Paragraph 2.1 to 2.6 of the Comptroller and Auditor General's report reads:
Chapter 2 Office of the Revenue Commissioners
2.1 Revenue Account
Basis for Audit
An account showing all revenue received and paid over to the Exchequer by the Revenue Commissioners is furnished to me annually. I am required under Section 3 of the Comptroller and Auditor General (Amendment) Act, 1993 to carry out such examinations of this account as I consider appropriate in order to satisfy myself as to its completeness and accuracy and to report to Dáil Éireann on the results of my examinations. The results of my examinations have been generally satisfactory.
I am also required under Section 3 of the Comptroller and Auditor General (Amendment) Act, 1993 to carry out such examinations as I consider appropriate in order to ascertain whether systems, procedures and practices have been established that are adequate to secure an effective check on the assessment, collection and proper allocation of the revenue of the State and to satisfy myself that the manner in which they are being employed and applied is adequate. Sections 2.4, 2.5 and 2.8 to 2.10 refer to matters arising from this examination.
Revenue Collected
Revenue collected under its main headings in 2002 is shown in Table 2.1.
Table 2.1 Revenue Collected
|
Gross Receipts €m
|
Repayments €m
|
Net Receipts €m
|
2001 Net Receipts €m
|
Income Tax
|
10,983
|
2,004
|
8,979
|
9,318
|
Value Added Tax
|
11,375
|
2,531
|
8,844
|
7,907
|
Excise
|
4,734
|
139
|
4,595
|
4,213
|
Corporation Tax
|
5,129
|
325
|
4,804
|
4,144
|
Stamps
|
1,177
|
38
|
1,139
|
1,223
|
Customs
|
154
|
20
|
134
|
165
|
Capital Acquisitions Tax
|
157
|
7
|
150
|
168
|
Capital Gains Tax
|
636
|
17
|
619
|
876
|
Residential Property Tax
|
1
|
-
|
1
|
1
|
Total
|
34,346
|
5,081
|
29,265
|
28,015
|
Of the net receipts of €29,265m, a total of €167m was paid during 2002 under Section 3 of the Appropriation Act, 1999 from the proceeds of tobacco excise to the Vote for Health and Children. €29,283m was paid into the Exchequer which represented a prepayment of €316m. The amount prepaid at the end of 2001 was €131m. Most of the prepayment is due to the transfer into the Exchequer of moneys received from taxpayers as deposits and payments on account pending final settlement of tax liability. Such amounts are rarely repaid to the taxpayer and will subsequently be included in the relevant tax receipts figures as and when liability is finalised. From 2004, payments on account will be recorded and processed as tax receipts.
2.2 Tax Written Off
The Revenue Commissioners have furnished me with details of taxes written off during the year ended 31 December 2002. Details of the total amount written off and the distribution according to the grounds of write-off are shown in Table 2.2 and Table 2.3.
Table 2.2 Taxes Written Off
Tax
|
2002
|
2001
|
|
€’000
|
€’000
|
Value Added Tax
|
80,197
|
29,476
|
PAYE
|
42,657
|
12,790
|
Corporation Tax
|
6,094
|
11,270
|
Income Tax
|
23,707
|
68,092
|
Other Taxes
|
2,600
|
6,401
|
PRSI
|
22,843
|
12,263
|
Total
|
178,098
|
140,292
|
Table 2.3 Grounds of Write Off
Grounds of write-off
|
2002 No. of Cases
|
2002 €000
|
2001 No. of Cases
|
2001 €000
|
Liquidation/Receivership/Bankruptcy
|
360
|
31,137
|
382
|
26,942
|
Ceased trading - no assets
|
2,236
|
42,765
|
578
|
16,945
|
Deceased and Estate Insolvent
|
251
|
2,813
|
52
|
1,631
|
Uneconomic to pursue
|
152,543
|
75,047
|
35,173
|
82,552
|
Unfounded Liability
|
167
|
2,547
|
37
|
830
|
Cannot be traced/Outside Jurisdiction
|
510
|
7,427
|
117
|
4,096
|
Compassionate Grounds
|
234
|
2,185
|
70
|
1,545
|
Uncollectible due to financial circumstances of taxpayer
|
954
|
14,177
|
43
|
5,660
|
Examinership
|
-
|
-
|
2
|
91
|
Totals
|
157,255
|
178,098
|
36,654
|
140,292
|
The write off in 2002 included the write off on an automated basis of 145,797 cases totalling €51m in respect of VAT, PAYE, PRSI, Income Tax, Corporation Tax and Capital Gains Tax. 117,000 of these cases were from periods back to 1966 and the amounts involved were less than €100. The remaining cases were pre-1993 and no amount was greater than €32,000. Cases under general investigation, potential Ansbacher cases, and cases under the control of the Criminal Assets Bureau are excluded from all write off procedures.
