The Revenue Commissioners have published a Code of Practice for Revenue Compliance Interventions, which will come into effect on 1 May 2022. It is not necessarily a revolutionary measure by Revenue as the new Code is effectively replacing a previous Code; however, there are some significant changes and we outline the main provisions below.
Previously, a taxpayer was excluded from mitigation of penalties where any matters contained in a disclosure directly or indirectly related to offshore matters. The contentious measure could apply to undeclared tax on foreign source income such as foreign rents, foreign investment products, foreign pensions etc. Considering the complexities involved in, say the tax treatment of offshore funds, the exclusion from mitigation of penalties created a minefield for taxpayers and their advisors. The introduction of what was effectively a ban on the benefits of mitigated penalties in disclosures that involved offshore matters was seen to go against Revenue policy on interventions, which has been to encourage taxpayers to regularise their tax affairs when they become aware of a tax default. By imposing the full rigours of the penalty regime, it was perceived to be a disincentive for taxpayers to submit disclosures that included offshore matters.
Finance Act 2021 and the new Code have now addressed this position and have removed the prohibition on mitigation of penalties when offshore matters are included. This measure is welcomed and should provide more of an incentive for taxpayers to come forward and regularise their tax affairs, especially where offshore matters are involved. The taxpayer can now include tax defaults relating to offshore matters in disclosures and benefit from mitigated penalties.
Additional measures introduced in the new code
The above points are just some of the main provisions introduced by the Finance Act 2021 and the new Code of Practice. Please note that other provisions were introduced, and Finance Act 2021 and the new Code should be reviewed in their entirety. It will be interesting to see how the new Code works in practice. The old Code effectively provided taxpayers with an opportunity to get minor tax issues regularised with the benefit of an unprompted qualifying disclosure and could avail of lower penalties and non-publication as a tax defaulter. This was notwithstanding that the taxpayer may have been initially contacted by Revenue; for example by way of an aspect query. However, the new Code effectively provides that once the taxpayer is notified of a Revenue audit or a Risk Review, the unprompted disclosure is not an option and a more detailed review will be required to ensure that the conditions required for a prompted qualifying disclosure are met. It could be a busy few weeks ahead for taxpayers and their agents to get any unprompted disclosures into Revenue by 1 May – before Revenue commences issuing Risk Review letters.
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