Case 99199

Request for copies of "Business Trade Profiles" - whether release could reasonably be expected to prejudice the effectiveness of future Revenue audits - section 21(1)(a) - whether release could reasonably be expected to prejudice or impair the enforcement of, compliance with or administration of the tax laws - section 23(1)(a)(ii)

Case Summary

Facts

The requester applied to the Office of the Revenue Commissioners for copies of a number of "Business Trade Profiles" which are issued to Revenue Auditors to assist them in auditing the tax returns of certain professions. The Revenue granted access to the ten available Business Trade Profiles subject to the exclusion of chapters 5 and 6 in each Profile. The requester applied for a review of the Revenue's decision to withhold chapters 5 and 6 of each Profile.

Decision

The Commissioner noted that chapter 5 of each Profile contains details of factors considered by the Revenue in the selection of cases for audit while chapter 6 contains details of the various audit tests which may appropriately be carried out having regard to the nature of the business. He accepted the Revenue's argument that if information which indicates precisely the features in tax returns which will trigger a Revenue audit were made known then some taxpayers could reasonably be expected to conceal such features. He found that the release of this information could reasonably be expected to prejudice the effectiveness of future audits of the businesses in question.

The Commissioner also considered that the disclosure of details of the various audit tests which may appropriately be carried out by the Revenue having regard to the specific nature of particular businesses would allow some persons involved in such businesses to prepare themselves in anticipation of the relevant tests. He found that such actions could reasonably be expected to prejudice the effectiveness of such tests. The Commissioner found that audits play a vital part in the Revenue's efforts to prevent and detect tax evasion and he decided that the public interest would, on balance, be better served by refusing the request for access to the chapters in question.

On the question of the applicability of section 23(1)(a)(ii), the Revenue argued that if the effectiveness of one of its key enforcement mechanisms were to be prejudiced then enforcement itself would be prejudiced; compliance would be prejudiced because taxpayers would be less inclined to comply with the tax laws if audits became less effective and reduced compliance would, in turn, prejudice or impair administration by diverting resources to enforcement which might have been better employed elsewhere. As the Commissioner had already accepted that disclosure of chapters 5 and 6 could reasonably be expected to prejudice the effectiveness of future audits, he found, for the same reasons, that disclosure could reasonably be expected to prejudice the enforcement of, compliance with and administration of the tax laws.

Date of Decision: 30.04.2001

Our Reference: 99199

30.04.2001

Mr X

Dear Mr X

I refer to your application under the Freedom of Information Act ("the FOI Act") for a review of the decision of the Office of the Revenue Commissioners ("the Revenue") on your request for copies of a number of "Business Trade Profiles". I apologise for the delay which has arisen in dealing with your application. Unfortunately due to staff shortages and pressure of work, it has not been possible to finalise your case until now.

Background

I have now completed my review of the Revenue's decision. In carrying out that review I have had regard to your correspondence with the Revenue and to your letters of 11 May, 1999 and 9 June, 1999 to my Office. I have also examined the records at issue. The Revenue did not make a specific submission to me because its arguments against release have already been made in a number of other reviews.

Scope of Review

I note that the Revenue decided to grant access to all of the available Business Trade Profiles (10 in total) subject to the exclusion of chapters 5 and 6 in each Profile on the grounds that sections 21(1)(a) and 23(1)(a)(ii) of the FOI Act apply. Accordingly, my review is concerned solely with the question of whether the Revenue was correct in deciding to refuse access to the chapters in question.

Findings

I have examined the Business Trade Profiles at issue in this case. The Profiles are issued to Revenue Auditors to assist them in auditing tax returns of the relevant professions. In each case, chapter 5 contains details of factors considered by the Revenue in the selection of cases for audit while chapter 6 contains details of the various audit tests which may appropriately be carried out having regard to the nature of the business.

Section 21(1)(a)

Section 21(1)(a) of the FOI Act provides that a public body may refuse access to information if it considers that access could reasonably be expected to prejudice the effectiveness of tests, examinations, investigations, inquiries or audits conducted by or on behalf of the body concerned or the procedures or methods employed for the conduct thereof. However, section 21(2) provides that this exemption does not apply if the body considers that the public interest would, on balance, be better served by granting than by refusing the request.

It seems to me that in arriving at a decision to claim exemption under section 21 a decision maker must firstly identify the potential harm to the functions covered by the exemption that might arise from disclosure and, having identified that harm, consider the reasonableness of any expectation that the harm will occur. In this case the Revenue contends that release of information concerning the manner in which it selects certain businesses for audit and the types of audit tests which are appropriate to those businesses could reasonably be expected to prejudice the effectiveness of future audits. In examining the merits of such a view, I do not have to be satisfied that such an outcome will definitely occur. It is sufficient for the Revenue to show that it expects such an outcome and that its expectations are justifiable in the sense that there are adequate grounds for the expectations.

The harm which the Revenue has identified is a reduction in the effectiveness of the case selection process which will make it less likely that the process will achieve its purpose of identifying cases where there is a higher probability than normal of an incorrect return. I accept that this would constitute prejudice to "a method employed for the conduct" of audits. As to whether release of the information could reasonably be expected to result in such prejudice, the Revenue says that this information will enable taxpayers to see how to avoid alerting Inspectors to possible evasion. The warning signals to be disguised and concealed would be made known to taxpayers, some of whom would choose concealment of the signals of evasion in place of compliance with the law.

