COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 22 Jul 2004

Progress Report on Revenue Investigation into Offshore Accounts.

Mr. J. Purcell (An tArd Reachtaire Cuntas agus Ciste) called and examined.

Mr. Frank Daly (Chairman of the Revenue Commissioners) called and examined.

Chairman

Witnesses should be aware that they do not enjoy absolute privilege and should be apprised as follows. Members and witnesses' attention is drawn to the fact that, as and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 grants certain rights to persons identified in the course of the committee's proceedings. These rights include the right to give evidence; the right to produce or send documents to the committee; the right to appear before the committee, either in person or through a representative; the right to make a written and oral submission; the right to request the committee to direct the attendance of witnesses and the production of documents; and the right to cross-examine witnesses. For the most part, these rights may only be exercised with the consent of the committee. Persons invited to appear before the committee are made aware of these rights and any person identified in the course of proceedings who is not present may have to be made aware of these rights and provided with a transcript of the relevant part of the committee proceedings if the committee considers it appropriate in the interests of justice.

Notwithstanding this provision in the legislation, I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable. Members are also reminded of the provisions of Standing Order 156 that the committee should refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies. I welcome Mr. Daly, Chairman of the Revenue Commissioners, and ask him to introduce his officials.

Mr. Frank Daly

Thank you, Chairman. I am accompanied by Mr. Paddy O'Shaughnessy, who is principal of our strategic planning division and is liaison officer with the Committee of Public Accounts. In the Visitors Gallery is our press officer, Denis Harkin.

Our opening statement is designed to give the committee a brief update on the ongoing investigation by Revenue into offshore accounts and trusts. The committee will recall that Revenue initiated this investigation last year when we focused initially on trusts held in the Jersey-based institution owned by the Bank of Ireland and subsequently on accounts held in an Isle of Man-based institution owned by Irish Life and Permanent plc.

I held a series of meetings in December 2003 with the chief executives of the ten major Irish financial institutions. At or following these meetings the institutions concerned signalled that they would co-operate with the comprehensive inquiry by — Revenue into all offshore accounts. Revenue then gave account holders until 29 March 2004 to make voluntary disclosures and announced that the deadline for payments would be 28 May 2004. In response to the requests from individuals and representative of accountants and tax practitioners who were having difficulty assembling the necessary information, this 28 May deadline was extended by a few weeks to 10 June. This is the voluntary disclosure phase of the offshore investigation. During this phase the total amount collected — this is today's figure — from over 14,000 individuals is €677 million, of which €546 million was collected this year, while €131 million was collected in 2003.

The response to date to this initiative, particularly when compared with results from the voluntary disclosure phase of the bogus non-resident accounts investigation indicates that there is a growing recognition that Revenue is focused and determined in pursuing outstanding tax liabilities. Undoubtedly, however, there are individuals who have failed to avail of this voluntary disclosure opportunity and they will now be the focus of our attention in the next phase of this investigation as we follow through on these non-disclosures. Preparatory work to secure High Court orders to identify those individuals who failed to make a voluntary disclosure is already under way and I anticipate applications to the High Court will be made in the autumn. In those we will seek to have the full list of account holders disclosed to us by the financial institutions. Individuals identified during this phase will face additional penalties and publication; they will also be considered for prosecution. Nobody should be in any doubt about our intention to follow through on this investigation.

That brings the committee up to date on the main offshore investigation. As I am here, however, the committee may be interested in hearing the latest figures from the other major Revenue investigations. The amount for the bogus non-resident accounts investigation now stands at €759 million, made up of €222 million in DIRT paid by financial institutions, €227 million paid under the voluntary disclosure scheme and €310 million paid in the investigations since then. The figure for the NIB-CMI investigation now stands at €51 million and the Ansbacher investigation stands at €43 million. The follow-through from the Moriarty, Mahon and Flood Tribunals is €25 million. Today's running total as a result of these investigations stands at €1.555 billion. This is an increase of over half a billion euro since I last reported to the committee on 25 March.

