Revenue’s Annual Report sheds light on compliance activity
On 25 April 2024, Revenue released its 2023 Annual Report. The report offers valuable insights into the interventions conducted by Revenue throughout 2023 and highlights the risk areas that Revenue has prioritised for review in 2024.
In this article from our Tax Risk & Controversy team, we explore the key insights from the report and the particular areas of focus for Revenue. We also set out the actions companies can take to proactively address the monetary and business risks that can arise from Revenue interventions and disputes.
A snapshot of Revenue compliance activity
Compliance interventions are an essential component of any self-assessment tax system. In 2023, Revenue completed 291,756 interventions resulting in a yield of €787m. Revenue also secured 21 criminal convictions for serious tax evasion and fraud and published 73 tax settlements in the List of Tax Defaulters.
2023 was the first full year of Revenue’s Compliance Intervention Framework (CIF) and the report provides some insights into how it is being operationalised. In 2023, Revenue completed 2,442 risk reviews — a new type of intervention introduced under the CIF — yielding €27.8m. In our experience, there was an increase in risk reviews in the second half of 2023 and this trend has continued into 2024. Risk reviews are becoming an effective mechanism for Revenue to target specific risk areas without mobilising significant resources. It is important to note that a risk review notification triggers a taxpayer’s final opportunity to make a qualifying disclosure for the entire tax head(s) in scope.
Revenue completed 855 audits in 2023, yielding €157.5m (excluding customs audits). The scope of audits continues to vary across Revenue’s operational divisions. In our experience, audits from the Large Corporates Division tend to focus on a single tax head whereas audits from the Medium Enterprises Division and Business Division span multiple tax heads.
Interestingly, close to 80% of the total yield generated in 2023 was from non-audit interventions. This suggests that all forms of Revenue enquiries prompt taxpayers to review their tax affairs and regularise any underpayments.
Areas targeted by Revenue in 2023
The report identifies some of the main focus areas for Revenue in 2023:
Construction sector: This has consistently been an area of scrutiny for Revenue in recent years and this trend has continued, with a yield of €30m obtained from interventions in this sector in 2023. These interventions mostly centred on VAT, RCT and employment tax.
Transfer Pricing (TP): Revenue continues to focus on risk-driven transfer pricing audits to address the challenges of the international tax environment. Of the 58 TP compliance interventions initiated in the period 2015–2023, 33 have been finalised. This has resulted in a yield of €748m, which includes €233m in interest and penalties and a restriction in trading losses of €952m.
Non-resident online traders: Online traders selling goods and services to Irish consumers continued to be a priority area for Revenue’s compliance activity in 2023, in particular assessing compliance with VAT obligations.
Leveraging data to risk assess taxpayers
Revenue has long adopted a risk-based approach to select cases for intervention to ensure its resources target those cases that will give rise to a yield on an audit. Based on our experience, taxpayers continue to be selected for interventions based on risks Revenue identified on their Risk Evaluation Analysis and Profiling (REAP) system. Central to this is Revenue’s use of data analytics to identify non-compliance indicators and assess risk.
The exchange of information between tax authorities is a key source of data Revenue continues to exploit. In 2023, Revenue received 2,081 mutual assistance requests and 362 requests were issued by Revenue under the provisions of Ireland’s Exchange of Information (EOI) agreements. Revenue shared 250 DAC 6 returns and they also exchanged 38 cross-border opinions. In addition, Revenue shared country-by-country reports with 62 jurisdictions.
In addition to information received from other tax authorities, other common risk indicators that trigger compliance interventions in our experience include unusual trends or fluctuations in tax returns and iXBRL accounts, reliefs claimed, and significant transactions.
Co-Operative Compliance Framework
The Co-Operative Compliance Framework (CCF) encourages a collaborative relationship between Revenue and taxpayers and is designed to enhance voluntary tax compliance.
At the end of 2023, 125 corporate groups were participating in CCF, an increase of four from 2022. Given the positive findings from Revenue’s recent review of CCF, coupled with the general protection that CCF provides from Level 2 interventions, one may have expected a greater increase in CCF participation.
Interestingly, the report notes that companies participating in CCF made qualifying disclosures of €26m in 2023. This is evidence that companies in CCF embrace the concept of self-reviews and are proactively regularising tax underpayments with Revenue.
Additionally, the report notes that a CCF programme for public bodies was piloted in 2023 and that expansion of this programme will be evaluated in 2024.
Tax disputes
The report notes that in 2023, there was a total tax amount of €329m under appeal. In addition, Revenue issued amended corporation tax assessments totalling €44m arising from TP Interventions, the majority of which are under appeal.
