Maximising Compliance - Minimising the Burden
Address by Frank Daly, Revenue Chairman, to the
ICAI Regulation Conference
Mount Wolseley Hotel, Carlow
25 November 2005
Introduction
Good Morning Ladies and Gentlemen.
I would like to begin with a word of thanks to John Greely and the organising
team for the invitation to speak to you today. I can't help wondering,
however, whether the decision to have the Revenue presentation at such
an early stage of this conference on regulation wasn't in some part driven
by Ronald Reagan's famous observation, "If it moves, tax it, if
it keeps moving, regulate it!". [No doubt at this time of the
ongoing review of incentives some of you will remind me that Reagan finished
by adding: "if it stops moving subsidise it!"
Attitudes to Regulation and Taxation
Reagan's comment in many ways sets the scene for what I have to say to you today. It's often very tempting to focus on the negative aspects of both taxation and regulation, to regard them simply as burdens. In this assembly of ICAI members I trust that your vision is broader than this. I trust that I am preaching to the converted in reminding you that regulation does not exist for its own sake. That the role of the regulator is an essential element in the effective functioning of our society and our economy.
That is not to claim that we have a perfect regulatory regime. I believe that a conference like this, which casts a spotlight on the aggregate of regulation can only benefit all of us, regulated and regulators alike. I believe that if we take this opportunity to examine our relationships in a positive light, it will become very clear that we have much in common and that the best way to achieve our respective goals is in a spirit of partnership and mutual respect.
While I speak only for Revenue I feel sure that I will not be in any way out of step with the speakers from other regulatory bodies when I tell you that it is a core objective of ours is to deliver on our mandate while keeping our touch as light as possible.
Content of Presentation
In addressing you this morning:
- I want to look at how Revenue is working to meet our aim of delivering taxpayer compliance at minimum burden and within that I want to recognise the importance of the contribution that you, as practitioners, make to achieving that goal;
- I want to say something about our increasing emphasis on risk assessment as a basis for directing our audit and compliance efforts. We want to avoid over-inspection of low-risk taxpayers and we want to ensure that high-risk cases and persistent offenders get the attention they deserve. We also want to give greater emphasis to the provision of advice and information. Tax is complicated; we recognise that, as regulators, we need to give more emphasis to providing advice in order to secure compliance;
- I also want to touch briefly on the areas of Tax Information Exchange Agreements and Money Laundering Reports;
- Finally I want to look at how our initial experience of Regulatory Impact Assessment has proven extremely positive in aiding us to shape a regime to the mutual benefit of regulator and regulated.
Tax Responsibility
Before going on to look at how we can work together I would like to reflect for a moment on the responsibilities that we share, as citizens, as practitioners, business people or civil servants with regard to tax compliance. Taxation is not simply a cost, to be minimised or avoided. Taxation is the price we pay for public goods, for security, for infrastructure, for industrial development initiatives and for education. Without these the pursuit of successful business and economic development would simply not be possible. Failure to comply with our revenue obligations is not, therefore, just a matter of breaching regulations, it is depriving our fellow citizens of their rights and selling them short on their legitimate expectations. Put perhaps more directly - failure to comply is an act of theft from our fellow citizens.
Of course we may all have our views on the level of taxation we face. I have no doubt that everyone in this room has their own views on which particular taxes or duties are too high (probably less of you have views on which ones are too low!) But remember that we enjoy the freedom to influence tax policy through the democratic process. And remember too that the democratic process is, in turn, funded by taxation, or if I can put a new spin on an old slogan - while taxation without representation may be tyranny, expecting representation without taxation is simply freeloading.
Practitioners' Role in Compliance
This is not news to you, and I don't believe that I need to convince anyone in this room of what I am saying. But I take the opportunity to remind you because I believe that you, as accounting practitioners, have a very valuable role to play in your work with you clients. Your role as intermediaries places you in a vital position of influence. Just as you can, and do, play a very valuable role in influencing Revenue in the development of approach to tax administration, I believe that you can play an equally important role with your clients- spreading the word that compliance is a fundamental duty of every citizen and business, a duty which underpins the privilege of living and working in a vibrant society and a successful economy.
Revenue's Role
So much for your role, let me turn to how Revenue plays it part.
Revenue's goal is a clear and simple one - to promote and maintain compliance with tax and customs legislation. We want to ensure that all taxpayers, whether corporate or individual, meet their obligations and pay their fair share as required by law. This is what the community rightly expects of us. It is also what business expects of us, to ensure that public supports for economic development are adequately funded and that the playing field of honest competition is not distorted by fraud, evasion or artificial schemes of tax avoidance.
Revenue's responsibilities do not end, however, with regulatory compliance. We are deeply sensitive of the need to protect and nurture the geese that lay the golden eggs and indeed to ensure that Ireland remains firmly within the migratory patterns of such geese.
