COMMITTEE OF PUBLIC ACCOUNTS debate

Chairman

Today we will deal with the Office of the Revenue Commissioners, Vote 9, chapters 3.1 to 3.5, inclusive (resumed) and chapters 3.6 to 3.8, inclusive. There is no relevant correspondence in this regard. Witnesses should be made aware that they do not enjoy absolute privilege. Members' and witnesses' attention is drawn to the fact that 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 who are 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 being invited 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 these rights and provided with a transcript with the relevant part of the committee's proceedings if the committee considers it appropriate in the interests of justice. Notwithstanding this provision in the new legislation, I remind members of the long-standing parliamentary practice to the effect that members 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 provision within Standing Order 156 that the committee should also refrain from inquiring into the merits of a policy or policies of the Government or a Minister or the merits of the objectives of such policies.

We discussed chapters 3.1 to 3.5 with the witnesses and questioned them thereon two weeks ago. Today we will commence with chapters 3.6 to 3.8, inclusive. We will discuss them together because members probably want to address a range of issues. The members are free to dip back into the issues we did not dispose of in regard to chapters 3.1 to 3.5.

I welcome Mr. Frank Daly and ask him to introduce his officials.

Mr. Frank Daly

I am accompanied by Mr. Liam Irwin, our newly appointed deputy secretary and head of our strategic planning division, Mr. Paddy Molloy, principal and head of our statistics and forecasting branch, Mr. Paddy O'Shaughnessy, principal and liaison officer with the Office of the Comptroller and Auditor General, and Mr. Tom Dowling, assistant principal and administrative budget manager. Mr. Dave Coleman, senior press officer, is in the gallery.

Mr. Dave Hurley

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

Chairman

Chapters 3.6 to 3.8, inclusive, of the report of the Comptroller and Auditor General read:

3.6 Outstanding Tax and its Collectability

Each year, I include in my Report a table of outstanding taxes and PRSI based on information furnished by the Revenue Commissioners. In previous years, the information has reflected the activities and transactions in the twelve-month period to the end of May of the current year — the latest date for which data was available at the time of finalising my Report. However, in order to facilitate an earlier publication date for the Revenue Annual Report and to maintain consistency between the reports, the data reported will in future reflect the situation at 31 March. In this transitional year, the data set out in Table 12 below covers a ten-month period. An aged analysis of the balance outstanding at 31 March 2004 is set out in Table 13.

Table 12 Outstanding Taxes and Levies
Balance at 31 May 2003	Tax or Levy	Charges/ Estimates Raised	Paid	Balance at 31 March 2004	Estimate of amount likely to be collected
€m		€m	€m	€m	€m
126	VAT (Declared Liabilities Net of Repayments)	8,773	8,798	101	81
206	VAT (Estimates)	80	41	245	196
146	PAYE (Declared Liabilities)	7,371	7,343	174	140
15	PAYE (Estimates)	456	459	12	10
165	PRSI (Declared Liabilities)	5,235	5,210	190	152
11	PRSI (Estimates)	354	357	8	7
327	Income Tax (Excluding PAYE)	2,020	2,041	306	245
—	DIRT	158	158	—	—
147	Corporation Tax	4,366	4,356	157	125
152	Capital Gains Tax	1,727	1,729	150	120
19	Capital Acquisitions Tax	150	157	12	10
8	Abolished Taxes	1	1	8	—
1,322	Total	30,691	30,650	1,363	1,086

The balance outstanding at 31 March 2004 of €1,363m is €41m greater than at 31 May 2003. Revenue has indicated that the increase is due to the change to a 31 March reporting date. It is estimated by Revenue that €1,086m or 80% of the total outstanding is likely to be eventually collected. The estimated collection ratio at May 2003 was also 80%.

