1. Galway Solicitor's Bar Association Revenue Audit Code of Practice – Capital Taxes Perspective Julie Burke & Clare McGuinness 20 th May 2016

2. Overview Revenue interventions – CAT/CGT & Stamp Duty –Review of claims for reliefs –Primary issues arising 2015 Audit Code of Practice – Key changes –Focus on co-operation –Reporting of advisers to professional bodies

4. Non-Audit (e.g., assurance check/aspect query) Routine check Taxpayer entitled to make an unprompted qualifying disclosure No publication Revenue Audit usually arranged in advance by appointment for the specific purpose of examining the books and records of the professional – “exercise of routine powers”. Taxpayer entitled to make an prompted qualifying disclosure No publication Revenue Investigation usually an unannounced visit where information is requested on arrival and no search warrant has been obtained – “exercise of non-routine powers”. Taxpayer not entitled to make an any type of qualifying disclosure Increased penalties and publication likely Potential prosecution Revenue Investigation with a view to criminal prosecution Revenue will present a search warrant on arrival and the visit will be unannounced. Such visits are usually confined to specific cases where evidence of fraud is available to Revenue in advance – “exercise of non-routine powers”. Types of Revenue Intervention

5. Assurance Check (Non-Audit) Frequently based on apparent discrepancy in data held by Revenue Can arise from claim for a relief/repayment Aspect Query (Non-Audit) Frequently used where a relief has been claimed Back-up documentation usually requested May be pre-cursor to an audit Revenue Audit Examination of a tax return, declaration of liability or a repayment claim No longer possible to make a unprompted qualifying disclosure but can make a prompted qualifying disclosure Types of Revenue Intervention

6. Consequences of Revenue Intervention Assurance Check/Aspect Query (Non-Audit) –If Revenue discover an underpayment, underpaid tax must be paid together with interest and potentially penalties –Opportunity to minimise penalties by means of Self-correction Innocent Error Unprompted Qualifying Disclosure Full co-operation Audit –If Revenue discover an underpayment, underpaid tax must be paid together with interest and penalties –“Tax-geared” penalties will be applied - opportunity to minimise penalties by making a prompted qualifying disclosure in advance of the commencement of the audit full co-operation –Potential publication on the list of tax defaulters

7. Methods of Correcting Tax Defaults Self Correction without a penalty Innocent Error Technical Adjustment Qualifying Disclosure

8. Self Correction without a penalty Taxpayer can ‘self-correct without penalty’ any return, subject to the following conditions; –There has been no contact from Revenue in relation to the relevant return –The taxpayer must notify Revenue of the adjustments to be made either in writing or ROS –The taxpayer must include a computation of the correct tax or duty and statutory interest payable –Timelimits: CAT - 12 months of the due date for filing the return Stamp Duty - 12 months of the specified return date’. [Section 14A (1) Stamp Duties Consolidation Act, 1999] Local Property Tax: 12 months of the due date for filing the return

9. Innocent Error A tax default of a person that was –not deliberate; and –was not attributable in any way to the failure by the taxpayer to take reasonable care to comply with his or her tax obligations shall not render that person liable to a penalty. Factors that Revenue will consider in this regard include; –whether proper books and records have been maintained –the frequency with which errors, which individually could be viewed as innocent occur. –the compliance record of a taxpayer. –Whether the error being corrected is immaterial in the context of the overall tax payments made by the taxpayer Statutory interest on the outstanding tax will apply.

10. Technical Adjustment An adjustment that arises from differences in the interpretation or the application of legislation. No penalty if Revenue are satisfied that; –due care has been taken by the taxpayer, and –the treatment concerned was based on a mistaken interpretation of the law or practice, and did not involve deliberate behaviour. Factors to consider; –court decisions and published Appeal Commissioner decisions that are relevant to the point at issue –the expertise available to the taxpayer in terms of legal, accountancy and tax advice and applied to the position taken by the taxpayer, –the complexity of the technical issue and the relevant legislation Statutory interest on the outstanding tax will apply.

11. Qualifying Disclosures What is a Qualifying Disclosure  A disclosure of complete information in relation to, and full particulars of, all matters occasioning a liability to tax that give rise to a penalty,  Must be made in writing, is signed by or on behalf of the taxpayer  Must be accompanied by: a) A declaration, to the best of that person’s knowledge, information and belief, that all matters contained in the disclosure are correct and complete b) A payment of the tax or duty and interest on late payment of that tax or duty.  A qualifying disclosure may be unprompted or prompted.

12. Qualifying Disclosures Unprompted Qualifying Disclosure a) before any audit or investigation had been started by Revenue, or b) where the person is notified by Revenue of the date on which an audit or investigation into any matter occasioning a liability to tax of that person will start, before that notification. Prompted Qualifying Disclosure A disclosure made in the period between - a)the date on which the person is notified by Revenue of the date on which an audit will start, and b)the date that the audit starts. ‘The date on which the person is notified’ is the date of the ‘Notification of a Revenue Audit’ letter. Benefits of making a Qualifying Disclosure - Reduced penalties -Assurance in respect of non-prosecution -Non-publication on the list of tax defaulters

13. Qualifying Disclosures – Scope All qualifying disclosures (prompted and unprompted) in the deliberate behaviour category of tax default must include –all liabilities to tax, duty and interest, in respect of all taxes and periods, where liabilities arise, as a result of deliberate behaviour, that were previously undisclosed Prompted qualifying disclosures in the careless behaviour category of tax default, must include –all liabilities to tax, duty and interest in respect of the relevant tax and periods within the scope of the proposed compliance intervention Unprompted qualifying disclosure in the careless behaviour category of tax default, must include –all liabilities to tax, duty and interest in respect of the tax and periods that are the subject of the unprompted qualifying disclosure.