I wish to add some details to my statement which were finalised yesterday evening after I had forwarded the statement to the committee. Members will recall that following receipt of declarations from taxpayers in the voluntary disclosure phase of the underlying tax due in relation to bogus non-resident accounts, information emerged that led Revenue to review the position of one financial institution in relation to the DIRT lookback audit. This situation was commented on by the Comptroller and Auditor General in his 2002 annual report and the institution concerned is Anglo-Irish Bank. I also mentioned at a meeting last October with the committee that if anything emerged from the review of Anglo-Irish Bank which necessitated a change to the DIRT lookback audit furnished by Revenue to the committee on 31 October 2000 then I would notify the committee as soon as I had the facts. The review included a full re-audit of Anglo-Irish Bank for DIRT purposes which was finalised just yesterday, resulting in a DIRT liability, including tax, interest and penalties, of €3,162,136. This was received by Revenue yesterday and brings the total DIRT paid by financial institutions to €225 million. As a consequence, the overall total from the investigations to date now goes up to €1.558 billion.

Chairman

Can we publish the report?

Mr. Daly

Yes.

Chairman

The media reported that Revenue was unable to get information from foreign banks with holding companies in the State. What are the Chairman's views on that?

Mr. Daly

When we go to court in the autumn we will use either the section 908 power, which was so successful in the BNR investigation, or a new section 87 of the Finance Act, or section 908 (b) of the Taxes Consolidation Act, which enables us to go to court to seek records under the control of an Irish-based institution, even though the records might be held abroad. The question relates to banks that have no established presence in Ireland. We would not have a direct entrée to these banks. I draw the committee’s attention to the different sources of information available to Revenue, and becoming available to Revenue, in regard to financial records and transactions. These range from the information that will be available to us from next year under the EU savings directive, which comes into effect on 1 July 2005 and the information which will become available to us under tax information exchange agreements, which we are negotiating with a range of countries. A developing source of information is that which is available to us under money-laundering reports. Money-laundering or suspicion transaction reports are now a feature in almost every country. In building relationships between ourselves and our colleagues in other administrations abroad, and their access to information in their countries, I am confident we will not lack opportunities to gain information about deposits held in banks which are not established here.

Chairman

Would that incorporate the USA?

Mr. Daly

It would. We have liaison and relationships with all other tax administrations. I see the net extending widely in the future.

Deputy Curran

I thank Mr. Daly for his opening comment. I compliment him and his staff on the work done since our last meeting. I note since 25 March that more than €500 million has been collected, primarily in respect of voluntary disclosures of offshore accounts. The deadline for this was approaching when Mr. Daly was here previously. Given the investigation into offshore accounts and the amount collected as a result of the voluntary disclosure aspect, is in excess of €1 billion an unrealistic or under-stated figure?

Mr. Daly

During the last meeting, I recall that Deputy Curran and Deputy Connaughton put me under a great deal of pressure to come up with an estimate of what the yield might be. I am not sure I said it would be €1 billion, but I eventually agreed it might not be unreasonable to think it might be €1 billion. We have now reached €677 million. It would be more unreasonable now to think we would not reach €1 billion.

Deputy Curran

I suppose time will tell. I note from your comments that the next phase is to go after those who did not avail of the voluntary disclosure measure. You specifically referred to your preparatory work to secure High Court orders. In layman's terms, can you explain to me how that works? Are the court orders against the banks to make the information available and, if so, does it signal that the banks are not co-operating as fully as you had hoped?

Mr. Daly

No. Our applications to the High Court would be applications looking for orders to require the banks to give us a full list of all offshore account holders. We must make a case in court that there are reasonable grounds for making these applications. What we are doing now is building up the information based on what has come in under the voluntary disclosure measure. We say that given what we now know, it is reasonable for the court to assume that there are more accounts out there, that there are people who did not make disclosures and it is reasonable to require the banks to furnish us with these lists.

