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You may think that you are unlikely to ever come into contact with the Revenue Investigations and Prosecutions Division, but in the current climate this is no longer a remote possibility.

Two new draconian powers have been introduced in this year’s Finance Bill. The first being a new person specific search power which can compel employees and others to direct Revenue to key material. Failure to comply with the Revenue request carries a penalty of imprisonment and / or a fine. The second, will compel professional advisors and other third parties to provide information requested by Revenue unless “legally privileged” thus affording no protection to advice from accountants and tax advisors.

The new powers are modelled on those contained in criminal and other legislation. The scope of the new search power dramatically increases Revenue powers to equate with search powers used by Gardai in criminal cases where an offence is being investigated which is punishable by a term of imprisonment of five years or more. Yet, astoundingly, the new power has been introduced without a single appropriate safeguard in favour of the taxpayer or his advisor.

This article focuses on the scope of Revenue’s new powers contained in this year’s Finance Bill in relation to search and seizure and their right to seek information from you as a chartered accountant / tax advisor.

It is important to note that whilst recent Finance Acts (particularly in 1999 and Finance Bill 2007) have dramatically increased the powers of the Revenue, there have been no corresponding statutory safeguards introduced for the taxpayer or his advisor. To the extent that any safeguards exist, they are contained in Revenue Statements of Practice and internal Revenue operations manuals. Suffice to say that internal guidelines or operations manuals are of questionable legal standing and offer little comfort to a taxpayer or to you as an advisor.

SEARCH WARRANT - SECTION 908C TAXES CONSOLIDATION ACT, 1997

Under new powers introduced in this year’s Finance Bill, Revenue will be entitled following the Finance Bill becoming law, to obtain a search warrant which will be specifically used in cases where a criminal prosecution is intended.

The person whom this new power is most likely to affect is an employee, where ultimately material disclosed by the employee may be used in the criminal prosecution of his or her employer.

What are Revenue entitled to search?

Under the new search power, provided a search warrant is obtained in the District Court, Revenue will be entitled: • to search both the premises, • to search any persons who are at the premises, • to search “anything” on the premises; • to require any persons found on the premises to give their name, address, occupation; • to produce material in the possession of that person when requested; • to have the person explain the value and relevance of material (such as books, records or other things ,including a computer) found on the premises; • to examine, seize and retain any material found on the premises and to take any necessary steps to preserve such material and to prevent interference with it. • to request any person to direct and find such information where records are held on computer.

What is the penalty for non-compliance/obstruction?

A person who obstructs or attempts to obstruct or fails to comply with a Revenue request will be guilty of an offence and liable on summary conviction and to a fine not exceeding €3,000 and/or a term of imprisonment in excess of 6 months or both. The new power specifically provides that the Garda Siochana may accompany a Revenue official to execute the search warrant and may arrest any person without warrant who obstructs the search or “whom the Garda suspects, with reasonable cause, of having done so”..

How do the new search powers differ from the position pre Finance Bill 2007?

Prior to Finance Bill 2007, Revenue were only entitled to search a premises, inspect and remove documents and require reasonable explanation of any such documents. The penalty for failure to cooperate is a monetary fine only.

Whereas the new power provides significantly increased search powers to Revenue in that it allows a person or anything on the premises to be searched. In addition, any person on the premises can be forced to provide active cooperation and to direct the Revenue to requisite material (whether iin hard or soft copy). Failure to comply with any such request could result in immediate arrest or a term of imprisonment and / or a fine.

Does the new power contain any safeguards? It is remarkable that this new power does not include a single safeguard for the taxpayer or his advisor save that a body search will be carried out by a person of the same sex. In particular, it fails to address the situation where a person may incriminate himself/herself if he or she is forced to provide information under this new power.

Revenue has indicated that the new search power is modelled on similar powers in criminal, company and competition act legislation. It is noteworthy that whilst the search powers given to Revenue are broader, there has been no introduction of equivalent safeguards.

