Software company liquidated over VAT fraud

A liquidated software company that has no funds or assets has been fined a total of €140,000 for defrauding €250,000 from the Revenue Commissioners in VAT returns.

Big Picture Software Limited was convicted in April for the crime by a Dublin Circuit Criminal Court jury that was told the company was unable to refund the Revenue Commissioners.

The jury took just 15 minutes to return guilty verdicts on each of 14 charges after a two-day trial.

The company with addresses at 14 Bother Pembróc, Droichead na Dothra and 7 Inns Court, Winetavern Street, Dublin went into liquidation in 2004 and was represented at the trial by the liquidator, Mr Ken Fennell, who was appointed after the dates the offences were committed.

Judge Patricia Ryan imposed a fine of €10,000 on each of the 14 charges. She had adjourned sentencing previously after being told by Mr Bernard Dunleavy BL, for the liquidator, that there were no funds available to pay any fine the court might impose.

Prosecuting counsel, Mr Dominic McGinn BL, told Judge Ryan that the penalties available to the court included a five year prison sentence and a fine of some €127,000.

Mr McGinn also said at the start of the trial that the company couldn’t (could not) refund the defrauded VAT returns to the Revenue Commissioners.

Mr Stephen Connolly, a former accountant for the company, told Mr McGinn at the trial that it stopped paying VAT returns on services provided by it in October 2001 because of a cash flow problem generated by developing its own software products.

Mr Connolly said the company directors decided to put all its money into the new software products and pay returns based on estimates issued as standard by the Collector General.

Mr McGinn explained to the jury that if a trader had outstanding returns, the Collector General issued a form with an estimate of VAT to be paid based on the trader's previous VAT returns.

Mr Connolly confirmed that the estimates from the Collector General were significantly less than the true liability owed by Big Picture Software because the company had secured a contract with PSIR, affiliated with Bank of Ireland, around the time it stopped making VAT returns in 2001.

A statement from the Collector General, Mr Liam Irwin, confirmed that the company paid a year's worth of outstanding returns in 2002, based on estimates issued by his office, to secure a Tax Clearance Certificate for an Enterprise Ireland grant.

Mr Michael Kehoe of Enterprise Ireland told Mr McGinn that Big Picture Software Ltd was given a grant of over €181,600 once it paid the outstanding returns and showed it was tax compliant on October 30, 2002.

Mr McGinn told the jury that on December 11, 2002 the Revenue Commissioners sent Big Picture Software Ltd notice that it was going to audit the company's books.

The company sent a letter to the Revenue Commissioners in January 2003 asking to defer the audit and made seven subsequent online VAT returns for the previous outstanding periods, showing different figures.

Ms Sheila Hanley, an Inspector of Taxes, told Mr McGinn she was appointed to investigate the company's tax affairs after these new submissions and discovered it had under declared by €265,398.

Ms Hanley gave as an example that using the Revenue Online System (ROS) the company paid €3,170, which she said was a fictitious figure, based on the estimate for the March / April 2002 period.

She said the real liability for that period was over €43,000 because the company's contract with significant new clients greatly increased its VAT.

Ms Hanley added that similar fictitious amounts were entered in the VAT 3 return forms issued by the Collector General for the six outstanding periods from September / October 2001 to July / Aug 2002.