Since my meeting with the chief executives of the ten institutions in December, co-operation from the banks has been good. The starting phase was when the banks wrote to all holders of offshore accounts held in branches or subsidiaries of their institutions. That was good co-operation. The banks could not force anyone to come in to Revenue. All they could do was set out the facts and advise people of the opportunity under voluntary disclosure which would cease in March, and tell them that if they had a tax problem with the account, they should consider going to Revenue. In fairness to the banks, I do not think they could have influenced their customers, nor could they have made the call that because someone had an offshore account, they also had a tax problem. This information is privy only to the individual. The necessity to go after these lists in the autumn is not down to non-co-operation on the part of the banks. Depending on the attitude the banks take when we look for these applications, I will know how co-operative or otherwise they are being. I suppose they would say that in terms of cover for whatever disclosure they might make to us in the autumn, they need the protection of a court order rather than volunteering the lists. However, this is a question for the banks.

Deputy Curran

I would like to get to the bottom of that question. Is there a legal impediment preventing the banks from supplying the information for which Revenue will go to court to get a court order to receive? Could they have done this voluntarily or is there a legal impediment to doing so? This is what I would view as co-operation or non-co-operation. I agree they have been co-operative where they have written out, but the information you are now seeking is different. I presume we are still talking about the same ten institutions you met in December. Is there a legal impediment to these ten institutions providing Revenue with the lists to which you referred on a voluntary basis? Did you make that request to them?

Mr. Daly

We indicated it to them in discussions and conversations. The same issue would have come up during the bogus non-resident accounts investigation. I suppose our first port of call always would be to ask the banks to give us the lists. I do not have advice on the legal aspects. I imagine the banks would argue that there are issues of client confidentiality. If there is a legal impediment, perhaps it is the only one.

Deputy Curran

They have not come to you and made that argument? Are they just sitting there, waiting for you to initiate a court order to get that information?

Mr. Daly

I would not put it quite like that. Certainly they would be aware that we would be delighted to get the lists voluntarily, just as we would have been during the bogus non-resident accounts investigation. It would create too high an expectation to say they would voluntarily produce the information. I believe we will end up in court in the autumn. Even in that process, there are degrees of co-operation. It should be said that during the process of getting High Court orders under the bogus non-resident account campaign, in most cases the banks would have displayed a degree of co-operation in respect of the way they opposed, did not oppose or assisted us in getting these orders.

Deputy Curran

I acknowledge the rapid progress made since the first meeting in December. Within six months, the Revenue Commissioners have identified these 14,000 individuals and have quantified the liability, payment and so forth. Nevertheless, considering the various investigations which have brought in €1.5 billion over a period and the central role these financial institutions have had in that, this committee would expect these financial institutions to have co-operated fully with all investigations. They are centrally involved, no matter how one looks at it. While they have been successfully involved in voluntary disclosures, the committee would appreciate their finding a way to move matters along without the necessity for High Court orders and the time that would take.

Apart from the ten institutions the Revenue Commissioners have pursued, Mr. Daly mentioned that he had different sources of information regarding non-Irish institutions. Are any specific investigations into those institutions under way?

Mr. Daly

It would be saying too much to say there is an investigation into any of those at present. I do not have detailed figures because our concentration to date has been on acknowledging receipt of the money, getting receipts out to people and creating a database of all the information we have been able to glean from these voluntary disclosures. However, there are preliminary indications that people have voluntarily disclosed in cases where the accounts are held in foreign banks or in banks that do not have an establishment here. It is part of our intention to analyse that. If, as a result of that analysis, we come up with a view that, for example, a particular bank, country or city held a substantial number of these accounts we will try to progress that as quickly as we can. The section 87 powers on which we rely in dealing with Irish-based institutions, would be of limited use to us in those cases but I am increasingly encouraged by the co-operation which exists between tax administrations. We receive increasingly valuable information as a result of reports on money laundering and so on. There is now a great sharing of information not just across Europe but globally.

Deputy Noonan

I thank Mr. Daly. This amount of money, €1.5 billion over several years, is very impressive. I will confine my questions to the trusts and the recent incidents of evasion. What was the socio-economic background of the 14,000 individuals?

Mr. Daly

That is part of the analysis that I do not have yet. I can only give a view off the top of my head. Everybody and anybody was included. There were people from business, farming and the professions but I do not have hard figures as to the socio-economic grouping of these people. They lived in all areas of the country and in all counties. We have an initial indicative breakdown by county but we are still in an initial phase. Dublin had the highest number of cases but that may be a feature of the population. Donegal and Monaghan followed closely, which may be a geographic issue. Cork and Louth figured prominently and then there was a spread over every county. We do not have the deep analysis that would enable us to give a scientific finding. It is something we are interested in.