What does that mean in practice? It means that we work with industry and practice to develop and maintain a balanced regulatory regime - one that achieves its objectives without imposing unnecessary costs. We have developed a clear customer service ethos with a strong focus on providing low cost accessible services that meet our customers' needs. Moreover we work very closely with our colleagues in other Government Departments to ensure that Ireland remains an attractive destination for investment activity. While Ireland's tax policies have been, are and will continue to be, a key factor in our success in attracting investment, it is also true that access to advice and support at a senior level from Revenue and other Government agencies has been an influential factor in investment decisions.
Consultative Role of Practitioners
In particular, I would like to stress the importance attached by Revenue to effective co-operation and liaison with tax practitioners. Through your largely unpaid (and maybe sometimes unappreciated!) work on representative bodies such as TALC, and the CCABI taxation committee you engage very effectively with Revenue in articulating more general concerns about aspects of taxation and influencing the way in which we structure and administer the tax code.
These structures continue to be instrumental in bringing about simplification. We have engaged, for example, in a mutually beneficial consultation process with regard to the introduction of International Financial Reporting Standards this year. That process is still live and we will continue to work with you to resolve issues that may arise as returns fall due under the new regime. Next year will see the simplification committee of TALC engage in an ambitious programme of review of documents that have become legendary for their complexity, the dreaded Forms 11, 12 and CT1. These forms serve to illustrate one of the major challenges we face together. Balancing the goal of simplification with the information needs of a complex tax code will undoubtedly tax the combined wisdom of Revenue and Practitioners.
Better Risk Assessment
A key part of our strategy is to entrench in the Revenue organisation the principle of risk assessment, so that the burden of our audit and enforcement programmes falls most on highest-risk cases, and least on those with the best record of compliance. We are building new tools to help us with this. Some of you will already be aware of our new risk-scoring system called Eskort, which is being piloted at present in four Districts and will be rolled out countrywide in mid-2006. The system is designed to make use of good quality data to focus on risk and to be dynamic, not static, constantly improving over time.
While we will need to maintain an element of "coverage" and a random selection programme, we would have high hopes that more intelligent risk scoring will reduce the possibilities for over-inspecting lower-risk cases and help create a virtuous circle: a recognition that a good compliance record is the best way to ensure a light touch from Revenue.
Better information
We recognise also that for any regulatory regime to work properly the regulated need to know what they have to do to comply. Tax, unfortunately, has many grey areas and if greyness can't be eliminated at source - that is, in the law itself - then the Tax Administration should make clear its interpretation of the law wherever possible. I believe Revenue could do better in this whole area. We are building up our technical expertise in areas where there are gaps and we hope you, as practitioners, will see the fruits of this before long.
We also intend to make a big effort in 2006 to put out more information to taxpayers in relation to their entitlements. The reality is that many taxpayers don't claim all the reliefs and credits they are due under the tax system - while much of that can be put down to inertia, some of it, despite our efforts to date, is also down to lack of awareness and we aim to remedy this.
Code of Practice
The Code of Practice for Revenue Audits, agreed in 2002, also represents the fruits of close co-operation between us. It is a document of great value in providing certainty to taxpayers as to how audits will be conducted and how matters such as voluntary disclosures will be addressed. One point that I would like to make on this subject though is that the code relates to audit only. While audit remains a primary tool for Revenue in assuring taxpayer compliance, we can, and indeed as a law enforcement agency we must, also engage in a range of interventions up to and including criminal investigations. If I may refer to Lord Justice Cotton's well known distinction between audit and investigation, the code of practice relates solely to the watchdogs - we cannot, and will not, allow it to be used to muzzle the bloodhounds.
Cooperative Compliance
A recent initiative by Revenue has the potential to bridge any perceived gap between regulator and regulated. That is the development of Cooperative Compliance Agreements. These agreements, initially focussed on businesses dealt with in the Large Cases Division, are intended to form the basis for a new and very positive relationship between Revenue and businesses. They provide a means whereby we can work together to achieve high levels of compliance, balanced with greater certainty for business in relation to tax exposure.
The programme relies on a very simple principle, and one which reflects recent trends in improving corporate governance - namely that businesses have systems in place which ensure their tax compliance. We want to see responsibilities for tax compliance clearly defined at Board, senior management and functional levels.
Revenue is currently in discussion with a number of taxpayers, across a range of business sectors, who have expressed interest in participating in the programme. We hope to be at an advanced stage of engagement with at least 25 customers before the end of the year, working to implement full cooperative compliance programmes with them in 2006.
Co-operative Compliance and Practitioners
I would like to emphasise one key point here. Contrary to some speculation, these agreements are not, in any way, intended to squeeze the tax practitioner out of the relationship between your clients and Revenue. Co-operative compliance agreements do not magically simplify the tax code or eliminate filing obligations. The role of the practitioner will continue to be valued and respected.
Impact on Tax Planning
There is, of course, an area in which these agreements may impact on the relationship between Revenue, practitioners and taxpayers. An important aspect of the agreement is that Revenue expects a degree of openness in relation to tax planning strategies where these are in place or are being considered. I realise that you may have concerns about what may arise from that openness, but I do believe that ultimately we can all only stand to benefit from enhanced transparency and certainty.