Table 13 Aged Analysis of Debt at 31 March 2004
Tax	Total tax outstanding at31 March 2004	Amounts outstanding for 2003	Amounts outstanding for 2002	Due for periods 1990/91 to 2001	Due for earlier periods
	€m	€m	€m	€m	€m
VAT	346	98	79	169	—
PAYE	186	97	25	62	2
PRSI	198	102	32	62	2
Income Tax	306	2	78	216	10
Corporation Tax	157	52	12	89	4
Capital Gains Tax	150	4	26	119	1
Capital Acquisitions Tax	12	1	1	10	—
Abolished Taxes	8	—	—	8	—
Total	1,363	356	253	735	19

As the information given in Table 12 is a key indicator of the performance of Revenue in maximising the timely collection of taxes and duties, and of the effectiveness of actions taken against late or non-payment of tax, I have examined:

·the basis on which the figures supplied by Revenue were prepared

·the basis of the estimated collection rate calculation

·the extent of collection activity in cases where the tax outstanding has not been collected.

The results of the examination are presented below.

Compilation and Presentation of Debt Figures

In recent years, Revenue has introduced a fully integrated computerised tax system — Integrated Taxation Services. The centralcomponent of the system is Integrated Taxation Processing (ITP) which issues returns, processes returns and payments, and carries out the main collection activities for all the major taxes. The other main system components are the Common Registration System (CRS) which brings together registration details for each tax type into a single customer and tax agent register, and Active Intervention Management (AIM) which provides composite payment and compliance details for all taxpayers. AIM is used extensively by the Collector General for ongoing case-working to secure payment of outstanding tax, returns compliance and the management of tax debt. The details on AIM in relation to each taxpayer represent a snapshot of each customer's transactions on ITP at a point in time. Generally, ITP details are transferred to AIM on a weekly basis.

While details of the status of each taxpayers "account" with Revenue are readily accessible on ITP and AIM, neither system records total details of tax outstanding by the normal commercial business method of maintaining a debtors control account. Such a control account is not required by Revenue for financial reporting purposes, as the annual account prepared by Revenue and audited by me is a cash account which records cash actually received and either repaid or paid over to the Exchequer. The outstanding taxes details prepared by Revenue and published in my Annual Report are obtained through an enquiry and extraction process. Detailed tables of amounts outstanding are prepared for each tax, and these are summarised to produce the published figures.

Reports for each taxhead are obtained from the ITP system giving summary information for each tax year at the month end. The data produced varies from taxhead to taxhead but would typically include total amounts in respect of the charge to date, payments to date, overpayments to date and balance outstanding. In addition, information held on ITP in relation to the status of the balance outstanding is aggregated annually to show, for each tax year, the amount of the balance written off, under appeal, demanded, with enforcement etc. These detailed reports allow for the preparation of the outstanding taxes tables for each taxhead by means of a series of interlinked spreadsheets. This examination reviewed the process by which the data produced from ITP was used for the preparation of the outstanding taxes tables. The computer programs which are run to produce that data were not reviewed.

The examination found that there is a reduction of control as the outstanding taxes details are produced by the aggregation of summaries which are extracted by enquiry from the ITP system. That extraction process differs as between the various taxes. The system does not maintain an ongoing control total of the amount outstanding for each taxhead, or of payments received or written off etc., for reconciliation with other Revenue records. It is not possible to ‘drill down' to the individual case balances that make up the overall totals for each taxhead.

The compilation process used is also quite complicated, and uses a series of interlinked spreadsheets and formulae. However, a procedures manual was not available. Revenue has indicated that work had commenced in preparing a manual to replace the current guidelines.

Certain figures used in the process are allowed stand as "balancing figures", i.e. not reconciled with other sources of the figure, even though source data for these figures is available from ITP. Specifically:

·In the case of VAT, PAYE and PRSI, the ‘paid' figure for each tax year is the net charge less the balance outstanding. The payments figures extracted from ITP for each year are not used to verify the ‘paid' figure. Reconciliations between the ‘paid' figures used for each of these taxheads and the underlying ITP data revealed differences (PAYE €74m, PRSI €34m, VAT €3m). Revenue is continuing to examine these differences.

