Institute calls for tax ombudsman

The 1999 Finance Bill, published on Thursday, contains almost 30 pages of legislation providing for new powers for the Revenue Commissioners. If these powers are enacted in their proposed form the Revenue Commissioners will have rights of investigation of citizens that are almost without equal in any western democracy. The Institute of Taxation believes that it is vital that sufficient consideration be given to these powers prior to their enactment and, if new powers are enacted, a tax ombudsman should be appointed.

The Institute of Taxation would strongly support any measures that would lead to an effective tackling of tax evasion. Many spokespersons (including those from the Revenue) and the media have suggested that what is needed to tackle evasion is additional resources for the Revenue rather than additional powers. This approach is on the basis that existing powers already available to the Revenue Commissioners are very extensive. The Government must ensure that we do not reach a situation where our statute book becomes cluttered with powers and regulations that are inoperable in practice. The Revenue Commissioners' own "Charter of Taxpayers' Rights" makes a number of promises to Irish taxpayers. Among these promises are a guarantee of a presumption of the taxpayer's honesty and guaranteed privacy and confidentiality regarding their business and personal affairs.

The Institute of Taxation is concerned that, if the proposed powers are enacted, these guarantees will be eroded. For this reason, we have called for the appointment of a fully independent "tax ombudsman".

Such an ombudsman would be available to carry out a review of the manner in which the Revenue exercises its powers in dealing with individual taxpayer's affairs. The ombudsman would be an independent guarantee of a taxpayer's constitutional rights and their rights to privacy. The UK has created a similar position known as the Inland Revenue Adjudicator.

The draft proposals contained in the Bill include the following:

Obtaining information about a tax- payer's affairs from third parties.

This would allow a Revenue official, without any outside authority, to instruct a third party to provide it with information about another taxpayer.

Moreover, the Revenue is not required to advise the taxpayer that it have written to the third party.

Also the Revenue can ask the third party to provide detailed explanations of its dealings with the taxpayer. The draft provision overturns any statutory protection there might be for privacy and confidentiality. If the third party refuses to co-operate it face a court imposed penalty of £1,200 (€1,523). It is important to note that the taxpayer may be found to have fully paid their liability. However, third parties who carry on business with the taxpayer will have been alerted to the fact that the taxpayer was suspected by Revenue of evading their tax.

This may seriously damage any future relationships between the taxpayer and those third parties.

Bank Accounts.

The Revenue would also have an unrestricted right to examine bank records of individuals and their relatives. All statutory laws of confidentiality would be overturned. In addition, the financial institutions would be required to provide Revenue with any explanations required in relation to any potential tax liability of the individual.

This completely overturns the traditional concept of confidentiality and trust that has existed between a bank and its customers. There is no requirement for the Revenue Commissioners to inform the taxpayer that they are approaching the bank.

Undoubtedly bank employees would be very concerned to note that they could face a penalty of £1,000 if they attempted to obstruct Revenue's inquiries.

Reaction of the Courts.

There is a huge question mark regarding the reaction of the courts to the powers contained in the Finance Bill. Up to now the Revenue has been obliged to apply to the courts for permission to inspect a particular bank account. It is important to note the comments made in the Supreme Court by Justice Keane in May 1996 about the existing situation.

". . . . .An order made under the section seriously abridges the right of confidentiality which every person dealing with a bank enjoys and it is for that reason that the Oireachtas not merely stipulated that the inspector must have reasonable grounds for his belief but provided the additional and valuable safeguard that a High Court judge must be satisfied that such reasonable grounds exist before the institution concerned can be required to furnish the information sought."

The Finance Bill proposes to remove this additional and valuable safeguard for taxpayers.

In summary, all compliant taxpayers in Ireland are agreed that the crime of tax evasion must be tackled effectively. The Institute of Taxation has every confidence in the Revenue Commissioners' integrity and their efforts to ensure a fair and efficient tax system. The institute would also be of the view that it would be a mistake to delegate powers to Revenue that could become inoperable.

We believe that considerable debate needs to take place regarding the use of existing Revenue powers and the need for the additional powers. We believe that this debate should also address the question of whether additional resources might be a more appropriate response to the crime of tax evasion.

Finally, we strongly believe the time has now come to appoint an independent tax ombudsman who would offer protection to the compliant taxpayer who may be concerned about a possible infringement of his or her rights arising from the operation of the extensive powers available to the Revenue Commissioners.