I should point out at this stage that in Case Number 98102 (Mr & Mrs ABJ and the Office of the Revenue Commissioners), I expressed some scepticism about these arguments. I referred to the fact that, even if the Revenue's selection criteria were published it does not follow that taxpayers who are determined to evade will be able to organise their affairs so as to avoid any possibility of detection in the future. I pointed out that, in a general way, many taxpayers and their agents know the way the Revenue selects cases and that sometimes taxpayers will be able to determine why they were chosen for audit merely from the way the investigating officer conducts the audit, from the areas concentrated on or the questions asked.

All of these comments were made in the context of considering whether the release of records pertaining to a particular audit could reasonably be expected to prejudice the effectiveness of future audits and, in the event, I was not satisfied that such an expectation was reasonable in that case. However, it seems to me that there is a world of a difference between releasing a record relating to a particular audit which may give some indication of why that case was selected and the release of material which indicates precisely the features in returns which will trigger a Revenue audit. I accept the Revenue's argument that if such information were made known then some taxpayers could reasonably be expected to conceal such features. I am satisfied that the release of this information could reasonably be expected to prejudice the effectiveness of future audits of the businesses in question.

Similarly, I am of the view that the disclosure of details of the various audit tests which may appropriately be carried out by the Revenue having regard to the specific nature of particular businesses would allow some persons involved in such businesses to prepare themselves in anticipation of the relevant tests. I am satisfied that such actions could reasonably be expected to prejudice the effectiveness of such tests. I note that you claim in your letter of 9 June, 1999 that the argument that disclosure of the Revenue's selection criteria and audit tests will facilitate those who wish to evade tax is akin to withholding certain details of PAYE allowances. I do not accept this view. PAYE allowances are an entitlement but no person has an entitlement to evade tax or to furnish an incorrect return. I am satisfied that the release of chapters 5 and 6 of the Trade Profiles could reasonably be expected to prejudice the effectiveness of the Revenue's audits and its audit tests and I find that the Revenue was justified in deciding to refuse access to the chapters in question in accordance with section 21(1)(a).

The Public Interest

Having found that section 21(1)(a) applies I am required to consider the application of the public interest test contained in section 21(2) to the chapters at issue. I note from your letter of 9 June, 1999 that you have put forward a number of arguments that the public interest favours release in this case including, among other things, the right of access to information, the need for openness and accountability of the Revenue in relation to how it selects cases for audit and the fairness of the tests used, and the right of individuals to know why they were selected for audit.

As a general proposition, I agree that there is a public interest in public bodies operating in an open and transparent manner. However, the Act requires that the public interest in releasing information which might contribute to such openness and transparency must be balanced against the harm which might be occasioned by its release. I am satisfied that audits play a vital part in the Revenue's efforts to prevent and detect tax evasion and that there is a greater public interest in ensuring that the effectiveness of such audits and the corresponding audit tests is protected. Furthermore, it is not clear to me that scrutiny of how the Revenue selects individuals for audit is a strong argument for release given that the Revenue also selects cases on a random basis. I also accept that there is a strong public interest in requesters availing of their rights under the FOI Act. However, I am satisfied that the public interest would not, on balance, be better served by granting than by refusing this request. In the circumstances, I find that the Revenue was justified in refusing access to the information contained in chapters 5 and 6 of the Trade Profiles.

Section 23(1)(a)(ii)

Section 23(1)(a)(ii) of the FOI Act provides that a public body may refuse access to information if it considers that access could reasonably be expected to prejudice or impair the enforcement of, compliance with or administration of any law.

I have already explained how I interpret the phrase "could...reasonably be expected to..." in the context of section 21(1)(a) and the approach which I have adopted is equally applicable to section 23(1)(a). The Revenue pointed out that this subsection makes a clear distinction between enforcement, compliance and administration. It said that tax law is enforced in a number of ways, including the carrying out of audits and investigations. Compliance involves taxpayers filing correct tax returns, on time. Administration involves informing taxpayers of their obligations and putting in place procedures to facilitate taxpayers who comply. Due to limited resources, the Revenue can only enforce the law in a relatively small number of cases. In most cases, it relies on voluntary compliance with the tax laws. Essentially, its argument is that if the effectiveness of one of its key enforcement mechanisms were to be prejudiced then enforcement itself would be prejudiced; compliance would be prejudiced because, if audits become less effective taxpayers would be less inclined to comply with the tax laws; reduced compliance would, in turn, prejudice or impair administration by diverting resources to enforcement which might have been better employed elsewhere.

It seems to me that some of the Revenue's arguments in relation to section 21(1)(a) and section 23(1)(a)(ii) are interdependent. I have already accepted that disclosure in this case could reasonably be expected to prejudice the effectiveness of future audits. For the same reasons, I accept that disclosure could reasonably be expected to prejudice the enforcement of, compliance with and administration of the tax laws.

Having found that section 23(1)(a)(ii) applies I am required to consider whether any of the exceptions at section 23(3) apply to these records. Section 23(3) provides that access to a record may be granted in specified circumstances where the public interest would, on balance, be better served by granting than by refusing to grant the request. Those circumstances are where the record discloses that an investigation is not authorised by law or contravenes any law, or it contains information concerning the performance of a public body of functions relating to law enforcement or contains information concerning the effectiveness or merits of any programme for prevention, detection or investigation of breaches of the law. No such record exists in this case and I am satisfied that section 23(3) does not apply.

Decision

Having carried out a review under section 34(2) of the Freedom of Information Act 1997, I hereby affirm the decision of the Office of the Revenue Commissioners in this case.

A party to a review, or any other person affected by a decision of the Information Commissioner following a review, may appeal to the High Court on a point of law arising from the decision. Such an appeal must be initiated not later than four weeks from the date of this letter.

Yours sincerely

Information Commissioner