COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 18 Nov 2004

2003 Annual Report of Comptroller and Auditor General and Appropriation Accounts.

Vote 9 — Office of the Revenue Commissioners.

Chapter 3.1 — Revenue Account.

Chapter 3.2 — Tax Written Off.

Chapter 3.3 — Revenue Audit Programme.

Chapter 3.4 — Revenue Prosecution Activity.

Chapter 3.5 — Special Investigations.

Mr. F. Daly (Chairman, Office of the Revenue Commissioners) called and examined.

Chairman

Today we will deal with the Office of the Revenue Commissioners, Vote 9, chapters 3.1 to 3.5, inclusive, which will be taken together. There is no relevant correspondence.

I draw the attention of witnesses and members 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 be exercised only with the consent of the committee. Persons invited to appear before the committee are made aware of these rights and any persons identified in the course of proceedings who are not present may have to be made aware of them 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 policy or policies.

I welcome the Chairman of the Revenue Commissioners, Mr. Frank Daly, and ask him to introduce his officials.

Mr. Frank Daly

I am accompanied by Mr. Paddy Molloy, principal officer and head of our statistics and forecasting branch; Mr. Paddy O'Shaughnessy, principal officer and our liaison officer with the Comptroller and Auditor General and Oireachtas committees, and Mr. Tom Dowling, assistant principal officer in the same area.

Mr. David Hurley

I am a principal officer in the organisation, management and training division of the Department of Finance. I deal with the administrative budget of the Revenue Commissioners.

Mr. Daly

My colleague, Mr. Dave Coleman, our senior press officer, is in the Visitors' Gallery.

Chairman

Chapters 3.1 to 3.5, inclusive, of the report of the Comptroller and Auditor General read:

Office of the Revenue Commissioners

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 3.5 to 3.8 refer to matters arising from this examination.

Revenue Collected

Revenue collected under its main headings in 2003 is shown in Table 4.

Table 4: Revenue Collected*

	Gross Receipts	Repayments	Net Receipts	2002 Net Receipts
	€m	€m	€m	€m
Income Tax	11,471	2,315	9,156	8,979
Value Added Tax	12,321	2,605	9,716	8,844
Excise	4,928	192	4,736	4,595
Corporation Tax	5,537	382	5,155	4,804
Stamps	1,696	32	1,664	1,139
Customs	148	11	137	134
Capital Acquisitions Tax	222	9	213	150
Capital Gains Tax	1,449	13	1,436	619
Residential Property Tax	1		1	1
Total	37,773	5,559	32,214	29,265

* Total gross collection amounted to €43.9 billion as levies and fees such as PRSI (€6 billion), Health Levy (€125m) and Environmental Levy (€13m) are collected for other Departments.

Of the net receipts of €32,214m, a total of €168m was paid during 2003 under Section 3 of the Appropriation Act, 1999 from the proceeds of tobacco excise to the Vote for Health and Children. €32,098m was paid into the Exchequer which represented a prepayment of €368m. The amount prepaid at the end of 2002 was €316m. 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. An enhancement to Revenue's systems during 2004, introduced procedures which will allow most payments on account to be allocated and processed as tax receipts.

Tax Written Off

The Revenue Commissioners have furnished me with details of the €119m of taxes written off during the year ended 31 December 2003. Details of the total amount written off and the distribution according to the grounds of write-off are shown in Table 5 and Table 6.

Table 5: Taxes Written Off

Tax	2003	2002
	€000	€000
Value Added Tax	41,792	80,197
PAYE	17,505	42,657
Corporation Tax	5,895	6,094
Income Tax	34,683	23,707
Capital Gains Tax	977
Other Taxes	1,986	2,600
PRSI	16,607	22,843
Total	119,445	178,098

Table 6: Grounds of Write Off

Grounds of write-off	2003	2003	2002	2002
	No. of Cases	€000	No. of Cases	€000
Liquidation/Receivership/Bankruptcy	337	29,442	360	31,137
Ceased trading — no assets	2,277	32,390	2,236	42,765
Deceased and Estate Insolvent	200	2,022	251	2,813
Uneconomic to pursue	38,844	39,322	152,543	75,047
Unfounded Liability	151	1,688	167	2,547
Cannot be traced / Outside Jurisdiction	331	5,978	510	7,427
Compassionate Grounds	81	926	234	2,185
Uncollectable due to financial circumstances of taxpayer	520	7,677	954	14,177
Totals	42,741	119,445	157,255	178,098

The write off in 2003 included the write off on an automated basis of 30,600 cases totalling €11.8m in respect of VAT, PAYE, PRSI, Income Tax, Corporation Tax and Capital Gains Tax. All cases related to periods between 1991 and 1998 and no amount exceeded €1,000. 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. The 2003 audit examined file papers and computer records for a sample of 109 cases, representing approximately 17% of the value of non-automated write offs. In addition, the computer files relating to each of the twelve 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. The main finding of the Internal Audit related to commonality checks which are designed to establish, prior to tax being written off, whether related entities had outstanding tax liabilities. These checks were introduced in2002 following my in-depth examination of write offs. The Internal Audit found that commonality checks were not recorded as having been carried out in 13 of the 41 cases that met the criteria for such checks. As a result of the Internal Audit finding, instructions were issued to all staff in June 2004 as a reminder that the guidelines in relation to these checks should be strictly adhered to.

Revenue Audit Programme

Overall Audit Programme

In a self-assessment system returns filed by compliant taxpayers are accepted as the basis for calculating tax liabilities. The validity of returns is established by the auditing of a selection of cases either through reviewing and seeking further verification of particular details or by the examination of documents and records at a taxpayer's premises. While the total number of audits completed has fallen by 408 since 2002, there has been an increase of almost €160m in the total yield, mainly due to audit settlements of €139m in 3,910 bogus non-resident account cases.

The outcome of the 2003 programme of Revenue audits is summarised in Table 7, which also includes 4 audits arising from investigation and anti-avoidance activity.

Table 7: Revenue Audit Programme

	2003	2002
Audit Type	No. of audits completed	Yield€m	No. of audits completed	Yield€m
Comprehensive	4,359	226.3	2,424	88.6
Value Added Tax	3,951	76.4	4,300	61.1
PAYE Employers	874	18.1	862	6.3
Relevant Contracts Tax (RCT)	231	1.6	169	1.7
Combined Fiduciary (VAT, PAYE and RCT)	544	13.2	582	9.9
Capital Acquisitions Tax	112	5.6	225	3.1
Verification Audits and Desk Reviews	5,695	86.8	7,594	88.5
Investigation Branch	1	0.4	8	5.0
Anti-Avoidance	3	0.3	12	4.4
DIRT	8	0.8	10	1.0
Total	15,778	429.5	16,186	269.6

Comprehensive Audits

The selection of cases for comprehensive audit is made on the basis of such factors as screening of annual returns, re-audit of cases with previous undercharges, other information available to Revenue and random selection. For 2003, selection was also based on information relating to bogus non-resident accounts obtained from financial institutions under High Court orders — 2,460 comprehensive audits were completed in bogus non-resident account cases in 2003. Generally, a settlement is agreed following completion of the audit and any outstanding amount is paid. A number of settlements involve the restriction of losses which may be carried forward against future years' profits. Where an Inspector is unsuccessful in collecting the additional amount of tax and interest arising on audit adjustments, the amounts are referred to the Collector General for collection.

The outcome of the 4,359 comprehensive audits completed in 2003 is detailed in Table 8. The highest individual settlements were €3.9m for Income Tax and €13.2m for Corporation Tax. The overall yield of €226.3m includes interest charges of €68.1m and penalties of €32.2m.

Table 8: Yield from Comprehensive Audits

	Income Tax	Corporation Tax
	Number	Yield	Number	Yield
Agreed Settlements:
€1 to €12,700	1,981	€4.3m	105	€0.4m
€12,701 to €100,000	947	€36m	100	€2.6m
€100,001 to €500,000	259	€52.6m	51	€6.6m
€500,001 to €1m	25	€17.2m	10	€6.8m
Over €1m	15	€28.2m	16	€52.3m
Other Settlement Activity:
Returns accepted — no additional tax payable	609		197
Settled by restriction of losses carried forward to future years	4	€0.4m	12	€17.7m
Referred to Collector General for enforcement action	23	€1.1m	5	€0.1m
Totals	3,863	€139.8m	496	€86.5m

Random Audits

Under the random audit programme 274 audits were completed in 2003 with a total yield of €3,434,791 including interest and penalties of €1,043,180. In 152 of the 274 audits, the taxpayer's returns were accepted as originally submitted. Table 9 compares the 2003 results with the outcomes for recent years which were set out in my 2002 report on this subject.

Table 9: Random Audit Results 1999 to 2003

	All Random Audits	Yielding Audits
	TotalAudits	Returns Accepted	TotalYield	Average Yield inc. Int.& Pen.	Average YieldTax Only	Yielding Audits	Average Total Yield
1999	192	151 (79%)	€0.1m	€771	€577	41	€3,609
2000	437	342 (78%)	€0.6m	€1,434	€1,127	95	€6,595
2001	740	510 (69%)	€3.4m	€4,570	€3,174	230	€14,704
2002	720	491 (68%)	€2.9m	€3,999	€2,879	229	€12,573
2003	274	152 (55%)	€3.4m	€12,536	€8,729	122	€28,154

The table highlights the main trends for 2003:

· A reduction of over 60% in the number of random audits;

· An increase in the number of ‘yielding' audits from 32% to 45%; and

· An increase of over €555,000 or 19% in the total yield.