Deputy Noonan

Which taxes were being evaded?

Mr. Daly

It was mainly income tax and sometimes capital gains tax. Some VAT might have come into the loop in some areas.

Deputy Noonan

The issue was not deposit interest retention tax on the amount invested but that no tax was paid on the capital sums originally.

Mr. Daly

Yes, in some cases. Included in these investigations were, for example, the Irish Life and Permanent accounts in the Isle of Man. In most of those cases the issue was interest on the capital rather than the income itself being untaxed in the first place. Even in the more recent offshore accounts there was a mixture of interest on capital not being returned and, in some quite significant cases, of tax not being paid on the money in the first place.

Deputy Noonan

In general terms, what evasion mechanism was used in Jersey and the Isle of Man?

Mr. Daly

In Jersey, there was a significant use of trusts. In one institution alone, the Bank of Ireland Jersey Trust, 254 individuals had trusts. In many others the mechanism was simply an offshore account. There were a significant number of accounts in Northern Ireland, which were deposit accounts. Of the 14,000, approximately 60% were in Northern Ireland and 30% were in what one might call the islands, that is, Guernsey, Jersey and the Isle of Man. The other 10% were in various places, including the UK mainland. That is the type of spread that is emerging.

Deputy Noonan

Would it require a certain amount of expertise to avail of these mechanisms?

Mr. Daly

Trusts would require some expertise or advice, unless one happened to work in the financial sector. For the others, one would need contacts — maybe I know where this conversation is going — or one might need details of accounts or institutions in which one could place money.

Deputy Noonan

Mr. Daly can see where I am going with this. Many of us are coming to the view, because the sums are so big and it is such a recurring issue, that a tax evasion industry is operating in the country.

Mr. Daly

It would be disingenuous of me to say there was not something like that. As to whether there still is or there will be in the future, I hope we are moving beyond that. Generally, working forward from the DIRT investigation and our own investigations into Ansbacher, NIB, CMI and this one, I hope a behavioural change is being created. It is clear that the number of people who voluntarily disclosed under the current offshore investigation is three or four times the number who voluntarily disclosed under the bogus non-resident account investigation. I hope that is an indication of people taking Revenue seriously and deciding to put their affairs in order. We feel in Revenue, and it is said to us by professionals outside, that there is a greater move towards tax compliance generally in the country. One of the dividends of all of these investigations — and it is less tangible than the money dividend — is that there has been an increase in tax compliance generally and we are getting good results with people who want to get their affairs in order. Our determination to follow through on investigating the people who did not disclose their bogus non-resident accounts has helped this. It is equally important that we follow through on the non-disclosures here to show that it is not a question of taking the easy option and the people who come to the Revenue Commissioners being the ones who pay. We will go after those who did not come forward. There is an improvement in tax compliance. This is not a totally tax compliant culture or country, but it is moving in the right direction.

Deputy Noonan

To pursue the point I made, a tax evasion industry has operated here for a long time. I am sure the Revenue Commissioners are aware that there is a widespread belief that these individuals, the majority of whom are farmers, publicans, solicitors and barristers, would not have the particular expertise to be involved in a trust in Jersey if they were not aided and abetted by financial advisers of one sort or another. This widespread public belief, reinforced by statements from persons who have been caught in evasion, is that they were advised by their banker, accountant, financial adviser or insurance broker, or by a number of those, on how best to evade tax. If that is the situation, the experts driving the evasion are walking away scot free while those evading, on their advice, suffer extraordinary heavy penalties, especially if they do not make a voluntary disclosure. What is Revenue's view on that?

Mr. Daly

I do not disagree with this view. The anecdotal evidence is that these individuals have been advised along the way, although I am not sure to what degree. If a complex set up such as a trust were involved, most people would need advice. I would. If it concerned the opening of a deposit account abroad in a branch or subsidiary of an Irish financial institution, a person would still need assistance to be pointed in the right direction. However, I do not know how much expert advice would be required.

