The letter requests that taxpayers review their returns for the years 2011 to 2013, on the basis that milk suppliers received shares under the Kerry Co-op patronage scheme.
The Revenue letter outlines their position that the shares were received as a result of and in proportion to the quantity of milk supplied in those years, and that the value attributable to those shares should be factored into the income tax returns of those years.
The Revenue letter has come as a shock to both suppliers and accountants who had been blindsided by the communication.
It was known to many that Revenue had been building up to the launch of a tax collection project in relation to shares, but it has come as a surprise that Revenue has gone down the income tax route. It was expected that Revenue would target underpaid tax on the disposal or onward succession of shares.
However, the linking of the receipt of shares by suppliers to trading receipts is a new departure.
The letter confirms the Revenue are for the moment considering the matter as an aspect query. This gives tax payers the opportunity to make a disclosure to Revenue with the minimum penalties.
Where a tax payer fails to deal with the query within 21 days, Revenue can move to audit phase. Higher geared penalties apply where Revenue move on to audit, with the loss of the opportunity to make an “unprompted” disclosure.
In order for a disclosure to be treated as an “unprompted” disclosure, it must be made before Revenue is notified about the commencement of an audit, the disclosure is complete (covering all periods), the disclosure is in writing, signed by the taxpayer, with a declaration confirming “to the best of that person’s knowledge, information and belief, that all matters contained in the disclosure are correct and complete”, and including payment of the tax or duty and interest on late payment of the tax.
In the absence of a disclosure by the tax payer, Revenue have a variety of powers at their behest, including the ability to raise assessments, enforce collections, apply penalties and interest, seek prosecution, and publication of tax defaulters.
In the event that a tax payer genuinely does not have the ability to meet the tax liabilities arising from a revision to the tax returns for the years under query, a tax payer would be well advised to consider making a disclosure while simultaneously consulting with Revenue with a view to putting in place an acceptable instalment arrangement.
The Revenue position on how the discrepancy will be regarded for penalty purposes is not apparent.
However, given the scale of the project, it would seem implausible for Revenue to consider the matter as deliberate default by such a large cohort of Kerry Co-op suppliers.
The nature of the letter issued to tax payers is more an invitation for taxpayers to engage rather than a heavy handed dictate.
However, the seriousness of the communication should not be underestimated, as failure to adequately respond within the relevant time period afforded by the letters will undoubtedly result in a progression to the next phase of the tax collection project.
For tax payers who had sold their shares and unwittingly or mistakenly paid capital gains tax on the full proceeds of their shares, there may be some consolation in the ability to transfer capital gains tax payments made against the underlying income tax, PRSI and USC due.
It certainly seems like a cleverly targeted project from Revenue’s perspective, given that most milk suppliers will have funds accessible to them from the disposal of shares.
Perhaps more worryingly, farmers are wondering will the project be rolled out further to cover bonus shares often issued by co-ops as a result of trading activities.
It is hoped farm organisations will liaise with Revenue with a view to ensuring farmers are dealt with fairly, have sufficient time to deal with the query and are afforded the opportunity to make payment by instalments, where genuine hardship applies.
As always, professional advice should be obtained relevant to each individual’s circumstance.