These results are reflected in an increase from €3,999 to €12,536 in the overall average yield per random audit. When interest and penalties are excluded, the average amount of tax collected per audit increased three-fold to almost €9,000.

Revenue has indicated that the target for random audits for 2003 was 500 but due to the resources required to audit bogus non-resident account cases it was not possible to achieve the target. For 2003, cases were not selected purely at random with districts selecting cases representing the greatest risk from an initial random selection. This resulted in the increase in the percentage of yielding audits and in the average yield.

Revenue have completed a review of the random audit programme and it is proposed that selection for future random audit programmes will be on a purely random basis. Revenue has indicated that provisional proposals for the 2004 programme are that

· A random selection should be carried out for each of the four geographical regions.

· The selection should be based on taxpayers that have a live registration for the calendar year 2002.

· The audits should test compliance across all of the taxes for which the taxpayers are registered.

· The programme should commence in the latter half of 2004 and should be largely finalised in the first half of 2005.

Revenue Prosecution Activity

Prosecutions for Serious Tax Evasion

Under Revenue prosecution strategy, Regions and Divisions forward cases to Investigation and Prosecutions Division for investigation with a view to criminal prosecution where there is prima facie evidence of serious revenue offences having been committed. These cases are further evaluated within the Division before commencement of the resource intensive criminal investigation work which can take several years before reaching the Courts. In 2003, 46 cases were referred to the Division for consideration and 27 were accepted for investigation with a view to prosecution. Convictions were obtained in all 6 of the cases decided in Court in 2003 as set out in Table 10.

Of a total of 41 cases on hands at the end of 2003, 32 are still under investigation, 6 have been submitted to the DPP, bench warrants have been issued in 2 cases and one case is before the court.

Prosecution of Non-Filers

Taxpayers failing to submit returns of Income Tax and Corporation Tax normally receive a warning letter from the Revenue Solicitor. In the event that returns are still not submitted, legal proceedings are instituted. During 2003, 13,647 warning letters were issued, follow-up legal proceedings were initiated in 1,931 of these cases and convictions were obtained in 627 cases (575 Income Tax and 52 Corporation Tax) with fines totalling €702,511. Court orders requiring the convicted person to submit the outstanding returns were obtained in 47 of these cases.

In 2003, penalties were imposed by Revenue on 455 employers who failed to make P35 employer returns on time. The total amount of penalties paid in 2003 was €439,348.

Table 10: Convictions during 2003 for Serious Tax Evasion

Occupation/Activity	Offence	Sentence
Accountant	27 charges of false VAT and Income Tax returns	Fined €1,260 on each count mitigated to €320 for each
Market Gardener	2 charges of incorrect Income Tax returns	Fined €3,000 on each count
Director	2 charges of incorrect Income Tax returns	Fined €1,750
Farmer	7 charges of incorrect Income Tax returns	2 year suspended sentence on each charge (concurrent). Bond of €5,000 to remain tax compliant for 5 years
Car Dealer	1 charge of an incorrect VAT return	Fined €1,900 mitigated to €475
Warehousing Company and Director	6 charges of false returns	Company fined €6,250. Director fined €6,250

Special Investigations

Table 11 sets out the payments made to July 2004 in relation to cases being examined as part of the Revenue Special Investigations. A short summary of progress to date in the investigations follows.

Table 11: Payments arising from Special Investigations

Investigation	Cases Involved	Payments to Date
DIRT — Look Back Audits (financial institutions)	37	€225m
DIRT — Underlying Tax
Voluntary Disclosure Scheme	3,754	€232m
Court Order Cases	c. 8,000	€305m
NIB	452	€51m
Ansbacher	289	€43m
Pick Me Up Schemes	71	€0.7m
Mahon Tribunal	27	€19m
Moriarty Tribunal	18	€6.3m
Offshore Assets	c. 14,000	€677m
Total		€1,559m

Re-audit of DIRT in Financial Institution

In September 2001 I expressed my concern to Revenue 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 difficulties. 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.

In Section 2.5 of my 2002 Report I recorded that following an analysis by Revenue auditors of the information submitted during the 15 November 2001 disclosure scheme, it was noted that a number of those who made voluntary disclosures held non-resident deposit accounts with the financial institution in question. As a result of this new information, Revenue decided that it was necessary to further investigate the operation of DIRT in the financial institution in the periods of assessment 1986/87 to 2003.

The Accounting Officer stated that, in considering the approach to be adopted for the original DIRT look back audit of the financial institution in 1999/2000, the judgment made was that on the basis of the available information it did not represent a significant risk from the point of view of DIRT. As a result the full DIRT audit programme, which was successfully used in high-risk retail financial institutions, was not applied to the financial institution.

The Accounting Officer also stated that the new DIRT audit of the financial institution commenced on 10 November 2003. The audit programme that was used in this new audit was similar to the full DIRT audit programme that was used in the other look back audits in 1999/2000. This full audit programme included a complete review of the DIRT systems and procedures of the financial institution and a detailed examination of samples of accounts for three sample dates (31 March in 1990, 1995 and 1999). Only one date was used in the original audit. This new DIRT audit detected that the financial institution did have DIRT liabilities for the years of assessment 1986/87 to 2003.

He said that the new DIRT audit of the financial institution was finalised on 22 July 2004. The amount of the settlement was €3,162,136, which includes DIRT (€1,091,524), statutory interest (€1,881,557) and penalties (€189,055).

Underlying Tax on Bogus Non-Resident Accounts

I referred in my 2002 Report to the Voluntary Disclose and Pay Scheme under which taxpayers were encouraged to declare and pay, by 15 November 2001, tax liabilities, i.e. the underlying tax, relating to funds which had been deposited in bogus non-resident accounts, and which had come to notice as a result of the DIRT investigations. I completed my examination of the operation and control of the scheme with generally satisfactory results. An overall report of the eligibility and liability assessment programme has not yet been prepared by Revenue as 46 of the 268 planned liability reviews have still to be completed.

I have been assured by Revenue that the remaining 46 liability reviews still under investigation will be completed and that a report will be compiled when all the necessary information is available. However, Revenue was satisfied on the basis of the work completed to date that the overall receipts of €232m from the 3,754 taxpayers that had availed of the scheme represented the full amount of liabilities due in respect of all taxes, together with the ‘capped' interest and penalties. Revenue considered that, because of the significantly targeted nature of the checking process (nearly 50% of liability reviews were targeted by Districts), all cases which were likely to have had material additional liabilities had been identified. A total of 40 cases had now been settled with an additional €2m paid. The eligibility review had found only 30 cases (less than 1%) to be ineligible under the terms of the scheme. The 30 cases, which had paid €6.8m, had been advised that they were ineligible. They have been requested to pay the full amount of interest and penalties due. The matter is ongoing.

Investigations into those account holders who did not avail of the voluntary scheme commenced in November 2001. The main source used to identify holders of bogus non-resident accounts is information supplied by financial institutions on foot of High Court orders obtained under Section 908 of the Taxes Consolidation Act, 1997. 18 applications for such orders were made and granted and the information sought has been delivered by the financial institutions. Enquiry letters were issued to account holders identified in batches between October 2002 and January 2004 with a total of 177,000 enquiry letters issued. At July 2004, €305m has been received in respect of this stage of the investigation.

Offshore Investments via National Irish Bank

The investigation into individuals who invested in an offshore investment scheme operated by National Irish Bank is continuing. 292 cases settled with total liabilities of €46m and 113 cases had no liability. 405 of the 452 cases have now been settled and payments on account of €5m have been received in 20 of the outstanding cases.

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 in the Authorised Officer's Report.

Revenue's application to the High Court to obtain unpublished documents gathered by the Inspectors was heard in November 2002. In May 2004, the High Court decided that Revenue could obtain access to certain documents and information gathered by the Inspectors. The documents must relate only to Ansbacher clients or to persons who failed to co-operate with the Inspectors. The judgment stated that Revenue could make an application at a later date to obtain information and documents relating to any other company or individual. In June 2004, the High Court granted orders to give Revenue access to documents relating to Ansbacher clients and those who failed to co-operate with the inquiry.

84 cases have been settled, 46 of which had total liabilities of €27m. The other 38 cases settled had no liability and include:

· 25 non-resident cases covered by the provisions of Double Taxation Agreements

· 2 cases covered by the 1993 Amnesty provisions.

Payments on account of €16m have been received in 41 of the 205 on-going cases.

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 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 1980s or early 1990s 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 these cases.

Tribunals

Matters disclosed at the Moriarty and Mahon Tribunals that suggest that tax evasion may have occurred are being investigated as they come to notice. Currently, 16 cases are being investigated as a result of the Moriarty Tribunal while 2 have been settled for a total of €6.3m. 27 cases are being investigated as a result of the Mahon Tribunal. None of these cases have been settled but payments on account of €19m have been received in 14 cases.

Offshore Assets

In 2001 Revenue established an Offshore Assets Group to examine the tax status of assets held offshore by Irish residents. Following inquiries into taxpayers who invested funds in offshore subsidiaries of two Irish financial institutions, Revenue announced in February 2004 the commencement of an investigation into unpaid tax on funds in offshore accounts and investments. Account holders were encouraged to give Revenue notice of their intention to make a qualifying disclosure by 29 March 2004. They were then required to submit a statement of disclosure and any payment due by 28 May 2004 (subsequently extended to 10 June). The benefits to account holders of meeting these deadlines were:

· Mitigation of penalties

·Settlement details would not be published

·No investigation with a view to prosecution.

