New point system for tax offenses projected for 2004

The government has unveiled a draft bill providing for the abolition of fines for tax offenses and introducing a point system that is hoped to simplify and improve relations between tax officials and taxpayers by largely automating procedures. The draft bill, which is being sent to professional organizations for comment and is expected to become law on January 1, establishes a central system for the selection of cases for tax inspection according to the number of punitive points debited for offenses which will form a priority scale for inspection. A low number of points means a firm is placed on a list for possible greater probing but a high number will lead to a reassessment of results and increments on the tax rates applicable. The number of points will depend, among other criteria, on the type of tax or customs transgression, the firm’s size, financial and other data, and their sector of economic activity, reflecting differences in the incidence of offenses. Construction companies, for instance, will be debited with more points as the sector has a high incidence of violations. The new system will apply to firms or professionals with a gross annual revenue of up to 30 million euros. Instead of fines, it institutes 11 tiers of points between 1 and more than 100,000, corresponding to incremental factors scaled from 0.5 to 20 which automatically raise a company’s or a professional’s gross revenue, thereby increasing the offender’s tax burden. Companies and professionals are given the opportunity to voluntarily report offenses within the fiscal year and to redo their books through internal audits. In such cases, they will pay the applicable taxes without extra fines. For instance, a firm that has been debited with 1,500 points, will be able to avoid having its turnover recalculated by an incremental factor of 3, and pay the taxes it would pay normally if it opts to self-correct its books. According to the provisions, inspectors will no longer have the power to determine that firms’ books are not in order and calculate taxable income on the basis of predetermined rates of net profit per activity. Inspectors who are found guilty of undermining the new system will be liable to prison sentences of up to a year. The new «objective» system is hoped to release resources for the more effective tax monitoring of larger enterprises, for which it will not apply; listed firms and those with an annual turnover of more than 30 million euros, which have to undergo compulsory annual inspections, with a view to eliminating the phenomenon of the large number of uninspected fiscal years and boosting the credibility of listed firms. In cases where violations are established through court adjudication, the predetermined incremental rates on net results are to be halved.