Revenue has unveiled its new Compliance Intervention Framework and it will have significant implications for all taxpayers. It adds a further layer of complexity to the ever-changing tax risk and controversy environment, which has been influenced by many factors including real-time reporting, increased tax transparency and the use of dedicated digital resources by Revenue. The latter has enabled enhanced risk profiling, the amassing of valuable taxpayer insights for future profiling, and data interrogation for more targeted interventions. The introduction of the new framework, which is effective from 1 May 2022, is a further evolution in Revenue's approach to confronting non-compliance.
The framework, and Revenue interventions more generally, should be considered in the wider context of the self-assessment regime. It is based on the fundamental principle that it is the responsibility of taxpayers to file accurate and timely tax returns.
The framework reflects Revenue's graduated response to risk and non-compliance, while providing taxpayers with a mechanism and incentive to voluntarily regularise any tax underpayments. It comprises three interventions "levels", which are designed to support compliance and encourage self-review and self-reporting of tax errors.
Level 1 interventions are designed to support compliance by reminding taxpayers of their obligations and providing them with the opportunity to correct errors without the need for a more in-depth intervention. These include:
Taxpayers have the option to make an unprompted disclosure when notified of a Level 1 intervention.
Level 2 interventions are used by Revenue to confront compliance risks based on the circumstances and behaviour of the taxpayers concerned. They could range from an examination of a single issue within a return to comprehensive tax audits. There are two types of Level 2 interventions:
Taxpayers have the option to make a prompted qualifying disclosure when notified of a Level 2 intervention.
Level 3 interventions take the form of investigations. These occur in cases where Revenue has reason to believe that there has been serious tax/duty evasion or fraud on the part of a taxpayer.
A taxpayer is not entitled to make a qualifying disclosure once notified of an investigation.
The framework introduces a new concept to the Revenue intervention vocabulary – a 'risk review'. It is a desk-based intervention that focuses on a particular issue in a tax return or a risk identified from Revenue's Risk Evaluation, Analysis and Profiling System (REAP). The risk review notification will set out the issue(s) and period for review, together with any additional information requested by Revenue.
In many ways it replaces an "aspect query", which no longer exists under the new framework. There is, however, one fundamental difference. When a taxpayer was notified of an aspect query, they could still make an unprompted qualifying disclosure in respect of tax underpayments. This option is not available for a risk review.
A risk review will commence 28 days after the date of notification. A taxpayer can still make a prompted qualifying disclosure in respect of tax underpayments up to the commencement of the risk review. It is important to note that the disclosure must include all underpayments in respect of that particular tax head (and not just the particular issue that is the subject of the risk review). Failure to disclose any such underpayments at this point will give rise to significant penalties and may result in publication in Revenue's Tax Defaulters List.
Where underpayments are identified, a taxpayer can request an additional 60 days to prepare the prompted qualifying disclosure. This must be done within 21 days of receipt of the risk review notification.
The Code of Practice for Revenue Compliance Interventions (the Code), sets out the options available to taxpayers to rectify their tax affairs arising from a self-review or Revenue intervention. To facilitate the introduction of the new framework, Revenue undertook a review of the Code to incorporate any necessary changes. The updated Code will come into effect alongside the new framework on 1 May 2022 and applies to notifications issued on or after this date.
Many of the key provisions in the Code remain broadly unchanged, but there are some subtle refinements taxpayers should be aware of:
The new framework introduces some fundamental changes to Revenue's classification of compliance interventions and taxpayers' ability to make a qualifying disclosure upon notification. This heightens the monetary and reputational risks companies face where tax underpayments arise.
So, how can you proactively manage this risk?
The new framework places a greater onus on taxpayers to ensure that tax filings are correct the first time around. At a minimum, it impels taxpayers to constantly self-review and self-report any tax errors on a timely basis. It is therefore more important than ever that you are aware of your tax risk profile. By proactively undertaking a risk assessment, it will enable you to identify any exposures and control deficiencies that could give rise to an underpayment. This will ensure that you can take decisive remediation action and are better placed to deal with a risk review or audit in the future.
The monetary and reputational sanctions arising from tax underpayments can be very serious. By regularising underpayments by way of self-correction or a qualifying disclosure, you can avail of significant penalty mitigation and ensure protection from publication in Revenue's Tax Defaulters List.
The establishment of a Tax Control Framework (TCF) is key to the management of tax risk. Key areas to consider when developing a TCF include tax governance; adequacy of, and expertise within, the tax function; and operational controls and procedures to manage risks across various tax heads. With increased public scrutiny of companies' tax affairs, a TCF should also help you satisfy your broader ESG (environmental, social and governance) commitments.
Once controls have been established, they should be regularly tested to ensure that they remain effective in managing underlying risks. Testing should be embedded into standard operational processes. This testing approach should also ensure that the board satisfies its legal requirements under the Directors' Compliance Statement.
All interactions between Revenue and companies participating in the CCF fall into the Level 1 category of the new framework. This safeguards a company's ability to self-correct or make an unprompted qualifying disclosure. For those companies whose tax affairs are dealt with by Revenue's Large Corporates Division, it may be timely to re-assess the merits of joining the CCF.
Revenue interventions and disputes present many challenges for companies. Our Tax Risk and Controversy team, which includes ex-Revenue officials, is highly skilled with deep expertise in all aspects of Revenue interventions, tax disputes and the proactive management of tax risk.
We are ready to help you navigate the new Compliance Intervention Framework, ensuring that the monetary and reputational risks you face are carefully managed. Contact us today.
Senior Manager, PwC Ireland (Republic of)
Manager, PwC Ireland (Republic of)
Manager, PwC Ireland (Republic of)