·The ‘charge' figure for each tax is reduced by a "discharge" figure. For VAT this discharged figure is taken directly from the data produced from ITP showing assessments discharged. However, for Income Tax and Corporation Tax the figure is essentially a balancing figure representing the amount by which the balance decreased by other than payment. Reconciliations prepared by my staff showed that the discharge figure for Income Tax and Corporation Tax did agree with the underlying ITP data. While the use of balancing figures in the calculation ensures that the figures produced are consistent with each other i.e. that the charge less the discharge less the amount paid equals the balance outstanding, the assurance value of the process is devalued.

Revenue should reconcile all figures with the underlying ITP data.

Calculation of the Estimated Collection Rate

In addition to providing details annually of the amount of outstanding taxes, Revenue also gives an annual estimate of how much of the outstanding tax it expects to ultimately collect. In respect of the total of €1,322m outstanding at 31 May 2003, Revenue estimated that €1,054m or 80% of the total tax outstanding would be collected.

The estimation process is a simple one. The estimate quoted in respect of May 2003 was obtained by comparing the total outstanding for all taxes (excluding CAT) at 31 May 1998 with the amount still outstanding in respect of that total at 31 May 2003, five years later. The exercise indicated a reduction of 80% in that portion of the debt. That rate was adopted as the expected collection rate for the May 2003 debt and, when applied to the amounts outstanding for each taxhead, gave the estimate of €1,054m.

Issues which arise in relation to this estimate are:

·The estimate is based on the total reduction in debt rather than purely the amount of that debt which was collected. As well as being reduced by payment, the debt can be reduced by discharge which includes write off. It may be more informative to estimate the rate of reduction while identifying the contribution of each of the different components — payment, discharge and write off;

·The estimate is based on the reduction in total debt and doesn't take account of different reduction ratios between different tax types;

·The value of the estimation process is diminished by the fact that actual performance is not subsequently compared with what was estimated. Such an exercise would also provide useful information to feed into future estimates.

Outstanding Debt as a Measure ofPerformance

Actual performance in the collection of outstanding debt is considered an important measure of the overall performance of Revenue. The Steering Group on the Review of Revenue recommended that a set of benchmarking measures, indicators and collection and debt performance targets be formally developed and introduced, using existing internal information in Revenue. The Final Report of the Committee of Public Accounts Sub Committee inquiry into certain Revenue matters expanded on this issue and recommended that Revenue should develop and publish annually:

·For each taxhead

-measures of the tax base

-the amount of tax charged

-the budget forecast, the tax collected, and variances and explanations

-underlying tax debt

-changes achieved in the level and age structure of tax debt

·In respect of tax debt, measures of risk, and policy on the containment of risk within acceptable limits

·Measures of performance against independently derived and externally approved and audited performance benchmarks, which reflect the medium term strategic management objectives of Revenue.

Information on tax collected, budget forecasts and variances and explanations as well as total tax debt have been provided in Revenue Annual Reports for a number of years. Work on implementing the remaining recommendations is being carried out in conjunction with the ongoing development of a Revenue performance scorecard.

Revenue's Strategy Statement for the period 2003 to 2005 set specific targets in relation to the level of debt:

·Achieve an overall reduction in the level of debt;

·All debt on record to be less than six years old or be the subject of active enforcement or Court proceedings;

·No more than 25% of debt to be greater than three years old.

An analysis of debt levels at 31 March 2004 shows that €622m or 46% of the overall debt of €1,363m related to 2000/01 and earlier, i.e. greater than three years old, including €237m (18%) in excess of six years old — 1997/98 and earlier years (see Figure 1). This underlines the extent of the challenge facing Revenue in achieving the Strategy Statement targets.

