliance activities is generated on the activities of such professionals. For example, accountants, advising on business transactions and internal audit; lawyers such as solicitors and barristers advising on business transactions, conveyancing, estate administration and litigation; auctioneers and real estate agents advising on capital transactions, and customs agents advising on customs matters. Each of these activities in its own right involves some form of tax advice and each professional can be regarded as a "tax professional", each of which, play a very important part in ensuring that our tax administration and systems work.

Traditionally most self-employed persons, i.e., businesses, professions, companies and their directors, use the accountant as tax professional, or "agent", to engage with Revenue. This high level of representation, even for small business, is because we don’t operate an imputed income system. All businesses have to prepare business accounts on an “accruals” basis, and this generally requires the services of an accountant.

Tax professionals are generally not involved with PAYE taxpayers because there is no legal requirement for such taxpayers to file annual returns. This is true even for high earners because our PAYE system is a cumulative system, which allows for other income, if below certain thresholds, to be coded thus, ensuring that the correct tax is collected within the year.

In Ireland we refer to our mainstream tax professionals as "tax practitioners" or "agents" and there are approximately 5,000 such "agents" registered with Revenue when they act as tax return preparers.

As a result of this high level of agent representation, taxpayers in Ireland tend not to be inhibited about challenging Revenue, and engage in more sophisticated business transactions and use tax professionals to this end.

Another reason for taxpayer challenges is the recent phenomenon of taxation departments being created in legal firms. Also, many corporations are employing lawyers who specialise in mainstream taxation matters and now lawyers are not just engaged in the traditional legal bastions of capital taxation and inheritance tax matters. Primarily, as a result of our Criminal Assets Bureau a dedicated multi-agency which pursues the proceeds of crime, our barrister profession, who traditionally did not advocate in taxation matters, are now representing more and more taxpayers in Revenue matters in the civil and criminal courts.

This increasing competition from the legal profession has raised some issues as regards a level playing field between the different professions. Accountants see the prospect that lawyers might be able to claim legal professional privilege on behalf of clients against Revenue enquiries in certain circumstances as an unfair competitive advantage.

The lack of a level playing field issue was something that caused controversy when legislation was enacted in 1995 requiring company auditors or tax advisors who become aware of certain tax offences committed by a company to first ask the company to report the situation to Revenue. If the company refused to do so, then the auditor/tax advisor is required to cease working for the company as auditor or tax advisor for a period of three years. If the advisor who is required to resign is an auditor, the advisor must then notify the company of his or her resignation and send a copy of the notice of resignation to the Revenue Commissioners. An exception is provided for a person assisting or advising the company in preparation for legal proceedings.

Similar controversy surrounded the enactment of recent aiding and abetting legislation in this year's Finance Act, 2005.

Regulation

In Ireland there is limited regulation. Here, you do not have to be qualified or a member of any professional body to act as taxpayer's representative. Likewise, tax professionals don’t have to register with any central regulatory body. However, the majority tend to be mainstream professionals such as lawyers, accountants, tax consultants or have recognised tax qualifications and are therefore, regulated by their own professional bodies.

While anybody can act as a taxpayer representative, under our system, the role of the tax profession as taxpayer representative or advocate is underpinned in our tax code. Our appeal provisions only allow tax professionals such as barristers, solicitors, accountants or tax consultants to represent taxpayers in the tax appeal process.

However, while tax professionals, are not directly regulated by our authority, the whole issue of regulatory compliance has come into much sharper focus in Ireland in the last number of years. Many of our regulatory reforms culminating in the enactment of new company law legislation in 2003 were actually in the pipeline before the Enron events in the United States and the passage of the Sarbanes-Oxley Act, 2002.

We enacted our new company law legislation to ensure better self-regulation and better professional rules in the auditing profession. A new body known as the Irish Auditing and Accounting Supervisory Authority (IAASA) was established to supervise the accountancy bodies and to regulate and monitor their members so as to promote the highest professional standards in the auditing and accounting profession. This includes ensuring that the investigation and disciplinary procedures of professional bodies are being followed.

These reforms were the outcome of inquiries into various financial scandals in Ireland. The most significant scandal that emerged was a large-scale tax evasion scandal in the non-operation of a withholding tax on interest for bogus non-resident deposit accounts by our financial institutions, which came to light in the late 1990s. This gave rise to a Parliamentary Enquiry into the handling of Deposit Interest Retention Tax (DIRT Enquiry) after the type of tax evaded. There was serious public concern as to the effectiveness of the regulation and the professional rules governing the auditing profession. The public inquiry into the scandal highlighted serious independence issues where accountancy firms were acting both as auditors and tax advisors to the same company.