The Internal Audit Branch in Revenue undertakes an annual examination of tax write offs. Its 2002 audit examined file papers and computer records for a sample of 153 cases, representing approximately 17% of the value of non-automated write offs. In addition, the computer files relating to each of the sixteen automated write off runs were examined to confirm that the authorised selection criteria were applied. The internal audit found no instance where tax was improperly written off under the current instructions, procedures and guidelines.
2.3 Outstanding Taxes and PRSI
Table 2.4 was prepared on the basis of information furnished by the Revenue Commissioners and reflects the activities and transactions in the twelve month period ended 31 May 2003 - the latest date for which data was available at the time of finalising my Report. Table 2.5 sets out an aged analysis of the balance outstanding at 31 May 2003.
Table 2.4 Outstanding Taxes and Levies
Balance at 31 May 2002
|
Tax Levy
|
Charges/Estimates Raised
|
Paid
|
Balance at 31 May 2003
|
Estimate of amount likely to be collected
|
€m
|
|
€m
|
€m
|
€m
|
€m
|
119
|
VAT (Declared Liabilities Net of Repayments)
|
8,322
|
8,315
|
126
|
101
|
207
|
VAT (Estimates)
|
53
|
54
|
206
|
166
|
169
|
PAYE (Declared Liabilities)
|
7,159
|
7,182
|
146
|
117
|
27
|
PAYE (Estimates)
|
747
|
759
|
15
|
12
|
198
|
PRSI (Declared Liabilities)
|
5,259
|
5,292
|
165
|
133
|
19
|
PRSI (Estimates)
|
464
|
472
|
11
|
8
|
443
|
Income Tax (Excluding PAYE)
|
1,511
|
1,627
|
327
|
263
|
-
|
DIRT
|
199
|
199
|
-
|
-
|
189
|
Corporation Tax
|
3,765
|
3,807
|
147
|
118
|
111
|
Capital Gains Tax
|
674
|
633
|
152
|
123
|
18
|
Capital Acquisitions Tax
|
158
|
157
|
19
|
13
|
8
|
Abolished Taxes
|
1
|
1
|
8
|
-
|
1,508
|
Total
|
28,312
|
28,498
|
1,322
|
1,054
|
Table 2.5 Aged Analysis of Debt at 31 May 2003
Tax
|
Total tax outstanding at 31 May 2003
|
Amounts outstanding for 2002
|
Amounts outstanding period for 30/4/01-31/12/01
|
Due for periods 1990/91 to 2000/01
|
Due for earlier periods
|
|
€m
|
€m
|
€m
|
€m
|
€m
|
Vat
|
332
|
122
|
68
|
140
|
2
|
PAYE
|
161
|
67
|
23
|
65
|
6
|
PRSI
|
176
|
82
|
25
|
64
|
5
|
Income Tax
|
327
|
10
|
53
|
246
|
18
|
Corporation Tax
|
147
|
31
|
10
|
86
|
20
|
Capital Gains Tax
|
152
|
11
|
14
|
125
|
2
|
Capital Acquisitions Tax
|
19
|
1
|
1
|
17
|
-
|
Abolished Taxes
|
8
|
-
|
-
|
17
|
-
|
Total
|
1,322
|
324
|
194
|
751
|
53
|
The balance outstanding at 31 May 2003 of €1,322m is €186m less than at the same point in 2002. It is estimated by Revenue that €1,054m or 80 % of the total outstanding is likely to be eventually collected. This compares with an estimated collection ratio of 71% at May 2002. The estimation of the amount likely to be collected takes into account such factors as anticipated reductions of estimated amounts brought forward, the level of liquidations and business closures and historical business patterns.
2.4 DIRT Investigations
There are two distinct aspects to Revenue activity in the area of DIRT investigations. The first relates to the Look-Back Audits of the operation of non-resident accounts by financial institutions which were completed in 2000. Following on from that investigation of the institutions, Revenue commenced a further investigation in 2001 that focused on the issue of the underlying tax which may be due by individuals in respect of the funds deposited in the bogus non-resident accounts.