14. Penalties – types Surcharge (s1084 Taxes Consolidation Act 1997/s53A CATCA 2003) –Late filing of a return –Deliberately or carelessly filing an incorrect return Fixed Penalties –Incorrect returns –Failure to keep records –Failure to make returns Tax Geared penalties

15. Tax Geared Penalties S1077E Taxes Consolidation Act 1997 Can be mitigated based on Unprompted Qualifying Disclosure Prompted Qualifying Disclosure Category of default (deliberate/careless behaviour) Full Co-Operation Tax Geared Penalty will cover Fixed penalty for filing incorrect return Late filing surcharge where a return was filed on or before the specified return date

16. Categories of Default Deliberate Behaviour –Not defined in legislation –Intent to default –Actions of taxpayer likely to result in tax default and cannot be explained by carelessness Careless Behaviour with/without Significant Consequences –“failure to take reasonable care” Significant Consequences –Monetary test -tax underpaid exceeds 15% of the tax correctly payable

17. Penalty Table Unprompted Qualifying Disclosure Prompted Qualifying Disclosure No Qualifying Disclosure CATEGORY OF DEFAULT Penalty Penalty – Full Co-operation Penalty Penalty – Full Co-operation Penalty Penalty – Full Co-operation Careless behaviour without significant consequences 20%3%20%10%20%15% Careless behaviour with significant consequences 40%5%40%20%40%30% Deliberate behaviour 100%10%100%50%100%75% Note: A higher level of penalty may apply for second, third and subsequent prompted/unprompted disclosures by a taxpayer.

18. Failure to fully co-operate with compliance intervention Revised Code of Practice – November 2015 Revenue Operational Manual – March 2015 Impact on penalty payable by client where deemed not to have co-operated Obstruction by taxpayer (Section 4.4 of Code) Co-Operation

19. Failure to co-operate fully with compliance intervention, e.g. o Failure to communicate with Revenue in a timely, responsible and reasonable manner o Failure to meet agreed deadlines o Failure to reply fully to Revenue queries Actions to be taken where there is failure to co-operate o Agent cases and non-agent cases Important to respond to correspondence and document steps taken to co-operate Revenue Operational Manual

20. Wide ranging and subjective nature of the factors that can constitute “non-co-operation” No recognition of the mutual obligations on Revenue to engage in a timely and reasonable manner Lack of redress for a taxpayer/ practitioner The interaction with the Audit Code and its implications for qualifying disclosures Reference to the possibility of an investigation being commenced Revenue Operational Instruction

21. Reporting to Professional Bodies Section 851A(7) Taxes Consolidation Act 1997 Revenue Operational Manual – November 2015 Only serious cases will be referred by Revenue Report will only be made after the intervention is finalised Report will not be raised or discussed with the agent Referral must be approved by the relevant Assistant Secretary

22. Valuations Capital Gains Tax Valuations In the absence of supporting evidence, a professional opinion will not, of itself, prevent the application of penalties. Revenue acknowledgement that it may be difficult for taxpayers to obtain accurate valuations depending on the prevailing economic environment Separate criteria for determining penalty applicable where under-valuation used Stamp Duty & CAT Valuations – Surcharges for Under-Valuations Section 53 CAT Consolidation Act, 2003 Section 15 and 16 Stamp Duties Consolidation Act, 1999

23. Frequent Issues Queried/audited by Revenue - CAT Section 19 – 25 CATCA - Discretionary Trusts Discretionary trusts which appear to be created under a deceased’s will - increased interaction between probate office and Revenue leading queries being raised Section 86 CATCA – Dwelling House Exemption Free use of property for period of occupation Availability of dwelling house relief where beneficiary receives a specific bequest of a property and in addition receive an interest in the residue which contains a property.

24. Frequent Issues Queried/audited by Revenue - CAT Section 90 – 102 CATCA – Business Relief The basis for valuations of businesses Proof that property continues to be relevant business property for 6 years after the date of the gift/inheritance. Paragraph 7, Part 1, Schedule 2, of the Act – Favourite Nephew Relief Proof required that beneficiary worked substantially on a full-time basis the five year period General Increased scrutiny of prior benefits declared in CAT returns Transactions not required to be included in a return (e.g., share swap) but are subsequently queried by Revenue

25. Gifts to Children CAT Treatment of Receipts by Children from their Parents for their Support, Maintenance or Education S82 CATCA 2003 as amended by Finance Act 2014 Small gift exemption Interest free loans -free use of property the highest price a prudent lender/depositor could get in the open market from prospective prudent borrowers Revenue example – interest rate of 1.5% Net/gross of DIRT Terms of loan

26. Frequent Issues– Stamp Duty Expression of Doubt Facility “Not genuine” Revenue Technical Service Reluctance to provide clear response (full facts provided) Lengthy timeframe for response Communication directly with taxpayer

27. Appeal Commissioner Determinations - 2016 Consideration Paid in respect of a gift (AC Ref: 03TACD2016) Availability of business relief (AC Ref: 02TACD2016) First floor over pharmacy Relevant business property? Burden of proof on taxpayer Balance of probabilities

28. QUESTIONS?? Julie Burke 01 605 4235 julie.burke@rdj.ie Clare McGuinness 01 605 4237 clare.mcguinness@rdj.ie