To be honest, I would think that in most cases somebody along the way suggested money should be put here or there or the person should talk to so and so. As I said before in this committee, we would love to get some cases where we could take aiding and abetting cases against individuals who gave such advice. I explained to the committee in March that the real difficulty, because of the manner in which the legislation is structured, is that it is an onerous process to provide the proof required in aiding and abetting cases to bring a successful charge. In all our investigations we examine cases with a view to identifying people who might have aided and abetted and we seek evidence that might result in a successful prosecution. This is a feature of our follow through on the non-disclosure on bogus non-resident accounts. It will also be a feature on our follow through in the autumn on those who did not disclose under this voluntary phase. It would be good for the Revenue Commissioners and the country if we could get some convictions on aiding and abetting.

Deputy Noonan

In cases of voluntary disclosure where a full and final settlement is agreed with the evader, are those who aided and abetted also exempt at that point or do the Revenue Commissioners intend pursuing them?

Mr. Daly

In cases of voluntary disclosure there is no indication in anything that came to us of who might have aided and abetted or been involved.

Deputy Noonan

I phrased that question badly. Mr. Daly indicated that the Revenue Commissioners will pursue those people who have not made voluntary disclosures and that they will pursue the possibility that they were aided and abetted. Will they pursue the people who made voluntary disclosures with regard to how they may have been aided and abetted or is that now a closed book?

Mr. Daly

In so far as individuals who made voluntary disclosures are concerned, it is a closed book and they have made their settlements. However, there are some very large settlements in this voluntary disclosure phase and we will certainly examine them to see if there is a possibility of discovering those who aided and abetted. However, I must caution against false expectations because a key part of any case we take for aiding and abetting involves the co-operation of the individual who evaded. Once people make a settlement with the Revenue Commissioners, they tend to want that to be the end of it. They do not want to have anything to do with us again, apart from paying their taxes.

Deputy Noonan

Mr. Daly indicated that one of the difficulties was that under the section of the Finance Act that makes aiding and abetting a criminal offence, the level of proof required from the Revenue Commissioners is onerous because of the manner in which the Act was drafted. Does he think the Act is amenable to amendment?

Mr. Daly

I mentioned a section to the committee the last time I was here but I do not have it with me now. The effect of it would be that the person who aided and abetted would almost have had to hold the pen when the tax return was made in order for us to get a successful prosecution. We have examined the issue and will probably propose that it is changed in the forthcoming Finance Bill.

Deputy Noonan

My final area of questions is on the numbers. Mr. Daly indicated that since he was here in March an additional €500 million was collected across the different evasion schemes. Is there a figure available for the amount collected from 1 January? I am trying to establish how much would be included in the most recent Exchequer returns in order to determine how much is a once-off amount and how much would be a recurring amount. The commissioners will have noticed that the Exchequer finances have improved significantly. Indications are that instead of borrowing €2.5 billion this year the Exchequer borrowing requirement will be €1.5 billion. There has been an improvement to the tune of €1 billion, one half of which is accounted for through the €500 million Mr. Daly mentioned. Was there more between January and March that would explain the improved finances rather than it being seen as an improvement in the tax position.

Mr. Daly

I do not have precise figures from 1 January, but there would not have been much collected from January. The bulk of the increase in that voluntary disclosure phase, which was collected from June, was, essentially, €555 million. There might have been a few million collected outside of that, for example, €2 million was collected in connection with the NIB and CMI between March and July but I am not sure whether anything was collected there between January and March. Another €2 million was collected relating to Ansbacher during March and July, but I do not think much, if anything, was collected between January and March. The amount involved would be relatively insignificant. An additional €33 million was collected between March and July on the bogus non-resident accounts. I do not have a figure for that between January and March, but there might have been something collected there. However, talking in terms of the Exchequer and at the level of €1 billion, the amount would not be significant.

Deputy Noonan

The €500 million is significant.

Mr. Daly

It is and it is non-recurring, except to the extent that the non-voluntary disclosure phase of this in the autumn or next year may be €1 billion.

Deputy Noonan

In the case of bogus non-resident accounts voluntary disclosure was €227 million and the Revenue Commissioners' investigation brought in another €310 million.