FINANCE BILL 2007 – NEW DISTRICT COURT PRODUCTION ORDER S908D

Purpose

Revenue have indicated that “the purpose of the newly introduced production order is to provide an appropriate way of getting information from third parties when investigating a criminal (Revenue) offence where use of a search warrant in such a situation might be viewed as unnecessarily heavy handed”.

In my view, the most likely group which will be affected by this new power are professional advisors.

How do Revenue obtain an order?

Revenue may obtain an order from a District Justice “to produce evidential material” by production of an oath in circumstances where the District Justice is satisfied that there are reasonable grounds for suspecting: “that a (tax) offence is being, has been or is about to be committed, and that material of value to the investigation of the offence,… is in the possession of a person specified in the application…”.

What material may fall within the scope of an order?

An order under this section may provide that a person: - “produce the material to the authorised officer for the authorised officer to take away, or - give the authorised officer access to it, either immediately or within such period as the order may specify. - produce any computerised records in a form in which they are visible and legible and in which they can be taken away. However, the order needs to specify that computerised records are included.

Which documents are specifically excluded from the scope of an order?

The only documents which may be excluded from the scope of an order are those which are subject to “legal privilege”. This is the position notwithstanding that any other obligation as to secrecy or other restriction on disclosure of information imposed by statute or otherwise.

The most obvious omission is the exclusion granted in relation to any information or professional advice of a confidential nature given by chartered accountants or tax advisors which is to be found in pre Finance Act 2007 information seeking powers.

What are the penalties for non-compliance/obstruction?

The new power uniquely introduces a potential term of imprisonment (not exceeding 6 months and/or a fine of up to €3,000) in addition to fine for a refusal to comply or a failure to comply without reasonable excuse.

How is it intended that material provided under an order will be used by Revenue?

The new section includes detailed provisions regarding retention and use of material supplied under an order including it’s admissibility in subsequent criminal proceedings. For this purpose, Revenue has adopted specific sections of the Criminal Evidence Act, 1992 which will be deemed to apply. Whilst we will now have directly applicable criminal provisions, no equivalent safeguards have been imported.

The only limitation on admissibility of material in a subsequent criminal proceedings is where documents are legally privileged, were supplied by a person who would not be a compellable witness, or where such material was compiled for the purposes of civil or criminal proceedings.

What is the potential impact of an order on accountants / tax practitioners?

A number of serious issues arise for accountants and tax practitioners who are faced with complying with such an order. It should be borne in mind that an advisor will have no scope to vary such an order if Revenue act unreasonably (for example by imposing a unreasonable time limit).

If an advisor fails to comply without “reasonable excuse”, then he may be subject to a term of imprisonment and / or a fine if found guilty of an offence under this section. This is a most unsatisfactory position in the absence of any form of appeal or even a definition of “reasonable excuse”.

The section contains no safeguards and specifically includes advice given by accountants and tax advisors.

From a business management perspective, considerable issues arise. For example: - the section does not provide for return of documents within a reasonable time frame where originals are provided and there is no scope for copies to be made. - Dependent on the nature and scale of the request, a substantial period of professional time may be required to comply with the order. In these circumstances, an issue may arise in relation to the recovery of costs. - Also in certain cases, the taxpayer may no longer be a client of the firm and thus such costs will not usually be within the scope of the normal terms of engagement.

CONCLUSION

The balance between securing the Revenue of the State and the rights of the taxpayer have been the subject of extensive consideration by the Law Reform Commission and the Revenue Powers Group. The main recommendations of both bodies proposed the need to rebalance in favour of the taxpayer i.e. by the introduction of appropriate safeguards.

Whilst each year’s Finance Act (2004, 2005, 2006 and 2007) has enhanced or introduced new Revenue Powers, there have been no accompanying safeguards introduced despite the recommendations of the above bodies. Ireland stands alone within the EU, where the majority of EU countries provide adequate safeguards for taxpayers.

In my view, in light of the proposed new powers in Finance Bill 2007, it is now critical that basic safeguards be introduced. The greater the powers granted to Revenue, the greater safeguards that are needed to balance the rights of the taxpayer. It is time to redress the balance to protect each taxpayer’s basic rights and those of his advisors.

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