Revenue warned State bodies of responsibility to comply with tax

BACKGROUND:Financial personnel of public bodies were left in no doubt as to issues of tax avoidance

CHAIRWOMAN OF the Revenue Commissioners Josephine Feehily has told Government departments she will challenge instances of tax avoidance and/or abuses of the taxation system where they arise.

In a letter sent to the departments in June, released to The Irish Times under the Freedom of Information Acts, she warned it was ultimately the responsibility of government departments, agencies and public bodies to comply voluntarily with their tax obligations.

“They should be fully aware of the correct tax treatment to be applied to most circumstances,” she said.

She told departments the principles in the Code of Practice for the Governance of State Bodies also applied to them as well as to agencies under their care.

The code says “tax avoidance is offensive” if it involves the use of the tax code for a purpose other than that intended by the Oireachtas “with a view to reducing the amount of tax to be paid by the State body or some other party to a transaction in which the State body participates”.

Where a doubt arises, Revenue should be consulted.

“It is important to be aware the terms of the code of practice applied equally to all taxpayers including government departments, who find themselves subject to a Revenue audit or other Revenue inquiry,” Feehily said.

She encouraged heads of finance to contact Revenue for clarification on correct tax treatment “rather than take a chance that they know, or have been advised by a tax practitioner as to the correct position”.

Documentation attached to the letter outlined “misunderstandings” in the application of the tax code. These included issues of benefit-in-kind and the reimbursement of travel expenses and subsistence.

It also highlighted the potential for misclassification of individuals as self-employed contractors instead of employees.

“Where Revenue becomes aware of a case that involves the misclassification of an employee as a self-employed contractor, the department or other public body engaging those individuals will be required to operate the PAYE/PRSI/USC systems on payments made to those individuals,” it warned.

The document included a section on withholding tax which it said should be applied to self-employed contracts. A warning in bold print said: “However, PSWT should not be applied if the relevant payment is more correctly within the scope of the PAYE system”.