Fears over corporate sector tax supervision

Deficiencies in the Office of the Revenue Commissioners mean there is inadequate ongoing supervision of tax compliance by the corporate sector, according to a submission from tax inspectors to the Dail Committee of Public Accounts (PAC).

The submission also states the Revenue is discovering that, contrary to expectations, non-resident accounts holders at National Irish Bank suspected of having undeclared income are resisting making settlements. This is particularly so if the cases stretch back to before the 1992 tax amnesty legislation.

A copy of the submission, from the Association of Inspectors of Taxes to the PAC's Dirt inquiry's review of the Revenue Commissioners, has been seen by The Irish Times. The submission relates to the Office of the Chief Inspector of Taxes.

Statistics contained in the annual reports of the Revenue Commissioners show that the level of audit coverage has halved between December 1995 and December 1999, according to the association, which wants this development reversed.

Audit coverage is the number of audits conducted by the Revenue as a percentage of the total of all self-employed and incorporated traders. Coverage has fallen from 1.3 per cent to 0.69 per cent.

The association argues that the expansion of the economy has not been reflected in the resources available to the Revenue.

"It is significant that the drop in coverage was identified in 1999, before the reassignment of audit inspectors to the Ansbacher investigation and the DIRT lookback began to impact significantly on the audit area."

Audits are generally for the most recent year for which accounts have been submitted. Back-duty investigations, where audits for a number of years prior to the current year are conducted, are considered a key tool in combatting planned long-term evasion. However, resources from this area were transferred to the dedicated prosecution unit established some time ago.

"The effect is that there is no longer a dedicated presence to deal with the more serious evader who has engaged in planned longterm evasion," according to the submission.

The Office of the Chief Inspector of Taxes has been guided by a series of administrative policies formulated in 1991, some of which the association believes to be based on flawed assumptions.

One policy briefing note states: "Except where there are grounds for suspecting the integrity of the accountancy firm involved, little could be expected by attempting to re-audit the fully certified accounts of most large corporations."

This "mistaken belief" predicated the level of resourcing made available to corporate sector audit in 1992 and continues to date, according to the submission. When the association queried the stance, it was told the need to reduce the national debt was a cornerstone of policy.

The association argues that, given the improvement in the public finances and the facts now known about the corporate sector by way of media revelations, tribunals and the PAC hearings, Revenue policy on the corporate sector should be changed.

The argument for improving auditing of the corporate sector is augmented by statistics given in the submission, according to the association. "During the first three months of this year, out of a total of 35 corporate bodies in liquidation or recievership, 26 were found to have a tax debt in excess of the tax disclosed on self assessment forms."

"The total tax declared in these 26 cases came to £1.7 million (€2.16 million). The liquidator in winding up the companies identified a total tax debt of £3.9 million in the 26 companies. Most of the £2.2 million tax due will not be collected as there are no assets left in these companies to pursue."

The association calls for the enhancement of the prosecutions unit in the interest of maintaining public confidence in the system, despite the fact that the completion of successful prosecutions takes a huge amount of resources.

It also calls for increased training for the taxes branch, given that its officers have to deal with qualified accountants and tax specialists hired by the self-employed and corporate trader. "Inspectors of taxes, with two week's accounts training, two week's audit training and no legal training are no longer adequately equipped to deal with their opposite numbers on a equal footing."

On bogus non-resident accounts the submission says such customers with NIB are proving "slow to settle". In cases which stretch back beyond the 1992 Tax Amnesty legislation, which made it mandatory to avail of the amnesty, mandatory penalties of 100 per cent of the tax due pertain. "The amounts involved in terms of liabilities due are generating considerable resistance on the part of taxpayers and their representatives."

In relation to the other banks, the number of cases involved is likely to be greater than with NIB, according to the submission, and the experience is likely to be similar.

"If we engage on full back duty investigation of all of these cases, the inspector resource will be occupied into the foreseeable future. We need to be conscious of continuing to police current taxes, to ensure that future scandals are not in the making while the inspector resource is deployed investigating tax evasion which occurred 10 or 12 years ago."