In advance of this announcement, the Revenue Chairman met with the Chief Executives of ten financial institutions. As a result of these meetings, the offshore subsidiaries of these institutions issued letters to their Irish resident customers informing them of the Revenue investigation. Revenue also publicised the investigation and associated deadlines in the media. Some 15,000 notices of intention to make disclosures were received by the March deadline.

To date, payments relating to the voluntary disclosure phase of the offshore investigation total €677m. This investigation has included two earlier phases where just over 1,500 individuals came forward and made voluntary disclosures. In the latest phase 12,500 individuals have now made payments and a number of factors account for the shortfall from the 15,000 notices of intention received. These include:

· Cases where a liability has been recognised but borrowings must be secured or assets disposed of in order to meet the liability

· Cases where an extension has been sought in order to compute the liability where records have only recently been made available

· Cases where it has been determined there was no liability notwithstanding that a notice of intention had been submitted.

Revenue intends to seek High Court orders to identify those who have not made a voluntary disclosure.

Mr. John Purcell

As the committee wishes to take chapters 3.1 to 3.5 together, I will briefly allude to the main points in each. They review the results of Revenue's administration of the tax system during 2003. Chapter 3.1 sets out my statutory mandate in respect of the audit of Revenue and also shows the breakdown of the revenue collected in 2003 by tax type. At €32.2 billion, net receipts were almost €3 billion up on the previous year, with the largest increases in VAT, capital gains tax and stamp duties.

Chapter 3.2 shows write-offs of €119 million in 2003, down on the previous year. Internal audit examined a representative sample to confirm compliance with current instructions, procedures and guidelines and were satisfied, except for a reservation about the application of commonality checks prior to write-off. I suggested the need for such checks following my examination of the area in 2002. The checks are designed to establish whether cases proposed for write-off have related entities with outstanding tax liabilities. I note that staff have since been reminded of the importance of carrying out these checks.

Chapter 3.3 summarises revenue audit programme activity during the year. The yield from audits is up significantly, mainly because of audits involving bogus non-resident accounts. The chapter also shows the outturn from random audits in the last five years. In 2003 cases were not selected for audit on a purely random basis but rather identified by districts as representing the greatest risk taken from an initial random sample. An extrapolation of the overall extent to which tax liabilities have been under-declared in returns would not stand up in statistical terms. Members will recall that the Accounting Officer indicated at a previous meeting that Revenue proposed to undertake a programme of statistically valid random audits in 2004-05 which, I hope, will give us a better handle on the scale of under-declared liabilities.

Chapter 3.4 gives details of the prosecution of persons for not submitting tax returns and also the small number being prosecuted for serious tax evasion. The difficulties associated with mounting a critical number of successful prosecutions for serious revenue offences have been well aired and do not need rehearsing. The rate of progress in tackling serious tax evasion through the courts continues to cause concern.

Chapter 3.5 summarises the position in each of the special investigations being undertaken by Revenue. No doubt the Accounting Officer will be able to furnish the most up-to-date figures in each of the investigations. The extensive additional tax take is a glowing testament to Revenue's use of the extra powers given to it. To a certain extent, it is a reflection of a changed attitude on the part of the financial institutions in regard to their role in achieving tax compliance.

The chapter also records results of an examination by my staff of the voluntary disclosure and pay phase of the bogus non-resident accounts investigation which was geared towards establishing underlying tax liabilities. Revenue carried out a check on a sample of the liabilities calculated by the 3,754 taxpayers who had availed of the scheme, partly on a random basis and partly by reference to risk. I understand additional sums of nearly €5 million have been collected to date on foot of this exercise. Revenue also undertook a basic check of the eligibility of those who had availed of the scheme and identified a small number of ineligible cases which are now being pursued for the full amount of interest and penalties. The other loose end tied up in the report is the €3 million plus settlement arising from the application of the standard DIRT look-back audit methodology to a financial institution which had originally been given a clean bill of health on foot of an inadequate first audit.

To complete the picture, the Vote shows that the estimated net cost of running the Office of the Revenue Commissioners in 2003 was in the region of €350 million, taking account of notional and allied services. The committee will note that Vote 9 no longer covers the cost of the Office of the Appeals Commissioners. The expenses of this office are now met by way of a separate Vote, with one of the Appeals Commissioners as its Accounting Officer.

Chairman

I welcome Deputy Michael Smith who has joined the committee. His long experience will be helpful to it.

Mr. Daly

I thank the Chairman and members of the committee for giving me this opportunity to make an opening statement on chapters 3.1 to 3.5, inclusive, of the report of the Comptroller and Auditor General.

Chapter 3.1 shows net receipts at €32.214 billion. This represents an increase of almost €3 billion, or 10%, on the figure for 2002 and is €405 million in excess of the budget target figure of €31.809 billion. This surplus over the target figure was due mainly to much better than expected yields from capital gains tax and stamp duties.

Chapter 3.2 deals with tax write-offs. The amount written off during the year was €119 million in comparison to €178 million in 2002. As I said previously to the committee, Revenue, like every other tax administration or business, inevitably experiences some bad debts. Our objective remains to minimise them in every way possible and we will only write them off when we are satisfied that they are genuinely uncollectible or uneconomic to pursue. Amounts written off should be viewed in the context of the amount collected. As a percentage of total tax collected in 2003, the amount written off was about one quarter of 1% of the gross collection, including PRSI.

Chapter 3.3 reports on the Revenue audit programme, an established and successful means of ensuring compliance with the self-assessment system. Although the number of audits completed in 2003 was slightly down on the 2002 count, the yield was up substantially by €160 million. As indicated in the report, it was not possible to meet the target for random audits due to the need to divert resources to the audit of bogus non-resident accounts and special investigations. Members will remember the extensive discussions we had at earlier meetings about the design of the random audit programme. I am pleased to inform the committee that we will have a new programme coming on stream in the next month. Within this new programme the audits will be entirely random as compared to the targeted random audits of the past. In the course of the audit programme 32 cases were identified for possible investigation with a view to prosecution for tax evasion.

Chapter 3.4 deals with prosecutions for serious tax evasion and the prosecution of non-filers. In addition to the activity reported on in these areas, it should be mentioned that there is a considerable number of Revenue prosecutions in the Customs and Excise area. For example, we had 65 convictions for smuggling, 145 for marked mineral oil offences and 169 for unlicensed trading.

Chapter 3.5 refers to a number of special investigations being undertaken by Revenue and the re-audit of the DIRT settlement in a financial institution, namely, Anglo Irish Bank. The settlement is as I outlined to the committee when I appeared before it in July this year.

I would like to update the committee on the ongoing special investigations programme. The amount for the bogus non-resident accounts investigation now stands at €782 million, made up of €225 million in DIRT paid by financial institutions, €227 million under the voluntary disclosure scheme and €330 million paid in the investigations since. The figure for the NIB-CMI investigation stands at €53 million and for the Ansbacher investigation, €44 million. The figure for the follow-through on the Moriarty, Mahon and Flood tribunals stands at €25 million. Last but by no means least the figure for our offshore assets investigation stands at €705 million. The running total, as a result of these investigations, stands at €1,609 million, which represents an increase of more than €50 million since I last reported to the committee on 22 July 2004.

There is one final point worth mentioning in regard to these investigations. It concerns Revenue's determination to gain access to the information necessary to deal with the tax evasion involved. In the BNR and offshore assets investigations we have generally adopted an approach of giving people an opportunity to come clean by way of voluntary disclosure but making it clear that we will then follow through to tackle those who do not do so. Obviously, this requires a dogged pursuit of the identity of non-disclosers. We did this very successfully through the courts in the bogus accounts investigation. We are about to take the same route in the offshore assets investigation. Members of the committee will recall that the offshore assets programme commenced with an intensive investigation of trusts administered in Jersey by a subsidiary of an Irish bank. An opportunity was given to the settlors of these trusts to come clean by way of voluntary disclosure prior to the investigation. By 31 May 2003 a total of 254 individuals had come forward and paid in excess of €100 million. We stated at the time that we would follow through to identify the remaining small number of individuals who had failed to come forward. We have now done so. We have secured their names, addresses and account details and they are now the subject of a detailed inquiry which will include a criminal investigation. While the numbers involved may be small, the important point is that having promised to follow through, we did so.

Chairman

Thank you, Mr. Daly. May your statement be published?

Mr. Daly

Yes.

Chairman

Thank you. Some weeks ago I was approached by individuals who suggested to me that insurance policies had been used extensively to evade tax. In particular, they claimed that single premium insurance policies, but not solely, had been the method used. From the information they gave me, it seems their allegations are soundly based. While I cannot quantify the possible level, I am convinced that evasion took place using insurance policies as a mechanism, particularly single premium insurance policies.

I tabled a question to the Minster for Finance and received a reply yesterday. My question was an attempt to quantify the level. I asked the Minister the amount of single premium insurance policies written by the industry in each year from 1988 to 2001, inclusive, and also the reasons for the variation in the amounts from year to year. The cut-off point of 2001 was selected because the tax treatment of insurance had changed in that year when an exit tax had been introduced. According to the Minister, the total amount underwritten in single premium insurance policies was in excess of €33 billion. In the years 1998 to 2001, inclusive, €25 billion was underwritten in single premium insurance policy business alone. The source of this figure is the Blue Book published by the Department of Enterprise, Trade and Employment. It is not an estimate but the accurate figure from the industry.

Is Mr. Daly aware of the allegations to which I have referred? Will the Revenue Commissioners investigate this matter? Is Mr. Daly in a position to quantify, in general terms, the possible extent of evasion which I believe has occurred?

