|1. Improved compliance levels as a result of better targeted audit and other intervention programmes
- 2009 was the second full year of using our electronic risk analysis system (REAP). While still a new and developing system, it is making a significant contribution to the risk based focus of our audit programmes. 64% of cases opened for audit in 2009 came from the 20% of cases identified by REAP as posing the greatest tax risk. Further REAP developments have continued to assist in prioritising cases for debt management interventions.
Checks on tax credit and relief claims are an ongoing feature of our PAYE compliance programme. Over 30,000 such checks were carried out in 2009 and corrective action was taken in appropriate cases. Work also commenced to extend the scope of our REAP system to include the PAYE sector. A separate risk run was developed using appropriate rules. Two pilot units were established to analyse the results and this work is ongoing.
- In 2009, Revenue continued its policy of targeting evasion on a sectoral basis. Projects that commenced included solicitors, entertainment and nightclubs, the jewellery trade and Section 125 Interest Reporting cases. The construction sector accounted for a large proportion of compliance activity in 2009, with almost 20% of audit activity in the sector.
Our approach ranges from unannounced compliance visits to full comprehensive audits. The sectoral approach is proving to be a productive tool as part of Revenue's programmes to combat tax evasion and improve compliance and is now enhanced by our REAP system.
There was a strong emphasis on businesses which have scope to pay suppliers or staff in cash and where large elements of sales are for cash. Approaches vary from a substantial programme of unannounced visits to cash business in "whole street" or "town" or industrial estate investigations, to focusing on particular sectors in areas such as major events, market trading etc. One objective of this approach is to deter businesses from abusing the tax system in furtherance of non-competitive/shadow economy trading. Visits to businesses are geared towards early intervention.
Enquiries can include:
Many of these visits would be carried out in conjunction with officers from the Department of Social & Family Affairs and/or the National Employment Rights Authority through Joint Investigation Units (JIUs).
- Surveillance and use of intelligence.
- Test purchases.
- Examination of Cash Registers and Electronic Point of Sale systems.
- Examination of books and records.
- Interviews with proprietors, managers and employees.
- Ensuring all employees are on the books.
- Stock Checks.
- Follow up visits.
- Table 6 illustrates the overall audit results for 2009 and the audit yield. 12,419 audits were settled in 2009 resulting in yield of 601.8 million. In addition, 361,299 assurance checks, a less resource intensive form of intervention, were also carried out. The yield from assurance check activity amounted to 68.5 million. While the level of activity is important we are developing our programmes to ensure that we are targeting the right cases. Overall numbers are down but the yield is up. The focus is on managing compliance risks through a range of options, not just relying on the traditional audit.
- Revenue's Research and Analytics Branch conducts programme-wide and macro-level research at a corporate level. As part of this brief, and as one element of a pilot exercise using data mining techniques, a predictive model was created which endeavours to extend Revenues REAP system to predict potential audit yield. The model was built in 2009 and piloted in a number of Revenue Regions. Currently, results are being collated and the model is being evaluated. Initial indications are positive and a similar exercise is planned for 2010.
- In addition to risk-based interventions, Revenue conducted a random audit programme in 2009. The programme ensures that every self-assessed taxpayer can potentially be selected for an audit. Similar programmes were conducted in 2005, 2006, 2007 and 2008. In 2009 we selected 400 cases for this programme and, of these, a total of 210 were finalised by 31 December 2009, resulting in a yield of 0.3 million. Table 7 shows a breakdown of our random audit programme.
- A total of 190 e-audits were finalised during the year. Much of the e-audit resource was focused on the audit of cash businesses which use Electronic Point of Sales (EPoS) systems. These audits uncovered significant underpayments, some involving misclassification of Value Added Tax rates and suppression of sales. Revenue will continue our focus in this area in 2010.
- The Finance (No 2) Act 2008 introduced a time limit on making a claim for Research and Development (R&D) tax credits. Companies are now obliged to submit claims within 12 months of the end of the accounting period to which the claim applies. In 2009 a number of R&D tax credit claims were subjected to audits which involved examinations by external experts in the various fields of science, as well as the normal tax audit of the quantum claimed.
All cases were found to be carrying on R&D activities within the meaning of the legislation but there were some adjustments to claims. The readjustments arose largely from cost allocation to R&D. In a number of cases some parts of projects were judged to be non-qualifying.