Office of the Revenue Commissioners
DIRT 'Look-Back Audit' of Financial Institutions
As a result of the original DIRT look-back audit of 37 financial institutions completed in October 2000, a total of €220m was collected in tax, interest and penalties for the years of assessment 1986/87 to 1998/99. Further audits were finalised in 2002 at 10 of those financial institutions in respect of the later tax years of1999/00 and 2000/01 which resulted in an overall yield of just over €1m.10 In 2001, DIRT 'look-back audits resulting in an overall 'nil' yield were carried out on 47 other financial institutions, none of which had a retail branch network.
Underlying Tax on Bogus Non-Resident Accounts
The approach adopted by Revenue to the issue of moneys deposited in bogus non-resident accounts which may not have been declared for tax purposes involved setting a deadline of 15 November 2001 for depositors to make a voluntary disclosure and pay tax, interest and penalties. Under the 'voluntary disclosure' scheme, interest and penalty charges were capped at 100% of the tax due, a credit was allowed for DIRT paid by the depositors bank, prosecutions would not be taken and settlement details would not be published. 3,675 bogus account holders availed of voluntary disclosure and paid €227m in respect of 8,380 accounts. Of these, 599 account holders declared a nil liability. All returns were checked by tax districts for basic eligibility. 30 cases were deemed ineligible as they were already under enquiry or came within the scope of the Ansbacher enquiry or other tribunals of investigation. The underlying tax project team selected 140 cases randomly for liability review by tax districts. Tax districts selected a further 115 cases based on risk. A nationwide report of the eligibility assessment and liability review has not yet been completed. I have carried out some audit work on the voluntary disclosure phase and my examination will be completed when the overall Revenue check on this first phase of the DIRT underlying tax project is finalised.
In February 2002, investigations commenced into the bogus non-resident account holders that had been identified in the look-back audits of financial institutions and who had failed to avail of the voluntary disclosure scheme. Details on 1,800 cases were passed to tax districts for investigation in March and August 2002. Information on non-resident account holders was sought from 26 deposit takers on foot of High Court orders11. The information received under the orders was examined and enquiry letters were issued to 30,000 individuals in October 2002. Those who cooperated were liable to full penalties and interest and publication of the settlement but would not be prosecuted. Those who failed to respond to the enquiry letter are being examined for follow up and some are under investigation with a view to prosecution. A further 90,000 enquiry letters (see Table 2.6) have issued as information under the court orders is received and examined.
Table 2.6 Underlying Tax Enquiry - Letters Issued
Date
|
Number of Account Holders
|
Number of Accounts
|
October 2002
|
30,000
|
13,500
|
January 2003
|
40,000
|
21,500
|
May 2003
|
10,000
|
6,000
|
July 2003
|
40,000
|
20,000
|
€220m has been received to-date from bogus non-resident account holders who failed to avail of the voluntary disclosure scheme. Information is continuing to be received as a result of the court orders and it is expected that investigations will continue for several years.
2.5 Understatement of DIRT Liability
Arising from an examination by my staff in September 2001 of Revenues DIRT Look-Back audits of financial institutions, I enquired at the time about the nature and extent of the Revenue audit carried out in a particular financial institution. In reply, the then Accounting Officer outlined the justification for the type of audit undertaken and affirmed that Revenue staff were fully satisfied that the 400 non-resident accounts examined were authentic and belonged to genuine non-residents. He stated that the financial institution in question had produced evidence in relation to the genuine non-resident status of the sampled cases to the Revenue team, including those accounts where there were declaration deficiencies. As a result of that Revenue audit, the Revenue report on the DIRT Look-Back audits to the Committee of Public Accounts had concluded that no amount of tax was due from the financial institution in question.
It was subsequently noted in June 2003 during a review by my staff of the pre-15 November 2001 "voluntary disclosure" phase of Revenue's pursuit of the underlying tax due in respect of funds deposited in bogus non-resident accounts that declarations were received from 62 persons which admitted to a total of 230 bogus non-resident accounts of which 102 were stated to be held in the financial institution in question. The payments to Revenue which accompanied the 62 declarations totalled €8.7m.
In regard to the reconciliation of Look-Back Audit information with the bogus non-resident declarations received, it was also noted that:
· The 62 voluntary disclosures included five individuals who had their accounts examined during the Look-Back Audit
· A listing of all non-resident accounts held with the financial institution as at October 1998 was supplied by the financial institution to Revenue at the time of the Look-Back Audit. The audit sample was selected from this list. Excluding the five selected in the sample, the list only included a further eight of the 62 individuals who subsequently made voluntary disclosures.