Mr. Daly

I can confirm that we are aware of these allegations. The matter has been under examination for some time. In June this year, at the launch of our annual report, I indicated that it was the focus of our attention and would be a significant investigation. Nothing I have seen since convinces me that it will not be a significant investigation. We have been making an extensive analysis.

I will outline the steps we go through in an investigation such as this. First, we try to secure a preliminary identification of a risk area. We have done this. No more than the Chairman, we are convinced that the insurance industry is a risk area. We are convinced of this because of a number of factors: the growth to which the Chairman referred; contacts with people who are or were aware of what was going on in the area, and information we have picked up through our investigations into bogus and offshore accounts. We are convinced there is a problem and there will be an investigation.

We have now moved on to the stage of structuring the investigation and deciding what methodology and structure we will use. The probability is that we will model it on the very successful approach adopted to the bogus non-resident and offshore accounts investigations. We will engage with the industry to see what level of co-operation we can secure. We will then define a voluntary disclosure period and follow through, as we have done in the other investigations. This phase of the investigation will kick off in the new year. I expect we will have decided on the structure within the next couple of months.

The Chairman asked if I could quantify the possible extent of evasion in general terms. As he pointed out, the figures are big. I enter a couple of caveats because I do not want to paint the whole insurance industry into an investigative box. We will need to take account of the fact that in 2001, for example, approximately 53% of the figure was business written by companies based in Ireland but for investors in other countries, mainly in the European Union. That is probably not a risk area from our point of view. Much of this business is written in the International Financial Services Centre. The Chairman has hinted — I agree — that the risk period was probably prior to the change made in January 2001, that is, prior to the imposition of an exit tax on such policies.

Most insurance business is genuine. Many invest redundancy money, lump sums or lotto winnings in the insurance industry. Many civil servants invest their retirement gratuities in the industry. Our interest lies solely in the practice of using these products to hide untaxed income. That will be the focus of our investigation. We need to make an analysis to make sure we can focus on this sector.

The preparations for the investigation are well under way and it will kick off in the new year. I would not like to speculate on the figures of €33 billion and €25 billion quoted by the Chairman as to the percentage represented by untaxed moneys. That will be our focus.

Chairman

I am not casting any aspersions on the insurance industry. It is a reputable industry which carries out vital tasks in the economy and the financial services industry. It is the use of insurance policies for the purpose of tax evasion that I would like to see the Revenue Commissioners addressing. How many insurance companies which have their headquarters in Ireland and how many which have their headquarters abroad write business in Ireland?

Mr. Daly

I understand there are approximately 16 companies which have their headquarters in Ireland. Another ten have their headquarters abroad. Obviously, I will not name companies but within the list of 26 we will place a focus on some areas because of the risk factors which emerged during earlier investigations.

Chairman

Are all 26 within the first box? How many fall into the area of higher risk?

Mr. Daly

I am loath to give a definite figure. However, on the basis of what we have examined so far, we will look at ten or 12 of them. I do not exclude any of them from a preliminary inspection. I am sure the number requiring serious examination will be whittled down when we get more information.

Chairman

How far back will the examination go? Will it go from 1980 to 2004?

Mr. Daly

We will start in the early 1980s and come up to date. As I said earlier, our focus will probably be on the early 1980s to the year 2000, because the change in the legislation at that stage, which created an exit tax, means that we have greater access to information from the insurance companies. The insurance companies pay the exit tax which is in effect a kind of withholding tax. We have greater access to information about who the investors might be. The risk period is probably prior to that. This does not mean we will not look at 2001 to date, but on a preliminary look the risk period probably predates that.

Chairman

In the information provided for me yesterday by the Minister for Finance, there are swings and variations, in particular from approximately 1989 to 1993. That spans the time of the two tax amnesties. Does Revenue have any information to suggest that the amnesties influenced, in one way or another, the amounts being invested in single premium insurance?

Mr. Daly

On the face of it, no. We do not have anything in particular to point us in that direction. The 1988 amnesty took in £500 million. The vast bulk of that money was probably more arrears of tax than hot money. Hot money was a pretty small proportion of it. The 1993 amnesty took in £260 million or £270 million. There was probably more hot money in that.

I have looked at the figures and the variations. A couple of other events may have had as big an effect as the amnesties. The decline in the early 1990s could possibly be ascribed to the fact that tax relief for insurance policies was eliminated in 1991 or sometime around then. Looking at the decline around 1994 or the year after, in particular, most members will probably remember black Friday which had a significant effect on equity markets. A sizeable proportion of these funds were in equity markets. It is really too early to say the amnesties had an influence. There could be an amnesty effect, but it is not apparent to us at the moment. There are other factors at play.

I should have added, and the Deputy hinted at this, that while the primary focus may be on single premium policies, we are interested in other products. We are interested in guaranteed growth bonds, single premium policy endowment policies which have a two-fold bonus, and unit-linked savings policies which allowed people to put in a regular amount of money over a period and then remove it at the end. These could well have been a mechanism for hiding hot money, but not necessarily in a single large lump sum. We are examining other products as well as single premium policies.

Chairman

On the face of it, which taxes were being evaded?

Mr. Daly

On the face of it, income taxes and possibly capital taxes. Within that there may have been the creation of trusts. Money could have been cycled through the trusts to hide it from Revenue.

This will be a comprehensive investigation. Like all our investigations over the past few years, we need to plan and structure it methodically. It will take some time but we will do it.

Deputy Curran

I welcome Mr. Daly, who is a seasoned visitor. He has broadened the scope of the examination of insurance policies and it will be interesting to hear how matters have evolved when he returns.

I will begin with paragraph 3.5, part of which dealt with the underlying tax on bogus non-resident accounts. I take it from my reading of the paragraph that the eligibility and liability reviews were separate. Is that correct?

Mr. Daly

Yes, that is so.

Deputy Curran

As regards the eligibility review, is it correct that Revenue went through every individual case and found that approximately 30, or 1%, previously thought eligible were not?

Mr. Daly

That is right. All disclosures were subject to the eligibility check and 17 of them were found to be ineligible. Of the 17, eight have settled with us with additional liability. They have paid us €851,000. One of those eight was successfully prosecuted and paid an additional amount of €299,000. The same individual also received a two-year suspended sentence. Nine cases are still under investigation. One of those is before the appeals commissioner, one has been accepted by the DPP to proceed on indictment, one involves an interpretation issue about which there is much argument, two are Ansbacher cases and will be dealt with within the Ansbacher programme, and four are still in negotiation with the tax district.

Deputy Curran

The other review was the liability review. Is it correct that Revenue just reviewed a sample of those, rather than each individual case?

Mr. Daly

That is right. In that case we reviewed 268 cases. One hundred and forty three of those were selected centrally at random and 125 were selected by the tax districts using local knowledge. They zoned in on the ones they thought most likely to have under-declared.

Deputy Curran

Will Mr. Daly give me an update on the position? In the Comptroller and Auditor General's report on the 268, 46 had not been completed. However, 40 of the cases completed seemed to have understated the liability. That would have been 40 out of 222, which seems a high figure. Does Mr. Daly agree?

Mr. Daly

It is less than 0.5% in eligibility. In some ways it could be said to be a high percentage. However, I would focus in particular on the ones targeted by the districts rather than those randomly selected.

Deputy Curran

What was the percentage on the random cases?

Mr. Daly

We selected 143 at random and 112 of those were accepted as returned, a high percentage. In 14 cases an uplift was required. The total amount was €342,400. Therefore, on an individual basis it was not a significant amount of money. Some 17 cases are still open and those cases are still being argued in the districts. We do not expect any major cases among those 17.

In the district review, which was targeted, of 125 cases reviewed, 74 were accepted as returned. Some 29 of those cases required an uplift. The total yield on the 29 was €2.9 million, which is high. There are 22 cases still open in the districts and still under inquiry.

In aggregate, we had 3,754 voluntary disclosures. Out of those there are 39 cases still under inquiry. Less than 0.5% were found to be ineligible in the whole scheme and very few have additional liability.

Deputy Curran

When Mr. Daly states very few had additional liability, the Revenue Commissioners only examined a total of 268 cases out of the 3,754. In light of what was found as a result of that review, will they review any more of the initial 3,754 cases?

Mr. Daly

It would not be our intention to do that because at some stage in these investigations one must move on to the next one. I would look at the overall figure and say, out of 3,700 cases, we got a relatively small number of significantly yielding cases and, of those, they all came from targeted cases in the districts. The districts look quite carefully at their lists.

Deputy Curran

Moving on to the offshore accounts, the meeting was held last December with the ten financial institutions and we all know what evolved from that meeting, that is, the Revenue got co-operation. The Revenue contacted the account holders and I think 14,000 or 15,000 made disclosures from whom Mr. Daly said that over €700 million has been collected to date and the Revenue is investigating those who did not make disclosures. These were all Irish-based financial institutions. Has that offshore examination gone further or are there plans to extend it to Irish financial institutions operating in the UK or in close proximity?

Mr. Daly

The investigation was based on the offshore accounts of Irish based financial institutions because those were the only accounts that I had any authority to call in and ask for co-operation. We signalled at the time that we would not stop there and we do not intend to. Our focus on the investigation since I last reported to the committee has been in dealing with the 15,000 who declared, bringing the money to account and starting the next phase of going to the High Court this month or next month to get High Court orders disclosing the people who did not come forward. The extension of this investigation to offshore banks is not off our radar; it is there. It is a question, however, of trying to assemble information which we are doing as we analyse the 15,000. There were people among the 15,000 who voluntarily disclosed in respect of accounts they had with offshore institutions. That gives us a basis for beginning some inquiries.