- The Capital Gains Tax Review Group, which was set up in 2007, reported no evidence of systematic avoidance or evasion of CGT in the risk projects undertaken. A successful evidence based trial was conducted in 2008, using data from existing Revenue sources to target potential CGT customers in advance of the October 2008 Pay and File deadline. The final results were analysed in 2009, and the evidence shows an increase in compliance among those contacted. This prompted a national mail shot campaign in late 2009. Preliminary results indicate an improvement in compliance.
- Our Financial Services Banking Unit in Large Cases Division has been monitoring and responding to tax issues arising from the crisis in the financial sector. Our compliance programme has focused on tax risk in that sector including claims for loss relief, bad debts and employer taxes liabilities. Audit yield from the sector in 2009 amounted to 38 million and in addition, the tax impact of restricted losses amounted to 100 million.
Our High Wealth Individuals and Professionals Business Unit initiated enquiries into approximately 300 cases of the directors and executive/management level employees in the six main financial institutions. Enquiries have been closed in approximately 140 of the cases and are ongoing in the balance. To date, 1,137,030 in tax has been collected from these enquiries. This unit also made enquiries into the residence status of a number of individuals.
- The first report, for the tax year 2007, on the restriction on the use of certain tax reliefs and exemptions by high-income individuals was completed by Revenue and published by the Minister for Finance in July 2009. The report showed that the primary objective of ensuring that individuals with an adjusted income of 500,000 or more (where the restriction applied in full) would pay an effective tax rate of approximately 20% was achieved. The measure generated an additional 40 million in tax in 2007.
- Revenue is obliged under EU legislation to implement controls at the time of export of CAP goods and to conduct an audit programme. In the audit period July 2008 to June 2009, the commercial records of 14 selected CAP exporters were examined. Those traders had received CAP export refunds amounting to 48 million in the period audited, representing approximately 78% of the total export refunds paid by the Department of Agriculture, Fisheries and Food. These audits provided assurance that the entitlement to export refunds from EU Funds was properly established and substantiated.
- During the year, 14,117 Suspicious Transaction Reports were provided to Revenue by financial institutions and other designated bodies. Almost 70% of the Reports received were in electronic format, allowing for greater exploitation of information to assist in risk profiling. 30 Reports are relevant to ongoing criminal investigations in tax and duty cases.
- There were 74 seizures of firearms, including firearm components and crossbows in 2009: 227 seizures of offensive weapons, including noxious gas and machetes: 50 grms of explosive material in an improvised explosive device: and over 957 rounds of ammunition.
- There were 62 seizures of goods prohibited under CITES (Convention on Trade in Endangered Species). The majority of the seizures were Hoodia Gordonii products, which are marketed as slimming agents and originated in the USA. Other seizures included bush meat and traditional Asian medicines.
- There were 34 seizures of cash amounting to 1.35 million at airports and ports during the year. This money is suspected of representing the proceeds of crime or intended for use in criminal conduct. Following such seizures, it is investigated to establish the link to criminality with a view to forfeiture. In 2009 there were seven forfeiture orders amounting to 412,075 granted by the Circuit Court. These orders related to seizures made in 2005, 2006, 2007 and 2008. Forfeiture applications in a further 18 cases, amounting to 2.2 million, were before the courts at year end.
- Two well-established programmes that focus on limiting the potential for abuse of limited liability continued in 2009. At the end of 2009 a total of 2,216 cases were being monitored under our Phoenix and Commonality programmes.
The increase in the numbers of cases managed under these programmes reflects the increasing debt challenge posed by the economic and financial environment in which businesses are operating and Revenues determination to give priority attention to the highest risk cases.
- Substantial work was carried out on the development of a new Code of Practice for Revenue Auditors including consultation with tax practitioners. A number of issues require further detailed consideration. Finance (No. 2) Act 2008 introduced radical changes to the Penalties Regime, involving determination by the Courts in disputed cases. These changes must be reflected in the new Code. It is hoped to publish the revised Code in 2010.
|2. Effective response to increase in drug smuggling
- In keeping with the recommendation of the Government's National Drugs Strategy (NDS), Revenue has put in place Strategic and Operational Drugs Enforcement Plans. Additionally, as recommended by the NDS, additional resources have been deployed. Specifically a second Revenue Customs Cutter Faire and a second X-ray scanner capable of screening freight containers have been deployed. The complement of detector dog teams has also been increased to thirteen.
- The Customs Service has continued to work with the other Joint Task Force partners to prevent
the smuggling of drugs into the State. Some significant successes in drug/arms interdiction during
2009 again provided evidence of this inter-agency co-operation in action.