More was brought in when the Revenue went after them than was brought in under voluntary disclosure. Does the Revenue expect the voluntary disclosure to be significantly better this time?

Mr. Daly

The Deputy is comparing 14,000 with something like 3,700 cases. In terms of numbers of people who disclose, we have many more this time around. One would hope there has been a behavioural change. This is a question on which we in Revenue find very difficult to get a handle. When we get the lists from the banks in the autumn we have no idea of the number of accounts that will be there. We know the banks wrote to more than 100,000 people with offshore accounts. Those figures should be approached with great caution because in some cases there was more than one name on the account and in other cases people would have closed an account and opened another one. Among the 14,000, many people seemed to have accounts in more than one institution; they spread their risk or whatever. One should be wary of saying we only got 14,000 out of 120,000 because I think that 14,000 represents many more accounts than 14,000. It should also be taken into account that on top of the 14,000, there were about 10,000 disclosures or people who indicated to us that they had accounts in Northern Ireland. When we looked at those, we found they were very small accounts and not the people in whom we were interested. They were shopping accounts, or student accounts. As I said before, I gather it is a feature that if one attends Glasgow Celtic matches regularly, it is convenient to have an account in Northern Ireland to buy one's tickets. We are not interested in those and never were. That is 10,000 on top of the 14,000 and that adds up to 25,000 respondents. I cannot speculate at this stage on how many did not respond.

Deputy Noonan

Were all the 14,000 individuals taxpayers or were there some individuals who were completely outside of the tax net?

Mr. Daly

I do not have information on that, except to the extent that I have been out with the offshore assets group and looking through their lists. To my mind, almost all of these were in the tax net. They were on the record already.

Chairman

Before I go to Deputy Connaughton, I am conscious of Mr. Fingleton who is outside. Is any other Deputy offering? I will call Deputy Connaughton and then Deputy Rabbitte.

Deputy Connaughton

Every time Mr. Daly comes here, he brings better news.

Mr. Daly

I noticed all the refurbishment being carried out in Leinster House.

Deputy Connaughton

When I saw the new door going in this morning, I knew it would have to be attributed to Mr. Daly.

What will the Revenue say to the ten banks when the holidays are over?

Mr. Daly

I will take a lead from the committee this morning and say to them, "Look, is there some way in which we can avoid the High Court?", but I cannot speculate on what the response will be. The next phase then is for Revenue to liaise with the banks. We must decide, obviously, in what order we go to the High Court. We cannot go into the High Court at the beginning of October with ten banks because we would be unable to cope with that and neither might the High Court. We must analyse where these accounts were and who, if I can put it this way, is the main offender. That is where we begin to draw up a sequence.

Deputy Connaughton

How will you know where the main offenders are if you have not got the list?

Mr. Daly

We will know it from the voluntary disclosure. The voluntary disclosure phase would lead us towards who the main offenders are. If among those 14,000, bank X has 30% of those accounts held in a subsidiary, then it would be reasonable to assume that bank X is one that should be targeted straight away.

Deputy Connaughton

Given the huge scale of the operation, as I understand the banks sent out 100,000 letters, that means approximately 50,000 or 60,000 have not been responded to.

Mr. Daly

That is the point I was making to Deputy Noonan. I would not necessarily say that is the position. We know that the banks wrote to everybody who had an account at any stage. The 14,000 who came in to Revenue and paid, plus the 10,000 who contacted the Revenue but had no liability, adds to 24,000. It could be that it would be reasonable to multiply that by two or three or four, in terms of the coverage of accounts, but I cannot speculate. However, I have no doubt there are people who buried their heads in the sand.

Deputy Connaughton

Some people might believe, for their own selfish reasons, that they will never be caught by the courts or through the Revenue.

Mr. Daly

All I can point to is the very successful outcome in the bogus non-resident accounts investigation. There were 3,700 people who disclosed voluntarily. We have since recovered quite an amount of money. They have paid much more than they would have paid if they had come voluntarily. A further 8,000 people were discovered. Revenue is at the stage where by the end of this year, we will largely have put that investigation to bed and we will have caught nearly everybody, even everybody, who had a bogus non-resident account. At the start of that process, there were obviously quite a number of people who believed we would not get to them. However, the results speak for themselves because we have and we will do it in this investigation also.