The report does not confirm the number of appeals that have been brought before the Tax Appeals Commission (TAC) in 2023, but this information will be included in the 2023 TAC report to be released in May. This report should also confirm our experience of appeals being processed and concluded by the TAC increasingly quickly, with a number of our appeals having been listed for hearing within six months of the appeal being filed.
The report also includes details of Revenue’s internal and external reviews of complaints. This process is considerably more limited in scope than appeals to the TAC, and the very high threshold required for success in this process is illustrated by the fact that only one of the 14 complaints finalised during the year was upheld in favour of the taxpayer.
Mutual Agreement Procedure and Advanced Pricing Agreements
The international tax landscape is complex and evolving, which will undoubtedly result in a significant increase in cross-border tax disputes in the coming years.
The report highlights Revenue’s continued cooperation with foreign tax authorities. In 2023, Revenue completed 51 Mutual Agreement Procedures (MAPs), 16 of which related to transfer pricing disputes, and one bi-lateral Advance Pricing Agreement (APA).
The report also references the introduction of DAC 7 with effect from 1 January 2024, under which the competent authorities of other EU member states can request Revenue to carry out a joint audit. Irish law will determine the procedures applicable to joint audits, but foreign tax officials will also have to comply with whichever are the stricter of the rules and limits imposed by Irish law or by the laws of the requesting member state. Given the need to ensure that foreign tax officials are compliant with the complex rules surrounding joint audits, taxpayers should consider seeking expert advice if they believe a joint audit may be imminent.
Looking ahead
The report provides some insight into the areas Revenue will focus on in 2024.
Unsurprisingly, there will be an increased focus on the classification of employment status following the judgement in The Revenue Commissioners v. Karshans (Midlands) Ltd. t/a Domino’s Pizza. The fact that this appeal was pursued all the way to the Supreme Court shows the willingness of both Revenue and taxpayers to pursue these disputes to the highest levels. We are already seeing employment status being scrutinised on several live interventions in 2024.
Revenue will also examine the extension of the scope of Relevant Contracts Tax (RCT) to sectors where subcontracting exists, where people are correctly self-employed rather than employed, and scenarios where corporate structures are a feature of contracting.
Key actions businesses can take today
As is evident from the report, Revenue’s compliance activity is structured, risk-based and data-driven. Taxpayers should work on the basis that they will be subject to some form of compliance intervention in the short- to medium-term. There are certain steps taxpayers can take to ensure they are ready for compliance interventions.
1. Understand your risk profile
Revenue’s CIF places increased responsibility on taxpayers to ensure the accuracy of their tax filings from the outset. Consequently, heightened awareness of your tax risk profile is crucial. By proactively conducting a risk assessment, you can identify potential exposures and control gaps that might lead to underpayments. This proactive approach empowers you to take decisive corrective actions and positions you to better navigate compliance interventions in the future.
2. Leverage the qualifying disclosure mechanism
Tax underpayments can have severe monetary and reputational consequences. However, companies can mitigate these risks by utilising the qualifying disclosure mechanism. By voluntarily regularising underpayments through a qualifying disclosure, businesses can benefit from substantial penalty reduction and safeguard themselves from being listed on Revenue’s Tax Defaulters List. This process brings great benefits, but it must be carefully managed as disclosures will be scrutinised by Revenue.
3. Proactively engage with interventions
If you are notified of a compliance intervention, it is imperative that it is taken seriously. Before commencing the intervention, you will be afforded the opportunity to submit a qualifying disclosure. Therefore, we strongly recommend that you conduct a full review across the taxheads in scope and disclose any underpayments. This approach will ensure protection from publication, provide assurance to Revenue that all underpayments have been identified and should ultimately help streamline the intervention.
4. Formalise your Tax Control Framework
When carrying out compliance interventions, Revenue assesses the robustness of a company’s tax control environment. Therefore, it is imperative that the existence of a Tax Control Framework (TCF) can be evidenced. This requires formalising procedures on areas such as tax governance, roles and responsibilities, risk identification and monitoring, operational controls, and control testing.
5. Ensure readiness for Tax Appeals
Taxpayers must file an appeal within 30 days. You must therefore be prepared to act fast where disputes arise with Revenue. Appealable matters include Revenue assessments/decisions/determinations, or enquiries/actions taken by Revenue outside the statutory four-year time limit.
A failure to file a notice of appeal within this 30-day period results in the loss of the statutory right of appeal, unless the high threshold for acceptance of a late appeal can be satisfied.
We are here to help you
Our multidisciplinary Tax Risk and Controversy team, comprising seasoned ex-Revenue officials, solicitors, barristers and tax professionals, possesses extensive expertise in all facets of revenue interventions, tax disputes, appeals and proactive tax risk management. We are ready to guide you through the intricacies of Revenue interventions and disputes, ensuring that both monetary and reputational risks are carefully managed. Contact us today for expert assistance.
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