- In June,1.1 tons of cannabis resin, with an estimated street value of 6.6million, was seized
in an industrial premises at Dunboyne, Co Meath and two individuals were arrested.
- In September, 13kgs of cocaine, with an estimated street value of
1million was seized and two individuals were arrested. This operation is considered significant
in terms of international law enforcement co-operation in fighting the drugs trade.
- In November, 30 offensive weapons (stunguns disguised as mobile phones) and a viable
explosive device were seized in Co. Louth and two individuals were arrested.
- Table 8 illustrates Revenue seizures/detections of drugs during the year.
|3. Effective response to increase
in cigarette smuggling
- The volume and value of cigarettes and tobacco seized during the year increased substantially over the previous year, see Table 9. One of the major successes was the Customs led Operation Samhna in October 2009 which involved the seizure of 120.3 million cigarettes and represented the largest seizure of cigarettes to date in the European Union.
- 12 significant seizures in maritime freight amounting to 172.45 million cigarettes were made in 2009
of which 127.648 million were counterfeit. Countries of origin included the Philippines, China, Spain,
UAE, Egypt and Vietnam.
- An ongoing operation codenamed Operation Downstream which targets smuggled cigarettes at retail outlets, markets and other distribution centres that evaded detection at the point of importation resulted in 284 seizures amounting to almost 10 million cigarettes.
- Revenue successfully launched a new tobacco tax stamp with added security features in October 2009. Training was provided to both Revenue staff and the trade on the new features. New detection equipment was purchased and distributed to the relevant operational areas in Revenue.
|4. Reduction in evasion of oil
and alcohol excises, vehicle
registration tax, and trade in
- As illustrated in Table 9 , there were 14,082 seizures of excisable goods
- Revenue continues to monitor compliance with VRT regulations. During 2009, 1,951 cars were seized and 1,114,235 was paid in penalties. In the course of the year two national VRT operations were carried out and over 4,900 vehicles were challenged leading to the seizure of 420 vehicles.
- 1,019 seizures of counterfeit goods with an estimated value of 2.5 million were made during 2009. Seizures encompassed a wide variety of goods including DVDs, medicines, sportswear and handbags. There were significant increases in the numbers of counterfeit cosmetics, jewellery and hair appliances seized.
- In a three-day World Customs Organisation sponsored international operation, codenamed 'Operation Pharmakeus', targeting unlicensed and counterfeit pharmaceuticals in May 2009, Revenues Customs Service seized more than 26,500 medical tablets. This operation was conducted in conjunction with officers from the Irish Medicines Board.
- 2009 also saw an increase of 15% in the number of applications from Right Holders to Revenue for customs action to detect and seize goods suspected of infringing their Intellectual Property Rights.
- During the year, Revenue continued to work closely with the law enforcement authorities in Northern Ireland with a view to tackling cross-border fraud. A number of multi-agency operations were carried out in connection with tobacco smuggling and mineral oil fraud. In addition, several meetings of the Cross-Border Fuel Fraud Enforcement Group were held and ongoing co-operation and the exchange of information between Revenue and Her Majestys Revenue and Customs (HMRC), Belfast, resulted in the detection of a number of cases of cross-border VAT fraud which are being tackled on both sides of the border.
|5. Better use of Revenue's
- Open source software is being used to enable Revenue staff become more self sufficient in satisfying their information and analytic requirements. Our operational data is being mined using high-end analytical tools to help Revenue understand its tax base by sector, geographic region and risk. This allows resources to be deployed more efficiently and effectively. In addition this approach is used to proactively minimise the risk of potential fraud.
|6. More challenges to tax
- Throughout 2009 enquiries by our High Wealth Individuals and Professionals Business Unit and our Anti Avoidance Unit into potential tax avoidance transactions continued. These included:
As a consequence of enquiries into potential tax avoidance transactions, 15 Notices of Opinion under the general anti-avoidance legislation, section 811 of the Taxes Consolidation Act 1997, were issued.
- Enquiries into similar financial transactions entered into by 26 separate individuals that give rise to a potential tax loss of capital gains tax of c. 88 million.
- Enquiries into a number of separate transactions that used the national residence rules and the provisions of Double Taxation Treaties to substantially reduce their liability to Capital Gains Tax.
Table 10 shows the Anti Avoidance activity during the year.
- Investigations into claims for relief by investors in particular film production companies continued in 2009. In January 2009 the High Court delivered a judgement in favour of Revenue in Judicial Review proceedings brought by an investor in one of the film production companies. Revenue is currently in communication with 964 taxpayers involved in such investments.