There are quite extensive developments on the international scene as a result of the EU savings directive and the OECD tax information exchange agreements. In my opening statement I mentioned in the final paragraph the success we have had with the Jersey cases in tidying up the developments in trusts issue where we got full names and addresses. We will be depending quite a lot on developments in extending this investigation to offshore banks but we will do what we can.

Deputy Curran

Will Mr. Daly keep the committee informed as you move along?

Mr. Daly

I will.

Deputy Curran

People might put money offshore for various reasons, such as trying to conceal it from the Revenue, as has been proven, and they subsequently paid their liabilities. I imagine that those who would go to financial institutions which are not based in Ireland probably have a lot more to hide. While the number of individual cases might be smaller, the amounts are probably quite larger.

Mr. Daly

I cannot say definitively. In respect of the ones who disclosed about the offshore accounts, I can say there were some big amounts but nothing hugely significant. Things are moving on, in my view, in terms of the ability of people to hide money from Revenue, whether it be Revenue in Ireland or the revenue authorities in any other jurisdiction. I have mentioned the savings directive and the information exchange agreements. A really significant development has been the requirement for financial institutions and other bodies to make suspicious transaction reports, money laundering reports, as they are called, to both Revenue authorities and to the police. That has really tightened up things quite extensively on the international scene. It is not now as easy to put money in an offshore bank with an assurance that somehow or other it will not find its way into a money laundering report for one or other revenue institution.

Deputy Curran

Between those two schemes mentioned, the non-resident accounts and the offshore accounts, tens of thousands were involved. A point was made to Mr. Daly on a previous occasion. Has he examined it and can he give the committee an update? It is unlikely that all those people involved themselves in the schemes without assistance. It comes back to the case that when these numbers are examined such as 15,000 offshore accounts and 11,000 or 12,000 DIRT accounts, one of the issues addressed previously by the committee was that those accounts were not all opened without advice or help. The committee raised this issue of prosecution for aiding and abetting. Has any progress been made on that front?

Mr. Daly

As the Deputy stated, we had extensive discussions and I think I was straightforward enough in outlining the real difficulties which we have in that area. Every time a case is examined, the Revenue Commissioners still continue to see if there is a basis on which to take an aiding and abetting prosecution against either a financial institution or an adviser. I must be very careful because advisers get very upset when I say they might possibly be involved in aiding and abetting. I will qualify my statement by saying it might be a very small few. I outlined the real difficulty. The statutory offence in the tax code is one of knowingly aiding, abetting, assisting, inciting or inducing another person to knowingly or wilfully make an incorrect tax return. The legislation is very much focused on the tax return and it is not focused on advice being given to put money in the Isle of Man or in such and such an account. We have examined that and we are making proposals for a much more simplified — but not where the burden of proof will be lessened, because people have rights — more straightforward legislation, something along the lines of anybody who takes steps to facilitate the fraudulent evasion of tax. We will be making proposals for a change in the Finance Bill which I hope will level the playing field a little bit in terms of our ability to take such prosecutions. I must be honest and say that legislation is not retrospective, generally speaking, so this will not help us in respect of activities that took place in the past.

Deputy Curran

Thousands of people were involved and hundreds of millions of euro have now been returned to Revenue. I believe most of us would agree that these people did not initiate all these schemes on their own but it is the individuals who have all been caught. The other section of the report deals with prosecution for serious tax evasion. While the number of cases increased to six in 2003, it seems very small. It would seem that if one took the risk, one would have a very good chance of getting away with it. It was my understanding that there is now a special prosecutions unit within the Revenue Commissioners but it is not really making inroads or does not appear to be from the point of view of prosecutions.

Mr. Daly

The Deputy is quite correct. The investigation and prosecution division has been in place since the organisation was restructured in the last year. That division has a focus on bringing criminal prosecutions. It is now Revenue policy to bring a regular flow of prosecutions but the process is slow. Looked at on a year by year basis, there has been an increase from three in 2002 to six in 2003. I will be honest and say that 2004 will not be a great year in terms of finalisation in the courts. The more important figure is the cases currently under investigation for prosecution. The Revenue Commissioners have five cases in court at present. They have not been concluded, but they are in court. Bench warrants have been issued for individuals in two cases. The DPP has given the Revenue Commissioners directions to proceed in a further eight cases which will go to court in the next few months. Seven cases are with the DPP awaiting direction, two cases are in the Revenue Commissioners' solicitor's office and 39 other cases are under investigation.

The total of 69 cases is a record high and represents a substantial increase on the number of cases coming through the system in previous years. It is a slow process, unfortunately. In the last month, I have instigated a work flow review of the entire investigation process that is undertaken when one is taking a prosecution from the day on which the case is admitted. The matter may be referred at various stages to the solicitor's office, the DPP, the Revenue Commissioners and the Office of Chief State Solicitor. There may be trips to court and adjournments. It is an awfully lengthy process. There are 69 cases in the process at present and there will be more next year. I mention the number of cases as evidence of the commitment of the Revenue Commissioners to this process. It would be great if there was a way of short-circuiting the process, but people have rights.

Deputy Curran

I would like to speak about one further area. I will be interested to see what will be produced in the area of random audits next year. We have waited for a long time for progress in that regard. I am glad that Mr. Daly has proposed to take measures in respect of random audits and I look forward to hearing about them. There have been 274 random audits this year, which is fewer than expected. That is fine. The yield from the audits has been substantial. It is alarming that between 40% and 45% of those who were randomly audited had a liability. Random auditing is used as a means of controlling self-assessment. If it is a case of the carrot and the stick, it is important that the self-assessment stick should be powerful enough to ensure that people are tax compliant. I appreciate that there were other audits, but it seems to me that the total number of random audits, 274, was quite low. The percentage of yielding cases increased, however, to 40% or 45% compared with 25% in other years. Is the increase in such cases an indication of the general level of compliance among those who assess themselves? Are people taking risks with self-assessment because they do not feel they will get caught?

Mr. Daly

It should not be doubted that the random audits were not random. I examined this matter in detail in recent months as the Revenue Commissioners were devising the new programme. Deputy Curran is right to state that 45% of those who were the subject of so-called random audits were tax yielding. I would have significant concerns if the relevant percentage was 45% after a genuinely random examination.

Deputy Curran

I take that point. I compared it with the procedures of the Revenue Commissioners in the previous year.

Mr. Daly

The procedures changed every year between 1999 and 2003. I do not have the relevant details but, as far as I recall from my previous discussion with the committee, the process of selecting random audits has changed almost every year. Tax inspectors do not like random audits because they feel that, in some cases, such audits represent an intrusion in the affairs of entirely tax compliant people who were picked out of the hat. The yield from such audits has traditionally been low. With the best will in the world, I think random audits have been stratified and targeted over the years. The yield from such audits has to be viewed in that light. I would be concerned about getting a 45% yield if the audits were totally random. I would also be concerned about the increase in the yield over the years.

Deputy Curran

I accept that the audits were not random, despite the fact that they are known as random audits. There is a real concern that the yield seems to have increased each year, particularly between 2002 and 2003. The sample was smaller, but the yield increased significantly.

Mr. Daly

I do not have details of the manner in which audits were selected in 2001-02. I suspect that the degree of targeting increased progressively over those years.

Deputy Curran

I find it hard to understand why targeting would be a factor in the context of the overall audit programme. The figure is increasing. A substantial liability — the average was €28,000 — was discovered in almost every second one of the 274 cases. The random audit process is the best indicator of the work of the Revenue Commissioners because it is the only indicator. I still think it raises serious concerns about the total amount of understated taxes in the system.

Mr. Daly

As I have said, I would agree with the Deputy if the audit process were truly random. We need to consider two factors in this regard. The Revenue Commissioners completed just 274 audits, even though its initial target was 500. I suspect that the district officers targeted the most likely yielding audits from the initial 500 audits. I fully understand that when one is doing an audit, one's natural inclination is to get a result. The cases which will be examined as part of the programme that will start this month will be selected purely at random. There will be no stratification, no subsequent screening at regional or district level and no subsequent intervention. It will be done entirely at random.

Tax compliance will be tested on three fronts — payment compliance, filing compliance and reporting compliance. It is clear that the purpose of the exercise is to establish the liability that should have been paid for the relevant period and to compare it with the amount that was paid. The primary purpose of a subsequent audit will be to establish or verify the liability for each tax for which the customer has a liability for the year in question. The comprehensive audits, which are by their nature the most resource intensive, will cover all the taxes which are due.

Another purpose of the new audits will be to extrapolate and to try to get a picture of how self-assessment is working. We have to ensure that an audit conducted by the Revenue Commissioners is done to the same degree as the most intrusive targeted audit. The new cases, which are being selected entirely at random, will be sent to the regions and guidelines will be issued this month. It is being made clear to regional officials of the Revenue Commissioners that exactly the same level of attention will need to be paid to random audits as to targeted audits. The first analysis of the results of the new programme will be available at the end of next year.

Deputy Curran

I look forward to reading that analysis. Having read the report of the Comptroller and Auditor General, it is clear that the number of yielding audits is increasing as the number of actual audits is increasing. That is of concern for committee members. I look forward to the figures, which should be——

Mr. Daly

The organisational structures of the Revenue Commissioners have been restructured in the past few years, particularly in the audit area. That process has not been finished. Officials are now delving deep into the functional restructuring of the organisation. Everything the Revenue Commissioners do is ultimately focused on compliance. If our actions do not have a compliance effect as they should, we should not have been undertaking such actions in the first place. I would not mind discussing this matter with the committee at some stage in the future. There may be a need in the future for a broader approach to ensuring that there is compliance. The Revenue Commissioners try to encourage voluntary compliance by providing services to those who want to comply, assisting such people and organising service activities. The enforcement activities are focused on risk.

