Civil investigation of fraud by the revenue

Civil investigation of fraud by the revenue


Author: Niall Murphy

As part of its ongoing campaign to close the tax-gap, and running alongside its campaigns against various business sectors suspected of not paying enough tax, the Revenue has issued a revised Code of Practice 9 (COP9).

COP9 sets out the Revenue's procedures for dealing with civil fraud and will come into effect on 31 January 2012.

How does the new COP9 work?

Where the Revenue suspects that a person has committed tax fraud it will write to them offering a contractual disclosure facility (CDF).

Under the CDF the person has three options:

  • owning up to fraud: the CDF route
  • deciding not to own up to fraud: the denial route
  • not replying to the Revenue: the non-co-operation route

If the taxpayer decides to take the CDF route he/she must:

  • tell the Revenue about the tax that has been evaded within 60 days of being offered the contract
  • provide a full report of the fraud
  • confirm that full and accurate details have been provided
  • pay all taxes, interest and penalties due
  • stop the fraudulent activity immediately

The benefit of signing a CDF contract is that the taxpayer should end up paying lower penalties. If the taxpayer decides to take the denial or non-disclosure route, the Revenue is likely to start either a civil or criminal investigation into their tax affairs. Even if the taxpayer signs the CDF contract he/she can still be prosecuted if he/she makes a materially false statement, fails to make proper disclosure, or fails to provide the formal report and certificates of compliance, and pay the tax.

As well as the Revenue writing to the taxpayer with a CDF offer, a taxpayer can voluntarily make an online disclosure of fraud.

Potential issues with the new system

The revised COP9 represents a considerable hardening of the Revenue's attitude towards instances of fraud. The previous COP9 procedure was concerned with establishing the amount of tax not paid and did not depend on the taxpayer admitting to fraud. Clearly, the up-front admission of fraud could have potentially adverse consequences for the tax-payer concerned.

In complex cases, or cases which go back over many years, 60 days is unlikely to be sufficient to establish all the facts. HMRC guidance says that a taxpayer only has to make an outline disclosure within 60 days from the information reasonably available in that time. The rest can be provided in a timescale agreed with the Revenue. This still leaves open the possibility that, if the taxpayer is not in a position to provide full and complete information and he/she is concerned about what the Revenue may regard as reasonably available that he/she may be reluctant to sign a CDF contract, as any material omission could lead to a criminal prosecution.

In addition, the online disclosure facility makes it clear that the Revenue does not have to offer the taxpayer a CDF contract. The taxpayer cannot be certain what the outcome of his/her disclosure will be.

Given the various uncertainties a taxpayer may want to consider making a disclosure under the Liechtenstein Disclosure Facility, which guarantees immunity from prosecution. This cannot be done if the Revenue has written to the taxpayer under COP9 or has started criminal proceedings, but could be an alternative to voluntary disclosure under COP9.

As always a taxpayer would be wise to take professional advice in those circumstances.