Deputy Connaughton

I wish to go back to where Deputy Noonan finished on the issue of aiding and abetting. I raised this matter before with the Revenue. I believe Revenue wish to suggest an amendment to the existing Act. If that happens to find favour and goes through the Oireachtas, will it be retrospective?

Mr. Daly

I said we are examining the legislation at present to see if it is reasonable to put forward a proposal for an amendment. I doubt that it would have retrospective effect, but I am not quite sure. One cannot create an offence retrospectively as I understand it.

Deputy Connaughton

For the vast majority of people who feel they were hard-done by and who believe they were directed or pressurised in a certain way by the institutions, will they have any redress?

Mr. Daly

I would not say that. If one assumes a change in the legislation that makes it easier for the Revenue to build a case, the most likely cases on which we would build it would be the ones whom we catch now in the post-voluntary disclosure phase. It is also reasonable to assume and to return to Deputy Noonan's point about a tax evasion industry, that if there were people or institutions advising people in respect of the evasion of tax, they are the same ones who advised both the people who have voluntarily disclosed and those who have not done so and who we will go after in the autumn.

Deputy Connaughton

I think they are two different things. There was a different attitude from the banks when the 100,000 letters were sent out. In the world we live in, we come across many elderly people who hardly know where the Isle of Man is, never mind Jersey. They definitely had to be directed by somebody in whose confidence they were happy to operate. While I fully appreciate that wrong-doing is wrong-doing, no matter how one looks at it, it is obvious that there has to be some sort of a judicial inquiry into aiding and abetting. Many people consider that the banks bought their way out of this. They paid a certain amount up-front and it appeared to be an amnesty of some description for them.

Mr. Daly

When the Deputy says the banks bought their way out of this, I presume he is referring to the DIRT investigation.

Deputy Connaughton

Yes.

Mr. Daly

There was no amnesty in that instance. They paid the full DIRT, the full interest and the full penalties that applied at the time.

Deputy Connaughton

It is chicken feed when considered as a proportion of the overall amount the Revenue Commissioners collect.

Mr. Daly

The banks paid approximately €225 million. I am not defending the banks, which are quite capable of defending themselves. We have discussed on previous occasions the Revenue Commissioners' approach to the banks at the time. I explained to the Committee of Public Accounts — it was noted by the committee — that we could have approached the matter in two ways. If we had gone down the prosecution route we would probably still be at it without having collected much money. The more practical route was to collect the DIRT, the interest and the full penalties that were applicable at the time. I consider it to be unfortunate that the penalties that applied under the legislation at the time related to the failure to make returns and were relatively small. The relevant legislation has since been changed, at the behest of the Committee of Public Accounts. The current penalties, which relate to the tax evaded, would have been much greater. The Revenue Commissioners had a choice of the type we face every day in many cases. Do we opt for a long drawn-out prosecution without any certainty of success, or do we take tax, interest and sizeable penalties from people?

Deputy Connaughton

My last question refers to the penalties. I appreciate that the methodology used involves serious penalties. The system does not work unless the penalties are in place. Will Mr. Daly comment on something that has been brought to my attention on a number of occasions in recent months? The interest rate charged in this jurisdiction is punitive when compared to that charged in similar circumstances in other European jurisdictions. Given that our interest rates are so low at present, will Mr. Daly comment on the claim that the interest rate charged is excessively high by European standards? This point is made by some people who have trouble with penalties of every description, but fully understand that they have to pay their due share.

Mr. Daly

That is an accurate enough analysis. Our interest rate is high by European standards at present. It should be borne in mind that the Revenue Commissioners pay quite a high rate of interest on overpaid tax. The Minister published for consideration and consultation, the report of the revenue powers group that met and reported last year. It noted that the interest rate is quite high and recommended that it should be reduced. I cannot say what is on the Minister's mind, but he indicated that he would consider the group's recommendation in the context of the Finance Bill.

Deputy Connaughton

Does Mr. Daly think the interest rate is too high at present?

