International Tax Review: What advice would you give to taxpayers about how they can avoid getting into a dispute with the Irish tax authorities?
Gerry Thornton, Matheson Ormsby Prentice (right): Always make sure that tax returns are filed on time. The failure to do so is one of the key criteria which the Irish tax authorities apply in identifying taxpayers to audit.
Maintain all necessary records in good order. It is important that a taxpayer can efficiently respond to queries from the Irish tax authorities in the course of routine enquiries and audits. A good example of records which are sometimes not properly maintained are real estate records, which have become very important, in particular, in determining VAT liabilities.
Avoid (where possible) entering into transactions where sufficient comfort has not been obtained confirming the correct tax treatment. A taxpayer has the option of submitting a formal ‘expression of doubt’ to the Irish tax authorities in cases of genuine technical doubt, which can protect the taxpayer from interest and penalties.
Where historic errors have been identified by a taxpayer, consider making a voluntary disclosure of such errors to the Irish tax authorities. This can ensure that the taxpayer is subject to significantly lower penalties.
ITR: What is the first step a company should take when it becomes involved in a dispute with the Irish tax authorities?
Greg Lockart, Matheson Ormsby Prentice (below): Seek advice from an external tax adviser, preferably from legal counsel. Tax advice from a lawyer to a client is generally privileged from discovery in the course of litigation. This protection of privilege is especially important in the context of tax disputes and the same protection does not extend to other professional tax advisers.
Ensure that all notification, filing and response deadlines relating to the dispute are met. A taxpayer will only have a certain period of time to, for example, lodge a request for an appeal against a decision by the authorities. If these deadlines are not met, a taxpayer may not have any recourse against a contentious decision of the Irish tax authorities.
Undertake an internal audit of the tax affairs of the taxpayer. This should ensure that any other relevant matters may be identified early in the process and, if necessary, brought to the attention of the Irish tax authorities, prior to the commencement of any investigation by the tax authorities.
ITR: How should a company organise its tax dispute team and tax advisers when it is involved in a tax dispute?
GT: If the dispute is sufficiently complicated, appoint a specific coordinator to manage the process. Clearly allocate responsibility for tasks between team members, and nominate which team members may communicate with the tax authorities on particular issues. If justified by the scale of the dispute, establish a central database of correspondence, returns etc.
Take careful steps to ensure that privilege is maintained in respect of legal advice. It is possible to lose the protection of privilege if, for example, the legal advice is distributed too widely.
ITR: How can a company maintain a good relationship with the tax authorities during a tax dispute?
GL: Seek to arrange face-to-face meetings with the relevant tax authority officers, early in a potential tax dispute. This will allow a taxpayer to clearly explain its position and identify net points of contention.
Maintain as good a relationship as possible with the relevant tax officer in respect of day-to-day matters, and ensure that all administrative obligations are satisfied in the normal manner.
Be responsive. For example, if the tax authorities request documentation to which they are entitled, seek to provide it to them without undue delay.
ITR: Do you see any future trends in the areas the Irish tax authorities will focus on?
GT: More focus is being placed by the Irish tax authorities on computerised methods of identifying industries and taxpayers where there may be significant failures to pay tax. The general movement to electronic filings allows the Irish tax authorities to efficiently interrogate data and to identify trends.
Focus is also expected to be placed on transfer pricing audits. Finally, it is likely that information requests from foreign tax authorities will result in more interaction between the Irish tax authorities and Irish taxpayers.