I have previously informed the committee that the Revenue Commissioners undertake approximately 16,000 audits per year. I sometimes get excited if we do not reach the 16,000 target. We should seek to examine how the audits are focused. Do they target the right people? I envisage that a new and totally risk-focused compliance programme will evolve in the Office of the Revenue Commissioners in the coming years to ensure that we pursue the right audits. We will not necessarily do just 16,000 audits.

Chairman

Deputy Higgins has approximately 15 minutes.

Deputy J. Higgins

Why? Has Deputy Curran taken five minutes of my time?

Chairman

The protocol is 20 minutes for the first questioner and 15 for the second. It is an indicative time.

Deputy J. Higgins

The Chairman is right. I am reminded of George Bernard Shaw who wrote a very long letter to a friend and apologised that he did not have time to write a short one. When one must be brief, one can be pointed.

Can Mr. Daly outline for the lay person how the insurance matter the Chairman raised with him worked? What is the exit tax referred to and why was it introduced in 2000?

Mr. Daly

How it works is straightforward enough. The primary though not exclusive focus is the single premium policy. Usually, someone invests a lump sum in a policy which is linked to a fund. Such policies are unit-linked, open-ended in time and can be invested in a managed fund chosen from a series of funds identified by the insurance company. One can leave the money in place for three, five or seven years. The funds are traditionally comprised of approximately 65% equity with the rest in property and cash. When the policy matures, one receives a lump sum which includes any growth which has materialised in the fund in the intervening period. It is a straightforward investment of a capital amount.

Deputy J. Higgins

Where does the tax evasion arise? Is it hot money?

Mr. Daly

Our focus is not on the growth in the fund but on the money invested as a lump sum in the first instance. We want to know from where the money came.

Until January 2001, tax paid on the accumulated growth in the fund and responsibility for collecting it lay with the insurance company which paid the money to us as part of its corporation tax. There was no tax liability attaching to the individual investor. In January 2001, the system was changed. Accumulated growth in a fund is now taxed at 23% and the liability rests with the investor. The change was brought about because previously the exit tax regime had applied to policies written in the financial services area and it was required to bring the two together.

Deputy J. Higgins

The exit tax focuses on the growth in a fund.

Mr. Daly

By and large, we are not interested in the growth as it is usually returned for tax purposes.

Deputy J. Higgins

Why is the tax a deterrent if it focuses only on the growth? Mr. Daly said the evasion arose through people salting money away.

Mr. Daly

Since the introduction of the exit tax, we have the same audit function for insurance companies that we have, for example, for DIRT. We can audit and identify.

Deputy J. Higgins

Was the change made on foot of a suspicion by someone that a system of organised tax evasion was operating?

Mr. Daly

No. My recollection is that it was changed because the treatment of non-resident policies written in the IFSC and those written for residents had to be equalised.

Deputy J. Higgins

According to the report, tax of €17.5 million was written off in the PAYE sector in 2003 and €42.65 million in 2002. Income tax of €34.6 million was written off in 2003 and €23.7 million 2002. Can Mr. Daly explain what it means that this money is written off?

Mr. Daly

It arises because of arrears, where companies go under, where someone does not pay his or her tax and we cannot catch up with him or her or where we catch up with a defaulter but he or she has no funds with which to pay us. There are seven or eight grounds on which we write off tax, including liquidation and receivership.

Deputy J. Higgins

I will come on to that in a minute. Was the PAYE tax which was written off originally deducted from workers' wages by employers or businesses but not paid in?

Mr. Daly

That is most likely what happened.

Deputy J. Higgins

That is an outright theft of workers' taxes.

Mr. Daly

Theft implies premeditation and mens rea. Sometimes a business goes under and, with the best will in the world, does so before taxes have been paid over to the Revenue Commissioners.

Deputy J. Higgins

Tax write-offs for 2003 were €119.4 million. Approximately 75% of that, or €89.4 million, related to 28% of all cases. That suggests substantial figures were written off in these cases. Who wrote off those amounts of taxes? How is the matter addressed in Revenue?

Mr. Daly

There are two methods. Automated write-off, which I will address in a minute, is one. The vast bulk of writing-off is done by case working. The start of the process occurs where a person builds up arrears or gets into difficulties, following which our case workers try to collect the tax. If officials come to the view that the tax is not collectible, they have authority, depending on the amount involved, to recommend the writing off of the liability. Every month or six weeks, a list appears on my desk and, as Accounting Officer, I take the decision to write off the tax.

Mr. J. Higgins

Up to what amount can an official recommend the writing-off of a liability?

Mr. Daly

I am not quite sure, but every list ultimately comes to me. Each list contains the names of the individuals concerned and the issue to be addressed.

Deputy J. Higgins

Would it have passed through many hands?

Mr. Daly

It will always have passed up the line from the case worker to his or her regional or office manager and an assistant principal and principal officer. The assistant principal and principal officer both make a selection from the list and recheck them.

Deputy J. Higgins

With the best will in the world, it is impossible for the Revenue Commissioners to examine every case even if it can examine the generality. Is there not a strong case for an outside audit of the decisions made by case workers on substantial tax write-offs?

Mr. Daly

The procedure in the office is very rigorous right up the line. While I cannot consider every case, I pick examples and source the files and papers on them. Sometimes I target cases and at other times choose randomly. The process is audited by our own internal audit unit which reports to an audit committee which is quite independent and the majority of whose members are from outside Revenue. While I do not want to overstate his responsibility, the Comptroller and Auditor General oversees the process. I stand over the rigour and ethics involved in the process.

Deputy J. Higgins

It seems to me it is an area that should be further discussed, but I will move on.

The matter of random audit has been raised already. Mr. Daly says that while 500 cases were targeted, only 274 audits were carried out due to a lack of resources. Is that not a saving on resources which loses money given that there was a financial yield in 45% of audits? The Revenue Commissioners has lost a great deal of money as a result of not targeting and auditing the 500.

Mr. Daly

There is no doubt that if everybody was audited we would get more money, but we must remember what the resources were used for. They were used for bogus non-resident accounts, the offshore investigation——

Deputy J. Higgins

What about getting extra resources?

Mr. Daly

We have a certain staff complement. Our current policy because of the restructuring that has taken place is to divert more and more people from customer services, the processing end of Revenue, into audit. We have firm targets on that which we will achieve in the next couple of years. We have an extensive audit training programme in place for people moving out of other areas into auditing. The aim towards which we are working is to have a target of 70% or 75% of Revenue staff dealing with compliance and audit work. The restructuring of the organisation will enable us to do this in the next couple of years.

Deputy J. Higgins

I know Mr. Daly said the random audit was targeted which is why there was such a high level, 45%, of evasion. Will Mr. Daly give an estimate of what would be the yield in a completely random audit?

Mr. Daly

I could not. That is the debate we have been having. Because it is not random, I cannot extrapolate. We will have the first results of a totally random audit programme next December and perhaps we can extrapolate from that. The important thing will be to continue that over a number of years so that we get a trend.

Deputy J. Higgins

If the random audit reveals 20% of cases where tax was underpaid and €X millions is yielded as a result, does that not mean that 20% of all cases from which the audit samples are drawn are under-reported to a similar extent? It appears that a significant amount of money is written off without anybody making a decision on it.

Mr. Daly

If one has got to the stage over a number of years where 10% or 15% of random audits continually yield significant amounts of money then one would be right to have a concern. Realistically, we will never get to the stage where we can audit everybody. There are some 2.5 million tax paying entities here between PAYE, business and self-assessed and we have a staff of 6,500 people. The only way we can do the job effectively is to continue refining risk so that the audits are more and more targeted at the ones that will yield. A new computerised screening system is now in place. I spoke to the committee before about this. We can feed in everything we have to the system and apply all sorts of parameters and risk factors. We think that will focus the targeted audits in the coming years.

Deputy J. Higgins

Mr. Daly has supplied us with an astonishing figure of €1.6 billion accruing from tax evasion from bogus non-resident accounts, the Ansbacher men, the tribunal denizens and offshore assets investigations. What has he done about investigating, where appropriate, who organised this theft from the taxpayer at the highest levels in the banks?

Mr. Daly

We have done what we can in that regard. As I said earlier, as we went through these investigations, whether they be the offshore, NIB or BNR, we looked at cases and tried to build a basis for a case against institutions, advisers or whatever. I will not categorise them. We ran a couple of cases past the DPP to see if we would have a basis for prosecution but, as I said earlier, we did not. Again, this is directly related to the fact that the aiding and abetting legislation or the one other ground on which a case might be considered, a conspiracy charge, is so focused on the tax return and requires the co-operation of the individual who evaded the tax in the first place.

At the end of the day, responsibility for tax returns and tax payment is with the individual taxpayer. I am not absolving any institution or anybody else who may have facilitated or advised, but ultimately it is the responsibility of individual taxpayers.

Deputy J. Higgins

This is a theft of some €1 billion. Mr. Daly knows it was organised at the highest levels in some of these institutions. Why was the Criminal Assets Bureau not put into these institutions to flush out who was responsible in the same way as it would be asked to pursue drug dealers?

