Everald Dewar | Tax audits and investigations coming - Are you prepared?
Of Winston Churchill's six volumes on World War II, the first titled The Gathering Storm describes the period before the war.
Churchill gave a minority report that soon a furious storm was about to break and consume Europe.
In July 2014, The Gleaner reported that Ainsley Powell, the commissioner general of Tax Administration Jamaica (TAJ), said he would be going after $20 billion of outstanding taxes. In this pursuit of tax, auditors armed with unspeakable powers contained in the Revenue Administration Act are gathered on the horizon like a storm rapidly approaching, the clouds in black array and foreboding.
This rising tax-gathering storm's tempestuous blast and ceaseless conflagration are now falling on unsuspecting taxpayers. All businesses and their accounting representatives should be prepared.
Part of the training of a tax auditor and investigator includes consideration of interview techniques. Therefore, before an accountant or tax consultant can prepare a client for meeting with the taxman, they need to be familiar with the interview process themselves.
It starts with TAJ sending a letter advising of an enquiry into the business's tax returns for one or more tax types, namely: corporate income tax, GCT and PAYE. The agents would refer to it as a meeting rather than an interview as this is considered more user-friendly. You should ensure you are properly briefed before such meeting by carrying out a detailed review of the business, as well as its owners and directors, prior to this meeting.
The TAJ team will consist of no less than two agents, who show up after doing many reviews on your file to build a picture of the business. They will have a genuine knowledge of your trade from investigating other taxpayers in the same industry. They may also have visited or done background checks to enhance their knowledge of your business.
The questions are standard and are going to be asked, whether appearing relevant to you or not. Some answers to particular types of questions can give ammunition to be used against you later in ways you would least expect.
Many taxpayers give unnecessary and loaded self-incriminating responses to questions at times. This is in a bid to solicit sympathy or under the doctrine of 'no duty to retreat'. Sometimes, answers are tested against the records and are interpreted in a way not necessarily in your best interest.
It should be understood that agents frequently start from the position that everyone is cheating on their taxes somehow and it is likely that the emphasis may be more about uncovering this. The agent may choose also to carry out a detailed review of the individual director's or owners' affairs. They may develop an awareness of the directors' lifestyle, although that perception may or may not be accurate.
After reviewing the books, another meeting will be called to discuss their findings. Currently, information is being requested from third party relating to their depositors, independent contractors, suppliers and business customers. This, information is to be incorporated in tax returns for voluntary disclosures, said to be requested for just cause and sanctioned by the Revenue Administration Act.
Many believe that the TAJ has a secret code which gives rise to preordained conclusions that the taxpayer's records, on a balance of probability, are substantially incomplete or perhaps falsified. As a consequence, the information generated from the accounting system are at best not trustworthy or inadequate and, therefore, the tax return is incorrect. To deal with this perceived misdeed, the solution is to audit around the accounting system using indirect methodologies s such as: markup, bank deposits and the 'Lennor' methods. Along with third-party information, when all else fails, these guarantee additional tax liabilities.
The preparers of tax returns has a duty, to the best of his or her ability, to do so in the expectation that there is a high probability it will be subjected to TAJ's enquiries. This includes a critical review of the prepared accounts. Unfortunately, most taxpayers are not prepared to sanction the additional work and higher fees that will arise from carrying out such reviews.
However, the cost for tax advisory reviews and attendance at meetings must be balanced against the possibility of additional liabilities from the taxpayer being unprepared. In my many years as a tax adviser, I see time and time again, taxpayers that were clearly not prepared - sometimes to their own detriment.
Everald Dewar is senior taxation manager at BDO Chartered Accountants in Kingston.