Tax advisers say Wallace offences at more serious end of scale

ANALYSIS:TAX ADVISERS working on the basis of what Independent TD Mick Wallace told The Irish Times last week have categorised his offence in knowingly signing false VAT returns as lying in the more serious end of such offences.

The timeline of events outlined by the Wexford TD show his company was in deep trouble and he had knowingly offended tax law prior to his decision to put himself forward in the February 2011 general election as an Independent candidate under the banner “For a new politics”.

While Wallace has said he went to the Revenue in October 2010 to confess he had made improper VAT returns, the fact that his company’s name is to appear on a list of tax defaulters indicates his was not a “qualifying disclosure” for the purpose of avoiding identification and the possibility of prosecution.

The Revenue may have taken the view that Wallace came forward in circumstances where he was likely to be caught anyway.

The issue of prosecution will depend on what indemnity Wallace negotiated with the Revenue, and whether the Revenue now believes he has held up his end of the deal and dealt with it in good faith.

The Revenue has three categories for people who make non-qualifying disclosures. The first two relate to “careless behaviour”, with the first category involving no consequences for the offender and the second involving significant consequences. The third category is “deliberate behaviour” resulting in significant consequences.

The case against MJ Wallace Ltd involved underdeclaration of VAT of €1.4 million, interest of €289,146 and penalties of €425,668. Experts say the penalty indicates careless behaviour with significant consequences, ie the second category.

This is despite the fact that Wallace has said he knowingly submitted false returns.

Wallace said the Revenue categorised his behaviour as “careless” so the maximum fine was not imposed. He said: “By filling in a false declaration, I was trying to save the company. I thought we would get the money.”

Tax experts have said that people whose businesses were under stress sometimes misused VAT payments for cash flow reasons but that most owned up when it came to making VAT returns. Knowingly signing false returns is the stage at which most such VAT offenders confess. Wallace took the process further.

VAT involves businesses collecting money from clients for the exchequer.

“He borrowed from the Revenue, not the bank, and now he can’t pay it back,” said tax adviser Suzanne Kelly.

According to Wallace, in 2009 his company was finishing off a Dublin apartment block. “The bank was tightening up on the supply of money and wasn’t giving us enough to finish out the project,” he said.

He had taken in deposits of about €40,000-€50,000 on each sale and used this money to fund other work but when the sales were completed a VAT liability arose on each one, he said. “We couldn’t pay the €1.4 million that was due in VAT,” he said. “I filled in a false VAT return.”

Property developers who take deposits are required to declare these in their bi-monthly returns and make the payments on the 19th of each following month.

MJ Wallace is now in receivership. The last set of accounts it filed was for the year to the end of August 2008. Those accounts were filed in the Companies Office in June 2009, having been signed by the company’s two directors in April 2009. The accounts stated that the company remained a going concern because it had the support of its bankers. They also said that pay to the directors, Michael and Sasha Wallace, doubled during the accounting year to €289,605, from €148,141 the previous year, despite the fact that the company was reporting a loss of €2.7 million.

Wallace has said he personally has a tax clearance certificate as the company’s debts are not his. He has also said the company cannot pay its debts. He owns almost 100 per cent of the company. People who own more than 50 per cent of a company that cannot pay its taxes are denied tax certificates. However, this rule does not apply for the type of tax clearance certificates required by politicians and these might be the certificates to which Wallace is referring.