As this information raised renewed concerns about the quality of the Revenue look-back audit in the financial institution in question and the possible implications for the look-back audits generally I sought the views of the Accounting Officer.
He informed me that officers from the Underlying Tax Project office met with representatives from financial institution on 12 February 2002 to discuss the implications for the institution and its customers, of the application for a High Court Order under section 908 Taxes Consolidation Act, 1997. The fact that some of its customers had come forward during the 15 November 2001 incentive scheme and disclosed bogus non-resident accounts, which they held with the financial institution was also made known to them. The Order was obtained in March 2003 and the financial institution is supplying information on foot of it on a phased basis over the period 30 June 2003 to 31 October 2003.
Until all of this information is received and reviewed, it will not be possible to form a clear view on the reliability of the DIRT look back audit findings for the financial institution in regard to DIRT and the related interest and penalties.
As regards the wider implications for the Look-Back audits he stated that the methodology used in the course of the particular audit was based on the special circumstances encountered in the financial institution - no previous reclassification or redesignation exercise, no internal or external auditor evidence of bogusness, an October 1998 sample date and post 1994 growth in retail banking involvement. He also stated that there was no evidence at this point to suggest that the issues that arise in relation to the financial institution have implications in relation to any other DIRT Look Back audit settlements.
2.6 Special Investigations
Offshore Investments via National Irish Bank
The investigation into individuals who invested in an offshore investment scheme operated by National Irish Bank is continuing. By June 2003, settlements were reached in 373 cases totalling €40m including interest and penalties of €22m. Of these cases, 97 were settled with no liability. In addition, payments on account totalling €5m have been received in respect of other unresolved cases. Payments totalling €1m in respect of Capital Gains Tax have been received in 52 cases where National Irish Bank paid compensation to the investor.
Three cases have been prosecuted. In two of these the defendants pleaded guilty, one was fined €1,750 in the District Court and the other was fined €6,000 in the Circuit Court. Both cases settled their tax liabilities for €882,610 and €804,592 respectively, these figures are included in the overall settlement figures. In the case of the defendant who settled his liability for €882,610 an additional €767,898 settlement was received from his company as a result of the same investigation. In the third case the defendant also pleaded guilty and received a suspended sentence subject to the taxpayer being fully compliant for the next five years. The taxpayer settled his liability for €448,827. One other case is being investigated with a view to prosecution.
In 2001, National Irish Bank submitted to Revenue a list of 22 new cases. Of these, 15 involve relatively small sums and are thought unlikely to involve substantial tax evasion. None of these cases have been finalised to date.
Ansbacher (Cayman) Limited
A special project team is investigating the Ansbacher accounts. The team is investigating cases directly involving Ansbacher type arrangements as well as other cases involving offshore funds and deposits. There are 289 cases comprising 179 cases on the High Court Inspectors Report and 110 similar cases discovered by Revenue or listed on the Authorised Officers Report. Taking account of spouses and connected companies, these cases consist of 300 names. The number of connected entities in relation to cases under investigation is nearly 700.
To date, 44 cases have been settled including 25 cases named in the High Court Inspectors' report which are non-resident and covered by the provisions of Double Taxation Agreements and are regarded as closed. Settlements of €2.8m, including interest and penalties of €1.7m have been agreed in the other 19 cases settled. These 19 cases include five cases with no additional liability and two cases covered by the 1993 amnesty provisions. In addition, payments on account totalling €22m have been received to date in 64 cases as follows:
· €15m from 56 cases involving Ansbacher-type arrangements
· €7m from 8 cases involving offshore funds and deposits.
Revenue's application to the High Court to obtain unpublished documents gathered by the Inspectors was heard in November 2002. Judgment is expected shortly.
Pick-Me-Up schemes
Pick-Me-Up schemes involved expenses for goods or services incurred by a political party being invoiced by the supplier to another trader who paid the supplier as a means of supporting the party. Such payments were not deductible for tax purposes, the VAT was not reclaimable and the invoices issued were not in accordance with legal requirements. The investigation found a total of 71 cases that apparently avoided tax by engaging in picking up expenses which were proper to political parties. 42 cases have been settled for a total of €470,724 including interest and penalties. Revenue has decided not to settle 15 cases that have been mentioned at the Flood (now Mahon) and Moriarty Tribunals until those bodies have reported. €158,157 has been received on account from 6 of those cases. 14 cases are still under investigation some of which relate to payments in the eighties or early nineties and for which records are no longer available. As a result it is proving difficult to confirm liability. Payments on account of €90,340 have been received in 5 of the cases still under investigation.
