Sins of the past have seen more regulatory focus on financials

Revenue Commissioners try to encourage firms to work with it on tax issues, writes John Downes.

Imagine you had fallen asleep 10 years ago and just woke up this week. One of the first things you would probably do - after getting over the shock - would be to catch up on what had been happening in the world.

If you were to look at what had happened in the business world, it is fair to say that fraud and scandal would feature in the newspaper headlines you read.

Ranging from the collapse of various banks and financial institutions to the misreporting of the accounts of large multinational companies, the past decade has hardly been a good one for the reputation of some of the the best-known members of the international business community.

In the Republic, many of the headlines would focus on tax-avoidance schemes and the mis-selling of products by financial institutions to their customers.

Most companies recognise that it is in their interests to ensure their activities are transparent and above board. But what steps are being taken here to ensure that those companies which are not living up to their obligations are being caught?

Seán Moriarty heads up the large-cases division within the Revenue Commissioners, which is responsible for collecting taxes and duties on behalf of the State.

Moriarty's division focuses its activities on approximately 350 of the State's largest companies and organisations. It also deals with some 250 of the State's wealthiest individuals: together, these two groups represent about 60 per cent of the State's total tax take.

He points out that every taxpayer, including companies, is obliged to pay their tax.

But, in the case of large companies, his division needs to apply a multifaceted but focused approach to ensure they are doing this.

Firstly, he says it is essential to understand the business in question and its motivations.

Because his division, which employs some 240 people, covers areas such construction, drinks/ tobacco and multiples, food, and the financial services sector, there is also a need for specialised knowledge of their individual tax liabilities. This includes an understanding of where the real risk of tax avoidance or evasion lie within these sectors. With this in mind, his division is building a profile of the companies within its remit.

"That allows us to look in a much more informed way at the kind of issues we need to be looking at," Moriarty explains.

Another recent development has been the emergence of computer auditing, he says.

"With computer auditing, we have the ability to look across large volumes of transactions. For example, where a company is selling a range of goods at different VAT rates, we can look to make sure they are charging the right rates at the checkout... so it gives us an opportunity to look inside a company's system to see what it is designed to do."

But the Revenue Commissioners are also aware of the benefits of encouraging companies to introduce high-quality tax-compliance procedures themselves.

By working together with companies, the aim is to develop a relationship of trust.

This has advantages for both sides, says Moriarty. By asking firms to agree to self-audits, as well as to commit to stay away from tax-avoidance schemes that they may be offered, Revenue can have more confidence in their activities.

For their part, the firms can hope to avoid the prospect of an unexpected tax bill down the line - and to secure a less intrusive audit.

"This is in line with international best practice. But we're not naive about it either," Moriarty explains.

If the Revenue have become increasingly more proactive in ensuring firms to meet their tax obligations, then the Irish Financial Services Regulatory Authority (Ifsra) addresses the needs of consumers.

Established in 2003, it is the regulator, or watchdog, for financial services providers in the State.

"Our major role or mandate is as a consumer-focused regulator," explains Neil Whoriskey of Ifsra. "We need to ensure financial institutions behave correctly, and that consumers are well-informed about how to deal with an institution."

The establishment of Ifsra was partly in response to difficulties which had emerged in the past. These included issues such as overcharging, problems in the way institutions dealt with their customers and the level of information they provided.

The consumer aspect of Ifsra's work includes the provision of cost surveys as well as information leaflets on the various products and services that financial institutions provide.

But it is also clearly important that Ifsra has the "teeth" to take action if the demands it makes on institutions are not met.

"We do go into institutions and we do conduct inspections to ensure they are doing things in proper way. These can be unannounced," says Whoriskey.

"We can also impose sanctions for breaches of any of our regulatory requirements. These are up to €5 million in the case of a firm, and €500,000 for an individual," he explains. "The ultimate aim of all this is to have a financial services industry that puts the customer first."

Given recent difficulties, this clearly represents a challenge to the entire business community.