The taxman cometh

The move has focused the spotlight on Ireland’s comptroller and auditor general, John Purcell, who has called for a clampdown on major tax evaders who pay “lip service” to the law, exploit loopholes and wind up limited companies to avoid pursuit for millions of euros in tax has been made by the country’s public spending watchdog.
Purcell said he had found that major tax dodgers treat company law “with disdain” and used limited liability merely as “a device to be used to escape tax obligations,” and used a “behavior pattern which outsmarted and rendered useless the Revenue procedures.”
The Revenue Commissioners office wrote off a euro 509 million in the 1990s, usually on the basis of companies ceasing trading. Overall, the office concluded there was “no realistic chance” of recovering books debts of over euro 1.8 billion.
However, Purcell said that the write-off review in some cases could only be considered to be “superficial in nature” and he checked some of those involved in the euro 104 million in tax written off in 2000.
In the future, Purcell said, “chronic” tax dodgers should come under the microscope with a detailed monitoring of all their business activities or otherwise they will have the “opportunity to repeat their undiscovered practices.”
Some of the worst offenders were highlighted in Purcell’s statement, such as a publican who had only declared one of his 10 directorships.
One of the publican’s companies acquired eight properties, mainly pubs and hotels, in the period 1987-97, while deregistered for tax.
Purcell also questions the policing of this so-called “Phoenix” syndrome tax dodge — where one company pulls down the shutters and then transfers the assets and business to a “new” company with a clean tax record.
The Revenue Commissioner’s monitoring program focuses on the companies but not the people behind them. It had involves about 300 companies at any one time but this has now been increased to 400.
“The ‘phoenix’ program monitored the ‘new’ company but no action appeared to be taken in relation to the past activities of companies and directors,” Purcell said. “Instances were noted where it appeared the Revenue identified and investigated classic cases of ‘phoenix’ activity but did not add them to the program.”
The comptroller said evaders were buying off-the-shelf companies to operate a business for a few years and then winding them up having not registered for tax, not made returns to the Revenue Commissioners or having run up substantial arrears.
Those using the company concealed their business interests “under cover of the company veil,” he said.
The hard-hitting report says the evaders conceal their business interests by not declaring their directorships, registering employers or relatives as the bosses and registering a “plethora of home and business addresses.”
The dodgy set-ups “were also accepted as companies by Revenue.”
“Instances were noted where no directors were listed, or less than the number legally required, there was no issued share capital, and the address of the formation office was listed as the address of the new company,” the report said.
The report added that if the company office embarks on a strike-off program to enforce annual returns compliance, the situation could be worse.
“This could seriously hinder tax collection as the directors can then walk away from the tax debts of the struck off company, or even choose to bring about such a situation by failing to file annual company returns.”
In response, the Revenue Commissioners said the new Office of Director of Corporate Enforcement is now considered to have “real teeth” to take action against rogue directors using a “scorched earth” policy to defraud creditors including the taxman.
Recent changes in company law made it more likely that errant directors would be restricted or disqualified.
In addition, a new “Dedicated Pursuit Unit” has been set up to track down dodgers using the “phoenix” scam.