Tax Information Exchange Agreements
I'd like to turn my attention to the topic of Tax Information Exchange Agreements (TIEAs). The flow of investments and associated funds, whether legitimate or illegitimate knows no frontiers. Responding to this demands effective international co-operation between Tax Administrations, in particular through exchanges of information.
TIEAs are bilateral agreements based on an OECD Model Agreement. They have been developed by OECD Member Countries in co-operation with the so called 'committed' non-OECD jurisdictions. These 'committed' jurisdictions consist of 33 countries that have made commitments to the principles of transparency and the effective exchange of information. Of particular note among these are significant offshore financial centres around the world (among them, the Isle of Man, Jersey, Guernsey, Gibraltar, the Cayman Islands, the Netherlands Antilles, and the British Virgin Islands).
These agreements will allow Revenue to access bank information and details regarding the beneficial ownership of companies and trusts. Information will require to be exchanged regardless of whether or not the conduct being investigated is considered a crime in the requested country. The expectation, therefore, is that TIEAs will prove to be a very valuable source of information into the future.
Concluding TIEAs
These are early days for TIEA's and while only a few have so far been concluded there is little doubt about the commitment. Revenue has entered into TIEA negotiations with a number of jurisdictions, including the Isle of Man, Jersey, Guernsey, the Cayman Islands and the British Virgin Islands. We are optimistic of concluding a number of these in the near future.
Money Laundering
I want to refer now to the very serious matter - indeed the crime - of money laundering. This is a crime that is frequently associated with other serious offences including drug trafficking, fraud, forgery, blackmail, extortion, terrorism and, of course, tax evasion. As you are aware, the legislation in this area requires accountants, auditors and tax advisors to report to both the Gardaí and Revenue any activities or transactions which they suspect of relating to criminal offences under anti-laundering legislation. In Revenue's case the reports are to be made to the Suspicious Transactions Reports Office in Investigations and Prosecutions Division.
Suspicious Transaction Reporting
This is a vital obligation, which I know is being treated very seriously by your Institute - I note that the CCAB-I recently issued an updated guidelines and procedures document. Since May 2003 a total of 19,000 Suspicious Transaction Reports have been received in Revenue. Of these however, only 56 or 0.34% have come from Chartered Accountants - a low percentage which is of some concern.
Level of Reporting
While I appreciate this low level of reporting is to some extent affected by the "judicial proceedings" provisions of the legislation I must in this forum emphasise the risks to any accountant to fails in their duty to report suspicious transactions. If the money trail in a criminal investigation ultimately leads back to you, you also could face criminal proceedings. I appreciate that making these reports is not easy. I want to assure you that in our investigations Revenue will do everything in our power to protect the identities of persons making suspicious transaction reports
On the positive side, the reports that have actually been received to date from accountants have proved very useful. Two reports have been of assistance in cases being pursued for prosecution by Revenue and in a further six cases, Revenue action is planned but presently on hold pending the completion of Garda investigations.
Regulatory Impact Assessment
At the outset of my talk I stated that Revenue's objective is to achieve our compliance objectives with the lightest possible touch. In that context I would like to briefly outline Revenue's experience in the use of Regulatory Impact Assessments (or RIAs) as provided for in the Government's "Better Regulation" Programme.
RIAs are a simple but very valuable concept. The process involves systematically identifying and assessing the range of impacts of any proposed regulatory changes. For Revenue, this brings a welcome further dimension to our established practice of extensive consultation with trade and practitioner interests.
Betting Duty RIA
Rather that wait for the official launch of the RIA procedure in June of this year, Revenue seized the opportunity to participate in the pilot RIA initiative. We used the process to guide a major review of the collecting of betting duties, in consultation with the bookmaking industry.
The results of the process proved extremely valuable to both Revenue and to the industry.
In brief summary the changes mean that:-
- The filing frequency has been reduced from weekly to quarterly;
- Filing for bookmakers with multiple premises has been consolidated into a single return;
- Filing and payment is made to a single office, the Collector General's, rather than to a range of local offices, and of course, ROS filing is available;
- Compliance procedures have been simplified and streamlined, effectively moving from regular and time-consuming test betting and spot checks to an audit that can be integrated with a wider revenue audit of the business.
The result, in simple terms, is a lower compliance burden for business, lower administration costs for Revenue and the flow of revenues adequately protected
Future Utilisation of RIA
Based on this very positive experience (and a real learning experience in a very focused area) I would be willing to wager a small bet that the RIA process has the potential to deliver reductions in the regulatory burden across a range of areas and I look forward to working with you in this area.
Conclusion
Ladies and Gentlemen, in conclusion may I summarise the extent to which Revenue and the practitioner community are working to a shared agenda.
We have a shared interest in two key goals:
- Firstly, tax compliance, recognising this as a fundamental responsibility of every citizen and business; and
- Secondly, in making tax administration as simple and accessible as possible and in minimising the burden of compliance.
And we recognise that a spirit of partnership and co-operation between Revenue and practitioners is the best way to achieve these goals to the satisfaction of both sides.
I would hope that this conference marks a further milestone in strengthening and deepening that co-operation.
Ladies and Gentlemen, thank you.