Mr. Daly

I am not sure that it is. The Revenue Commissioners feel there should be an incentive for people to pay their taxes on time.

Deputy Connaughton

Is it a case of the punishment fitting the crime?

Mr. Daly

That is a more general question. If people paid their taxes, there would be no need for penalties. Many people struggled over the years to pay their taxes at times of high tax rates. Some people may have paid interest to institutions to get the money to pay their taxes. I do not wish to comment on what the Minister may do in the Finance Bill. The Deputy is correct to say that interest rates are high relative to some other jurisdictions, but they are not necessarily high relative to all jurisdictions. It is a matter to be considered in the Finance Bill. It is true that interest was the most significant factor in the most recent investigation for many people. The committee is aware that penalties in general were reduced to 10% of the tax.

Deputy Connaughton

Is it the case that the interest rate works out at approximately 12%?

Mr. Daly

It is a daily rate. I think the net effect is 12%. It was 15% before it was reduced in March 1998. It may well be that the 15% rate which was imposed before March 1998 was the real problem for many people with offshore accounts because the money was out there for a long time.

Deputy Connaughton

The Chairman mentioned the proposed autumn activities, involving ten banks. When Mr. Daly is on holidays in the coming months, I assume he is unlikely to have the ten banks with him.

Mr. Daly

I would not want to be with them. I wish to make a final comment. The Deputy claimed earlier that the banks did not suffer very much as a result of the DIRT investigation. If it were not for the high interest rates that applied at that time, the banks would have suffered even less. A considerable proportion of the €225 million they paid us after the DIRT investigation comprised interest payments.

Deputy Rabbitte

I join my colleagues in congratulating Mr. Daly on the retrieval of this amount of money for the Exchequer. When I was a member of this committee for the first time in 1989, I asked some questions about tax evasion. I was told, more or less, that it was the product of an over-fevered imagination and that there was no serious problem of tax evasion. When will the Revenue Commissioners be in a position to give the committee its estimate of the tax foregone as a result of the exemption for stallion fees? A report published yesterday suggested that the figure may be €3.5 million. I would have thought that one of those chaps would send the Revenue Commissioners a cheque for €3.5 million rather than be involved in controversy. If one had a stud farm full of donkeys which were being put out to service, it would not be long until the figure would reach €3.5 million. Given that such people are now required to make returns, will the Revenue Commissioners be in a position to give us an estimate of the relevant sum soon?

Mr. Daly

I want to ensure that I am giving the Deputy the right date. The committee is aware that the provisions in this regard were amended in last year's Finance Bill. One is required to disclose such income in one's tax returns for 2004, which are due to be received by the Revenue Commissioners in October 2005. We will do an analysis thereafter. The cost of the exemption will be outlined in the statistical report in the normal way. I want to double-check it.

Deputy Rabbitte

Is it not a weakness that we cannot make an estimate while we are waiting for the precise figure? It is clear that none of us wants to damage the industry, which is valuable and makes a significant economic contribution. If we think tax incentives or exemptions are a desirable instrument of economic activity, is it not good that we should be able to outline the value of the tax foregone?

Chairman

Mr. Daly is here to brief us on the tax update.

Deputy Rabbitte

I appreciate that. I will not detain him.

Mr. Daly

I do not have a difficulty with that. As the Deputy is aware, at the December session we had a discussion on this matter. It is certainly Revenue's intention and wish to assimilate the information about the cost of all tax exemptions and tax breaks. In the past, although this was not necessarily the position in regard to the stallion exemption, we may have been a little over cautious about not wanting to add more to the complexity of tax returns by looking for information like this. Technology has moved on and that enables us to do it without discommoding the ordinary taxpayer who, in many cases, does not avail of any of these tax breaks. It is our intention to collect this information in future and to publish it.

I have given the correct dates but because the returns do not come in until October 2005 it will probably be several months before we have the analysis.

Deputy Rabbitte

It would give anybody minded to restructure the industry a great deal of time to do it.

Chairman

That concludes this part of the meeting. I thank Mr. Daly and Mr. O'Shaughnessy for being here and giving us the update.

Sitting suspended at 12.22 p.m. and resumed at 12.25 p.m.