Mr. Daly

I am sorry but I do not know that this was organised at the highest level in institutions. I cannot say that. I have to operate on the basis of facts and what is known to me from investigations. I cannot operate on speculation or anecdotal evidence. I have to operate on facts and I have to operate within the law. The Deputy can take it that if there were a possibility of proving an aiding and abetting charge, either against an institution or an individual who facilitated in this matter, we would have done so. There is no lack of will on Revenue's part to do this.

Deputy J. Higgins

The State treated these people with kid gloves. In the court results for prosecutions in 2003, in one case a defendant and the company to which he belonged was involved in evading €1.6 million in tax. A second owed €804,000 in tax and the third owed €448,000. None of them was sent to prison. I am not a member of the "hang 'em and flog 'em and lock 'em up" brigade. The ordinary working class people I represent look with a jaundiced eye on this situation. It is clear to them that if one is a big banker or a big business person, one can steal from taxpayers with impunity as far as going to jail is concerned, but if one is a member of the working class and steals a few hundred euro, which one should not do, one may well finish up in Mountjoy Prison for a period of months. There is a glaring prejudice on the part of the establishment and the courts and it is time it was sorted out.

Mr. Daly

Revenue can only bring prosecutions to the courts. The responsibility for sentencing lies with them and it would be improper of me to intrude into that area. The Deputy is quite right. We had an individual in 2003 who paid us €1.6 million and was then fined €1,750 in court. As to whether that was a satisfactory outcome, I make no secret of the fact that something else would have been better for us, but we can only bring the cases to court.

In a recent case, for the first time somebody was sentenced to community service in respect of tax evasion. Some people might think, given what tax evasion does to society and services, that this is an appropriate sentence, but it is a matter for the courts and I cannot intervene.

Deputy J. Higgins

I apologise because I must leave the meeting at a certain stage due to travel commitments. I mean no disrespect to the committee.

Chairman

To reinforce the point made by Deputy Joe Higgins, the Sunday Independent of 14 November 2004 referred to a report on court cases in Galway which claimed that one individual had to pay taxes, interest and penalties to the value of €76,000. He received a sentence of 180 hours’ community service. Another person who wrote fraudulent cheques for €5,300 received a jail sentence of 18 months. I believe the point is made.

Mr. Purcell

The Accounting Officer mentioned my role in the writing off of tax. I am glad to reassure the committee that we do oversee the write-off process. We oversee the work of the internal audit team in particular. We carried out a very detailed examination in the past two to three years, the report on which came before the committee. We felt there were some shortcomings in the checking that took place before amounts were written off. Our concerns have been met by new guidelines on writing off tax that have been issued within Revenue. The internal audit in 2003, for example, would have looked at cases equating to 17% of the value of the amounts written off. This was over and above the internal checks to which the Accounting Officer referred while giving his evidence to the committee.

Deputy Boyle

On the last point about prosecutions and the matter of whether people are fined or imprisoned, is there any statistic concerning the total number of people who have been imprisoned in this country for tax fraud? It cannot be any more than a handful of people.

Mr. Daly

Yes. It is a myth that nobody has gone to jail because people have been imprisoned. In 1995, the first year in which I believe somebody went to jail for tax fraud, an individual received ten months' imprisonment. In 1997, somebody got a suspended sentence of six months and in 1998 somebody received a suspended sentence of two years. In 2001, there were three suspended sentences of 12 months and two of six months, and one individual was sentenced to three months' imprisonment. In 2002, a three-month suspended sentence was issued, and in 2003 a two-year suspended sentence was issued. In 2004, a person received a sentence of 180 hours' community service, as referred to by the Chairman.

Deputy Boyle

There were some convictions and two imprisonments.

Mr. Daly

The tendency of the courts is to impose a fine. It is no harm to mention that sentencing is a matter for the courts, but the impact on the defendant — this is not to defend the situation — is not limited to the sentence. An amount of public odium is attached to any conviction. One point that must be taken into account is the decision by the court in the Redmond case to the effect that it is plainly not possible for a sentencing court in such a case to ignore the fact that other penalties, which may be much greater in amount than the cumulative sum of the maximum fines for these charges, have already been paid. Therefore, the courts take into account the fact that the person in court has already paid the penalty and other moneys to Revenue. That is a reality.

Deputy Boyle

Are there sanctions such that one would no longer be permitted to practise as a director afterwards?

Mr. Daly

Yes, there is extensive co-operation between our office and the Office of the Director of Corporate Enforcement in that area. It is the director who takes those prosecutions. The director has been quite successful in that area.

Deputy Boyle

I shall return to the area of tax write-offs. While the amount is small, I am curious about the variation in figures between 2002 and 2003. The number of cases in 2003 amounted to only 25% to 30% of the number pertaining to the previous year. Was this as a result of a policy of the Revenue Commissioners to deal with fewer people and make fewer write-offs?

Mr. Daly

No, it is probably as much a function of the fact that there was a reduction in automated write-offs during 2003. I should have come back to Deputy Joe Higgins on this matter. The other element of our procedure is such that, some years ago, we introduced a system simply because of the great number of small cases that were on the file since old God's time. We never really had a realistic prospect of collecting the moneys pertaining thereto. That was at a stage when the Revenue debt was at approximately 38% or 39% of gross collection each year. It has now decreased to less than 3%. We had many of these old, small cases and we introduced an automated programme which, for any case with less than €1,000 at stake and no contrary indicating factors, allowed for an automated write-off. The extent of that has diminished in the past year. That was a significant factor influencing the reduction in 2003.

Deputy Boyle

That is a bit strange. Even though there has been a reduction in the number of cases, the average write-off per case has actually increased.

Mr. Daly

We are now getting stuck into the hard core of debt. We have a target, to be achieved over six years, of having no debt on the record that is not at enforcement. Progressively over recent years, we have been moving up from the lower-level cases and getting stuck into the middle-level cases. There is more intensive case working.

Deputy Boyle

Is it fair to say that the average write-off in all the cases in 2002 was approximately €1,000 per case, or just above this, and that it is now about €3,000 per case?

Mr. Daly

That is right. It was €1,033 in 2002 and it is now approximately €2,700. There is now a more focused case working approach.

Deputy Boyle

Mr. Daly has listed the monetary amounts pertaining to each case but not the categories under which they fall. Does he have the relevant statistics? How many cases apply to VAT, PAYE, etc.?

Mr. Daly

We have the number of cases in each category.

Deputy Boyle

The two categories that stick out involve income tax, which largely concerns the self-employed and farmers, and VAT, which concerns businesses that have not made their returns.

Mr. Daly

In 2003, the number of income tax related cases in the non-automated write-off category was 7,142. The figure for the automated write-off of income tax for 2003 was 18,323. The number of VAT-related cases in the non-automated category was 3,539 in 2003, and the number in the automated category was 5,171.

Deputy Boyle

On the grounds for write-off, Mr. Daly has already indicated that Revenue treats sums up to €1,000 as a benchmark, or has done so with regard to its automated system.

Mr. Daly

That is the automated system.

Deputy Boyle

Yes. The average amount pertaining to each case that is uneconomic to pursue seems to be approximately €1,000. It was only €500 in the previous year and it seems that Revenue must have decided it was not able to retrieve quite small sums of money because of the cost of doing so.

Mr. Daly

"Uneconomic to pursue" essentially means that the opportunity cost of going after the money is too high.

Deputy Boyle

Was it because of a lack of resources in the Revenue Commissioners?

Mr. Daly

It is not because of a lack of resources as such but because the return from employing people to do other work is much better than it would be if the staff went down that road. Within the category of "uneconomic to pursue", we set off the potential cost to Revenue in time and money. One can get to the stage where one cannot get the money by persuasion but by enforcement or using the sheriff, a solicitor, the courts or attachment. However, as members probably know, the money might not be forthcoming. In 2003 some 38,800 cases were written off under the "uneconomic to pursue" category. That represented a substantial reduction on the 2002 figure of 152,000 cases. Within this category, automated write-offs were not in any way significant. "Uneconomic to pursue" is by far the largest category, followed by the headings "ceased trading with no assets" and "compassionate grounds".

Deputy Boyle

The latter is the smallest category. Revenue might consider rewording it because it implies none of the other grounds is compassionate.

Mr. Daly

They are all compassionate.

Deputy Boyle

I want to return to a point raised by Deputy Higgins about the sum of €1.6 billion arising from the various forms of tax evasion Revenue has managed to track. However, this figure does not represent the total amount being evaded in the economy — tax avoidance presents a different argument. Does the Revenue have the total? Surely statistics on gross national product, average industrial earnings, average business earnings and so on tell us how much money is in the economy and how much of it is taxable. Is there still a discrepancy between what can be and is being collected in tax?

Mr. Daly

There are plenty of statistics. The Deputy is referring to the so-called "tax gap" between what should be paid, if everyone paid, and what is actually collected. That is a factor of the black economy and so on. We have not carried out a study of the issue. Some three or four have been carried out by independent experts during the years, not just in respect of Ireland but in respect of EU and OECD countries. Their conclusions fluctuate wildly and no two agree. It is a matter to which the Revenue Commissioners have given some thought as to whether we should carry out such a study. To be honest, I would love to know the answer before I decided to carry out a study.

Deputy Boyle

Is Mr. Daly confident he can give a ball park figure? Does he think the Revenue Commissioners are collecting 50% or 80%?

Mr. Daly

I cannot speculate because I do not know what the figure is. However, the general level of tax compliance has been improving steadily in recent years. While I will not put a percentage on it, we are heading in the right direction. We are giving consideration to whether we should take a measurement of the "tax gap". However, my problem is that the conclusions of studies of the position in European countries fluctuate wildly and that there is no recognised expert or proper methodology. Nevertheless, we have not ruled it out. I withdraw my previous remark about wanting to know the result before undertaking such a study.