Tribunals
Matters disclosed at the Moriarity and Flood (now Mahon) Tribunals that suggest that tax evasion may have occurred are being investigated as they come to notice and a considerable number have been looked at to date. Currently 17 cases are being investigated as a result of the Moriarity Tribunal. One case has been settled for €6,292,506 and a payment on account of €14,876 has been received in respect of one other case. Currently 22 cases are being investigated as a result of the Flood (now Mahon) Tribunal and payments on account of €17,572,640 have been received in respect of eight cases.
I will, accordingly, confine my remarks to those chapters. The first three sections of my report bring together, in summary form, information on the tax outturn for 2002, the amount of tax written off by the Revenue Commissioners and the amount of tax outstanding under the various tax heads. Net tax receipts for the year were up by €1.25 billion but that increase masks a fall of €339 in the return from income tax. This reduction mirrors the recent trend of the income tax take falling short of forecasts, a subject to which I referred in my 2001 report and which was considered by the committee.
Moving on to the write-offs, the committee will note a big clear-out by Revenue of old arrears cases where the amount of tax outstanding was small and uneconomic to pursue. This is part of Revenue's ongoing strategy to concentrate collection resources where the best return will be obtained. Outstanding taxes have shown a welcome reduction and, at 31 May 2003, stood at €1.32 billion. It is also good to see that Revenue estimates it will eventually collect 80% of this. It is a measure of its improved performance that five years ago it would have expected to collect only 40% of the amount then outstanding.
Section 2.4 provides information on the DIRT look-back audits of financial institutions and Revenue's campaign to collect underlying tax arising from undeclared income on bogus non-resident accounts. As the committee will be aware, the DIRT investigations have been highly successful in identifying and collecting previously undeclared tax due. A sum of €221 million has been collected from the financial institutions in DIRT arrears, interest and penalties as a result of the look-back audits. The first phase of the campaign to collect underlying tax by way of voluntary disclosure yielded an additional amount of €227 million. As at the last date I looked, Revenue has collected about €230 million from those defaulters who did not avail of the voluntary disclosure scheme. This amounts to a figure approaching €700 million so far, with the prospect of more to come as Revenue gets to grips with more recalcitrant holders of bogus non-resident accounts.
Section 2.5 represents a possible hitch in the success story which has been the outcome of the DIRT investigations. When Revenue carried out its look-back audit in one particular bank, it concluded that there were no bogus non-resident accounts and, therefore, no DIRT liability attaching to the bank. Having reviewed Revenue's papers on the look-back audit in question, I had concerns about the nature and extent of the audit carried out which I communicated to the Accounting Officer in September 2001. In response, the then Accounting Officer outlined the justification for the audit approach adopted and affirmed that Revenue staff were fully satisfied that the 400 accounts examined were authentic. Subsequently, however, it emerged during the voluntary disclosure phase of Revenue's pursuit of underlying tax that 62 persons had disclosed 230 bogus non-resident accounts, of which 102 were stated to be held in the particular bank concerned. The payments to Revenue on foot of these disclosures totalled €8.7 million. Moreover, five of the 62 had been among those accounts examined by Revenue during the look-back audit in the bank and found to be in order, while all but eight of the remainder - 49 - were not on the list provided by the bank, from which Revenue drew its audit sample. On the face of it, this raises questions about the quality of the Revenue look-back audit in the particular bank and, perhaps, the bank's bona fides in the matter.
The matter is being followed up by Revenue which has obtained a High Court order for the provision of information by the bank. As the Accounting Officer stated in the report, it is not possible to obtain a clear view of the possible liability until all of the information is received and reviewed. He has also stated there is no evidence, at this point, to suggest that the issues which arise in this case have implications for the other DIRT look-back audit settlements.
Section 2.6 provides some up-to-date information on the progress being made by the Revenue Commissioners in respect of a number of special investigations such as the NIB offshore investment scheme, the Ansbacher and similar arrangements, the so-called "pick-me-up" schemes and matters arising from the proceedings of the Moriarty and Flood tribunals. Solid progress has been made on all fronts. Substantial amounts of back tax have been collected, either as final settlements or payments on account. It is likely that it will be some time before all of these matters are finally resolved. It is fair to say, however, that the resolve of the Revenue Commissioners to pursue the outstanding taxes to the bitter end cannot be questioned.