Comment/PJ Henehan: The Revenue Commissioners have recently decided to reorganise themselves so that they can focus greater attention on the largest taxpayers, both individuals and corporates. One of their stated purposes is to try to change their relationship with these taxpayers.

A new Revenue division called the large cases division (LCD) has been set up. Officials in the LCD have already written to taxpayers to outline the framework of the new relationship and to agree an approach to tax compliance. The letters make a number of offers that seem very attractive to taxpayers.

The purpose of the LCD is stated as being to "secure the highest possible level of voluntary tax compliance" and to position "high compliance as an important dimension of good corporate governance".

" would like to think that the benefits of structured communication between Revenue and the largest taxpayers could flow two ways."

This two-way flow includes giving taxpayers assistance with interpreting tax legislation;

The LCD is of the view that tax-based competition should not exist (in some letters this is referred to as "unfair tax practices") and companies that perceive there to be such tax practices in their area should feel free to approach Revenue.

The benefits of the framework and the structured communications are seen as resulting in "no surprises on either side".

These offers are either misguided or fundamentally flawed. They also involve significant risks for taxpayers who sign up for them.

In an unprecedented move, the LCD seems determined to integrate itself deeply into the day-to-day affairs of the State's largest companies (including all financial service companies irrespective of size) and highest-earning taxpayers, and to promote a more interactive relationship between taxpayers and Revenue.

The question that needs to be asked is whether this approach is appropriate and in the best interests of taxpayers.

We pride ourselves in being a liberal economy; the central feature of such an economy is that residents are free to undertake the activities that they wish, provided the activities are not unlawful.

Very often the State's public servants may not like the activities of particular persons or businesses. For example, it is not that long since the State disapproved of imports of any kind and tried very hard to reduce the importation of "luxuries".

At the moment, many politicians and civil servants are concerned about taxpayers not paying their "fair share" of tax. Curiously, this concern does not appear to relate to tax evasion, which we all deplore, but to tax avoidance.

Usually tax is avoided as a by-product of a commercial transaction. For example, a company buys some new machinery and the capital allowances on the new machinery results in a lower tax bill.

Avoiding tax may in fact be specifically encouraged by the State (e.g. investments in business expansion schemes, films or designated property reliefs).

The LCD is mainly concerned about tax avoidance where it feels that the main or one of the main motivations in entering into a transaction is to pay less tax. The hope seems to be that a closer interaction between taxpayers and the Revenue will allow the Revenue to spot and intercept transactions that are more about avoiding tax and less about commercial profit-making endeavours.

In their naivety, Revenue appear to believe that management in companies have endless time available to devote to interaction with them.

This approach is doomed to inevitable failure and, in the meantime, will only increase the bureaucratic burden that afflicts many Irish companies and cause a lot of friction with Revenue.

Taxpayers, on the other hand, are driven by market forces. In a market economy, consumers are king. We make rich those whose products and services we prefer, we make poor those whose products and services we do not like.

We may not like to deal with people who are acting in the black economy but, otherwise, we do not care about the tax profile of people who provide us with goods and services. Also, we do not generally try to understand how one person can sell more cheaply than another:

n maybe their labour costs are lower because they outsource most of their production to the Far East or eastern Europe;

n maybe they rent cheap premises on the outskirts of Dublin rather than more expensive space close to the city centre;

n maybe they are based in a designated area with consequent tax benefits that reduce their tax liability.

As a result of good management, some taxpayers may have lower costs than others.

If that lower cost allows a company to sell its products at a lower price, then consumers will prefer to use that supplier.

Tax is a cost of doing business so, naturally, a good manager will try to manage this cost and the risks associated with it. This is an essential part of good corporate governance.

The Revenue are charged with collecting tax, it is not their role to advise taxpayers on tax law. Also, in a liberal economy there is nothing Revenue can do about "unfair tax competition". Tax avoidance is legal.

The role that Revenue are trying to carve out for themselves through the LCD is not appropriate; they are promising to do things that they should not or cannot do.

Revenue in turn expect taxpayers will deliver on their side of the bargain. But taxpayers, as participants in the market, cannot promise "no surprises" and no manager can promise to bind his or her company's legal behaviour in the future.

In summary, this is a bargain where one side, the Revenue, is promising what they should not promise and the other side, the taxpayer, is being asked to deliver what they cannot deliver.

If you are in receipt of a letter from the LCD, you need to think carefully before you invite them in. You also need to plan carefully what you propose to tell them (cosy chats are not recommended!) as the information you provide will be used against you.

Finally, never meet with them or allow anything to go on record without your tax adviser present. Caveat Emptor! You have been warned.

PJ Henehan is a senior tax partner in Ernst & Young. A longer version of this article can be found at ww.ey.com/global/content.nsf/Ireland/ tax_overview. The opinions expressed in this article are the author's own Comments can be e-mailed to pj.henehan@ie.ey.com.