Deputy Boyle

It is now on record.

Mr. Daly

The random audit results may help. They would probably be a factor in any study we carried out.

Deputy Boyle

Does Mr. Daly think the investigation into the use of insurance policies to evade tax might be more complicated than those into the banks, given that there are more insurance companies based outside the State or will the investigation concentrate mainly on Irish based companies?

Mr. Daly

It is hard to say where the concentration will be until we have made a further analysis. However, I hope the insurance industry will co-operate because I suspect that, while the figures may be sizeable from our point of view, the proportion of insurance products and the extent of tax evasion within the industry are, relatively speaking, pretty small. I assume, therefore, that the industry will want to weed it out and co-operate with us in the process. As we have not yet engaged with it, I do not know how far it will go.

If we were to examine every issue, we would never get to the bottom of the matter. We need to ascertain how we can focus on the risky areas and get a handle on where the untaxed moneys are and what products were purchased. That is the real challenge. It will be a complex investigation but so were the investigations into Ansbacher, BNR, offshore accounts and so on. Our approach is to make an analysis, which some think takes us a long time, but it pays dividends in the end because one can carry out a structured, methodical investigation. I could be back before the committee next year to fill members in on how it is going.

Deputy Rabbitte

Did the Revenue Commissioners ever turn up how the DIRT evasion process came about and who signed the order?

Mr. Daly

Is the Deputy referring to the famous SIM 263?

Deputy Rabbitte

Yes.

Mr. Daly

Nothing has emerged of which I am aware since the DIRT inquiry and the process which was undertaken.

Deputy Rabbitte

On the figures set out on DIRT, the banks, the Ansbacher affair, the tribunals, the offshore assets investigation and so on and notwithstanding the appropriateness or otherwise of penalties, many ordinary taxpayers are boggled at the capacity to pay the tax owed with interest and penalties. Has Mr. Daly noticed any impact in collecting the extraordinary amounts the Revenue Commissioners have retrieved? Have companies gone out of business as a result? Have commercial premises closed down? Have people pleaded inability to pay? Alternatively, were they using a very cheap loan for a very long time which made them into multi-millionaires and caused them never to look back?

Mr. Daly

The amount in interest and penalties, never mind the taxes owed, is quite substantial. Depending on whether one came in during a voluntary or post-voluntary phase, one could end up paying anything from two to four times the amount in tax evaded in the first place. From the representations I receive and the reports from Revenue districts, there is no doubt it has impacted significantly on quite a number. We have had a number pleading inability to pay but I would not say it is significant in the overall scheme of things. There have also been some very hard and sad cases. However, I am not aware of any businesses going under. There has been a great deal of pain. As to how many pull through, I do not have figures. Many have come clean or been cleaned in the process.

Deputy Rabbitte

Does that automatically mean such people are now, by definition, in the tax net?

Mr. Daly

Yes. It is a condition that everything must be put on the table. If one applied, for example, in respect of a bogus non-resident account, one had to declare any other forms of evasion. If one subsequently turned up at our door to make a voluntary disclosure under the offshore assets scheme, one would have been told "no thanks", that one was no longer entitled to make a voluntary disclosure and the whole case would be reopened. They are now firmly in the tax net and on our records. While it would be wrong to say someone who has evaded tax is automatically regarded forever more as a risk, districts are well aware of who has come in under the schemes. It would be no tribute to the Revenue Commissioners if we let them escape again.

Deputy Rabbitte

In the medium to long term, is that almost as important to the Exchequer as the amount retrieved, large as it is?

Mr. Daly

I have said before at this committee that while the money is important, strategically, the more important outcome is increased compliance. That gives a dividend during the years and does not just lead to increased compliance for the 30,000 who have come in but has an effect on compliance generally. I have no doubt that this has had and will continue to have an exemplary effect on compliance.

Deputy Rabbitte

If a compliant taxpayer who reads tomorrow about the extraordinary figures Revenue has successfully retrieved thinks it is still going on, is he or she incorrect?

Mr. Daly

Tomorrow I have no doubt there will be a focus on the latest Revenue investigation into insurance. We are not finished yet; there are other issues with property and credit cards. The real issue is if there are new schemes like the BNR and offshore assets accounts but there is no evidence of this. There are legacies we must get out of the system and which are a significant overhead for Revenue. We will be at this for some years. We also keep a close eye to see if there is anything else growing but there is no evidence that there is.

Deputy Rabbitte

Did I read an answer to a parliamentary question to the Minister for Finance stating that in the case of 33 schemes that permit people to legitimately minimise their tax, it is not possible for the Department of Finance or the Revenue Commissioners to quantify the tax forgone?

Mr. Daly

I appeared before the Joint Committee on Finance and the Public Service last week on that question. There are a number of schemes where traditionally we have not looked for information on tax returns. Therefore, we are not in a position to quantify the tax costs. Our thinking was largely driven by wanting to keep tax returns as simple as possible but it has now changed. This year we are moving to a situation where we will capture the information on all of the more significant schemes. This information will become available at the end of 2005 and be analysed and available early in 2006. In some cases it was a matter of the Revenue Commissioners and the Department of Finance making a decision to collect this data while in others it required legislation. By the end of next year we will have the information on all of the significant schemes. However, there are small schemes such as exemptions for awards to thalidomide children and haemophiliacs where we do not intend to collect the costs because it might be intrusive and, even if we knew them, would we want to do anything about it?

Deputy Rabbitte

In all of the categories listed by Mr. Daly, there is no reference to the amnesties, particularly the last one. Has Revenue any experience of discoveries of people who misdeclared under that amnesty? Was it structured in such a fashion that it was not possible to get behind it unless there was prima facie evidence that there had been malfeasance?

Mr. Daly

We have examined some cases. At the extreme, it could be said that because the amnesty was compulsory and people were required to avail of it, if they did so, they had to do it in a full and complete manner. It has been asked if the people who came in under these schemes should have availed of the amnesty. We have examined many of these cases to see if we can take action under the amnesty legislation. This examination is not yet finished; we still have some cases that we are running past the Director of Public Prosecutions but being honest, there are real difficulties involved. The legislation was structured in such a way that Revenue could not get behind the amnesty certificate, nor can we get to the stage where we receive a list of those who availed of it to see who did not and then consider a prosecution. The legislation was structured in that way because the intention was to attract people but it has had consequences in terms of our ability to prosecute. We have not yet succeeded and I do not hold out any hope we will.

Deputy Rabbitte

If there is a case of manifest tax evasion and the person produces an amnesty certificate stating he or she dealt with the issues at the time, must Revenue accept this or, depending on the circumstances, can it inquire behind it? Is the production of a validation certificate enough to steer attention away?

Mr. Daly

It is not enough to force us away. We can go to the appeals commissioners and ask for permission to look behind it. In going to them there must be a prima facie case that the amnesty declaration was inadequate in the first place. How do we do this unless we have permission to look behind it? That is the real difficulty.

Deputy Rabbitte

Speaking of amnesties, does Revenue have any thoughts about the amnesty in the United States where repatriated profits will only be liable to tax at 5.25% for one year?

Mr. Daly

I do not have any thoughts or expertise in that area. I am aware of it and the media speculation that it might cause problems for some Irish based subsidiaries of US companies. I do not have enough information to know what the effect might be. It would be better if the IDA or other body carried out an assessment, rather than the Revenue Commissioners.

Mr. Purcell

I would like to clarify a point on the line of Deputy Rabbitte's question about the incentive amnesty, in which we share an interest because it is the subject of chapter 3.8 of my report which will be considered in two weeks' time. We can further explore it at that stage and I hope I will be able to advise the committee in my opening comments of the genesis of my concerns in that respect.

Deputy Curran mentioned the random audit. There was a randomness associated with it in that it involved a targeted selection from a random selection. Therefore, it has a certain validity. On the point about the liability reviews under the disclose and pay scheme, there was a random element. This refers back to what the Accounting Officer said. On the basis of the random review, if one takes a pure extrapolation — we are doing the sums here — there is a figure of €9 million which is not much in the context of the sums we discuss generally with the Revenue Commissioners. One looks at the potential revenue against the cost of collecting it. Some of those who came in under the disclose and pay scheme were not as honest as they might have been. Of the 143 selected on a pure random basis, 14 required uplift while the jury is still out on another 17. They are not insignificant percentages. I look forward to the random audit generally and the results of the extrapolation to resolve finally the potential liability picture because even in the voluntary schemes it is part of some people's nature not to come clean.

Mr. Daly

I echo those remarks. We have seen this in each scheme. It is a continuum. People who came in before will try to come in again under the insurance scheme. It is like the man who writes to us with €10,000 in conscience money and says he cannot sleep at night and that if he still cannot sleep, he will send the remaining €20,000.

Chairman

The Revenue Commissioners will be back with us in two weeks' time with special emphasis on chapters 3.6 to 3.8, inclusive. I suggest that we leave the entire chapter open in case members wish to revisit the issues raised on chapters 3.1 to 3.5, inclusive. As there were no questions on Vote 9 today, we will also let that stand. I thank Mr. Daly and his officials. I also thank Mr. Hurley.

Next week we will discuss chapter 9.1 which deals with the Department of Education and Science and the Residential Institutions Redress Board. As a result of the decision taken in private session, we will also examine Vote 13 — Office of the Attorney General.

The witnesses withdrew.

The committee adjourned at 1.25 p.m. until 11 a.m. on Thursday, 25 November 2004.