New Money Laundering legislation enacted in 2004 has placed additional reporting requirements and sanctions for failure on the part of a large variety of professionals to report suspicious transactions including tax evasion.

Weaknesses in our laws dealing with aiding and abetting of tax evasion were remedied this year. This new provision is very wide ranging and potentially could encompass any person whether or not formally engaged in tax practice who helps others engage in misbehaviour of the tax laws. It is a measure imposed on any person engaged in tax practice for that person's improper conduct.

Because we there are now legal consequences for those who act as accomplices to tax evasion it goes a step towards ensuring that our tax professionals are compliant and therefore, indirectly ensuring that our general body of taxpayers are compliant with the laws.

We have also been active in pursuing tax professionals who have been unethical in their own tax affairs and we recently successfully prosecuted two members of the accountancy profession who evaded their own personal tax liabilities. One such prosecution resulted in a custodial jail sentence.

We regard this package of measures as a significant step towards influencing the ethical behaviour in the tax professions with the added consequence of influencing client behaviour and improving long-term compliance.

Influencing Compliance Behaviour

One of the obvious benefits for Revenue from our engagements with tax professionals is the extent to which we can get them to influence good compliance behaviour. As already mentioned, we regard tax professionals as being hugely influential in terms of promoting good compliance behaviour; indeed, because they may be the only point of contact that a taxpayer has in his/her interactions with our administration.

However, it is important that tax professionals also see it as in their interest to do so. Not alone does ‘non-compliance’ cost money in lost taxes for Revenue, but it also puts the taxpayer, the client, at serious risk of severe consequences if caught. Where does this leave the tax professional if this happens? They probably lose the client and they probably can’t collect their full fee for the effort and trouble that they are put to. Also, as Revenue gets better at risk profiling, the compliant taxpayer is more likely to be left alone whereas there will be ongoing interaction from Revenue in non-compliant cases and this costs money. So keeping taxpayers compliant is in our mutual self-interest.

Being able to deal with taxpayers through their agents substantially reduces the cost of administration for Revenue. Think of what life would be like for a Revenue administration if there were no tax professionals. Some people who work for tax administrations might say that life would be much easier without them. Yes, there might not be so much tax planning, or challenges to Revenue, and taxpayers might be more willing to accept Revenue’s view. This might make life easier for the Revenue official. But given our complicated tax system, despite all the efforts at simplification, think of what the disadvantages might be?

Instead of funnelling our interaction with businesses and corporations through 5,000 tax professionals, we would have to interact directly with an additional 450,000 business and over 120,000 corporate taxpayers. This would have huge cost implications for us, as more employees would be needed to service the substantial additional contacts and queries that would ensue.

It would also be immeasurably harder for us in Revenue to ensure that all taxpayers understood their obligations and this would adversely affect voluntary compliance.

For these reasons, we try to make it as easy as possible for tax professionals to meet their client's compliance obligations and we provide a variety of support services and measures to support and achieving client's compliance.

Support and Service for Tax Professionals

Tax professionals have a big interest in our customer service efforts and are rightly critical when our service falls below standard. After all, the tax professional is in business to make a profit. Poor service on our part costs money and the taxpayer does not always understand either.

Here are some examples of how we support and try to try to make life as easy as possible for tax professionals.

Simpler Organisational Structure

In the new Revenue structure, all taxes pertaining to a taxpayer are handled by one office. Prior to that, a taxpayer (or tax professional) could have to deal with a number of offices depending on the tax.

Our new structure makes it much easier for the tax professional to deal with their client's compliance obligations. We acknowledge however, that there were problems following the reallocation of all our taxpayer cases in the restructuring period. For some time, tax professionals were unsure which office dealt with their clients. As a result of good contacts with the various professional bodies and in a spirit of openness and co-operation, which is part of our strategy of building partnerships, we were able to engage proactively and positively with a view to implementing practical measures to remedy difficulties.

Some of these initiatives help illustrate this:

• Contact Points

There are special contact points in each of the regions for tax professionals who were experiencing service difficulties in dealing with Revenue. These contact persons are empowered to sort out the difficulty.

• Contact Locator

There is a tool known as ‘Contact Locator’ on our website which can be used to find out which office deals with a taxpayer.

Information Tools

Our strategy is to ensure clear and timely communication. Some of the many information tools we use to provide up to date information are:

• Tax Practitioner page on our website
• Tax Briefing, a bi-monthly magazine aimed at tax professionals
• eBrief, a direct email briefing serving service to all tax professionals on our records.

Technology

By exploiting technology opportunities as much as possible such as our electronic e-filing service know as Revenue Online Service (ROS), we are able to provide better service while at the same time reducing compliance and our own administrative costs. This makes it easier and cheaper for tax professionals to file and pay.