Comment: Given the recent publicity surrounding tribunal revelations regarding high-profile tax cases, the issue of equity and fairness in the administration of tax affairs has raised its head again.
The cases involved in the current tribunals relate to events of many years ago, and our culture has changed considerably since then, but the issues arising give cause for reflection.
The days of sneaking admiration for cute tax evaders are over. Tax evasion is unacceptable - largely a response to tribunal revelations - and this unacceptability prevails not alone where the authorities are concerned but also in the psyche of the public at large.
However, in its quest for full compliance, questions are now being asked of Revenue. While the drive to eliminate and penalise tax evasion is the correct approach, the cumulative effect of recent changes has been to significantly tilt the playing field in favour of Revenue and against the compliant taxpayer.
It has to be asked whether innocent compliant taxpayers are being treated fairly as a result of the drive to pursue non-compliant taxpayers. There is a risk that perceived unfairness of the system could lead some to justify tax evasion.
What can be done to ensure that this does not become endemic to the detriment of Revenue, the taxpayer and the State?
Some of the measures perceived to be patently unfair to compliant taxpayers are the differing interest rates which apply to unpaid taxes and unpaid refunds; the different timescales involved in triggering such interest payments, and the differences in length of the historical review of tax returns which apply to Revenue and the citizen.
Throughout society it is accepted that the use of money has a value, and that money due but unpaid should bear a cost. Revenue charges interest on unpaid taxes, and also pays interest on refunds due to a taxpayer who has overpaid their taxes. This is as it should be.
However, the interest on unpaid taxes is significantly higher - in some cases by a factor of three - than that on unpaid refunds. The very fact that the Revenue owes a taxpayer money is an indication that the taxpayer has been compliant in the first place - so why then should their money be valued at one-third less than money owing to Revenue?
Equally, the interest should accrue when money is due - but this principle is applied only where Revenue is owed money by the taxpayer. The taxpayer who is due a refund from Revenue has to wait months after a tax return before such interest begins to kick in. Again this unduly penalises the compliant taxpayer.
One can only imagine the furore that would ensue if a bank announced that its new lending policy was to charge interest from the date of a loan, but that interest on deposits would not begin to accrue until months after the money was placed on deposit!
The increasing powers granted to Revenue over recent years have not been matched by statutory protection for taxpayers. Protection measures in many cases derive from Revenue Statements of Practice, and while such measures are welcome, the fact remains that in a crunch situation the taxpayer may not be able to enforce the measures. Obviously, too, if the Revenue can unilaterally introduce principles, it is open to them to unilaterally dispense with them as it sees fit.
None of this can instil a sense of an equitable system in the minds of compliant taxpayers - and if the perception of an unfair system takes root, it will discredit the whole system.
The Institute of Certified Public Accountants (CPA), as a leading voice of the accountancy profession in Ireland, represents close to 3,000 qualified accountants working in public practice and industry. Our members are at the coalface when it comes to dealing with Revenue and many represent both individuals and companies in their tax affairs.
A survey of CPA members last year highlighted significant dissatisfaction and frustration with the Revenue, caused, inter alia, by a sense of an unfair approach to compliant taxpayers as outlined above. The institute believes that the guilty until proven innocent approach now being adopted towards compliant taxpayers is a serious danger to the continued success of an efficient tax collection system.
The solutions are simple. First, principles around interest payments on unpaid amounts should apply equally to taxpayer and Revenue. Reluctance to do this may stem from the fact that this may involve a cost to the public purse. If so, it reinforces the need for equity and the need to demonstrate that compliant taxpayers should not be forced, in effect to subsidise the system - and by extension tax evaders.
Second, taxpayer protection needs to be put on a statutory basis. Again this is necessary not alone for equity but for the need to been seen as equitable. And, this approach is in line with the Commission on Taxation.
Both taxpayers and Revenue officials are human, and mistakes and disputes will arise. A system that allows one party to a dispute to act as both judge and jury cannot be seen to be fair.
A lot of pain has gone in to bringing the acceptance of the need to pay tax to where it is, and it is very important for all - Revenue, compliant taxpayers and the State - that these gains are not lost.
It will not compromise the drive for tax compliance to treat compliant taxpayers fairly. The reverse, however, is true. Unfair treatment - or treatment perceived to be unfair - of compliant taxpayers will eventually result in the drive for tax compliance being compromised.
Michael F. Dolan is president of the Institute of Certified Public Accountants in Ireland (CPA)