In a previous initiative in 1997, Revenue moved to address the amount of old uncollectable debt on record by revising its write off procedures. The changes included the automatic write off of small amounts, enhanced efforts to review doubtful debt and the write off of cases involving company liquidations at the beginning rather than the end of the liquidation process. This resulted in a near 300% increase in write offs for 1997 and 1998 before returning to earlier levels of write off in subsequent years. That action was intended to bring about a significant reduction in the level of old book arrears and a greater focus on the collection of current taxes and current arrears. There is no provision for an increased level of write offs in the current strategy, where the stated focus is on timely and robust action against late payment or non-payment of tax.

Figure 1 Analysis of March 2004 Debt Levels in terms of Statement of Strategy 2005 Targets

Extent of Collection Activity

During this segment of the examination, files of cases with Income Tax outstanding at July 2003 and at March 2004 were compared, and cases were extracted where the amount outstanding for any tax year had not changed between the two dates. The database of over 310,000 records representing 201,000 taxpayer cases with Income Tax outstanding for one or more years is summarised in Table 14 on a taxpayer case basis. For more than 90% of the cases the balance outstanding was less than €1,000, and the sum of those balances represented only 5% of the total balance outstanding of €163m. Over 200,000 or 99.5% of cases fell into the sub €20,000 category amounting to €64m or 39% of the total. 20 cases, each with tax outstanding of more than €1m, accounted for over 24% of the total value.

Table 14 Analysis of Database by Taxpayer Case
Value Range	Number of Cases	% of Cases	Income Tax Value	% Tax Value
€0 to 1,000	185,952	92.28%	€8m	5%
€1,000 to €20,000	14,624	7.26%	€56m	34%
€20,000 to €100,000	773	0.38%	€29m	18%
€100,000 to €1m	141	0.07%	€31m	19%
Cases greater than €1m	20	0.01%	€39m	24%
Total	201,510	100%	€163m	100%

A sample of 74 records with annual balances outstanding in excess of €999 was selected from the full database of 310,000 records as follows

·A random selection of 5 records for each of the six tax years from 1996/97 to 2001 where the balance outstanding was between €1,000 and €100,000

·A random selection of 5 records for each of the six tax years from 1996/97 to 2001 where the balance outstanding was between €100,000 and €1,000,000

·14 records where the balance outstanding for the period was greater than €1m.

The 74 records selected referred to 68 different taxpayer cases as some of those selected had tax outstanding for more than one period. The cases were selected on the basis of Income Tax outstanding for a single tax period. Many of the cases had Income Tax outstanding for other periods and some also had other taxes outstanding. Revenue caseworkers seek to collect all tax outstanding when working a case. A profile of the cases selected for examination is set out in Table 15.

Table 15 Tax Arrears Profile of Cases Selected
	Number of Cases	Income Tax Outstanding for Year Selected	Total Income Tax Outstanding	Total Tax Outstanding
		€m	€m	€m
Cases €1,000 to €100,000	30	0.09	0.19	0.26
Cases €100,000 to €1m	24	5.73	9.35	9.60
Cases greater than €1m	14	31.20	31.44	92.83
Total	68	37.02	40.98	102.69

Table 16 Number of Years Outstanding for Cases Selected
Number of Tax Years Outstanding	Number of Cases	Income Tax Outstanding for Year Selected	Total Tax Outstanding
		€m	€m
One Year	28	19.38	20.65
Two Years	22	14.50	75.49
Three to Four Years	10	1.06	1.63
Five Years and More	8	2.08	4.92
Total	68	37.02	102.69

The computer records on ITP and AIM were examined for each case to establish the level of collection activity in relation to the case. The criteria set for the examination of the sample was that a case would be considered to be the subject of collection activity if:

·There was evidence on the AIM system notes of active collection interventions since the sample date of July 2003, or

·There was a record of a factor which prevented the case being worked (e.g. under appeal, address not known), or

·The case had been referred to enforcement (solicitor or sheriff).

Findings

The collection status of the cases examined is set out in Table 17. 12 cases were at enforcement stage (sent for enforcement between June 2001 and March 2004), and of these cases, payment has been received in one case and, in another, settlement has been accepted and payment is due.

23 of the 38 cases at demand or warning stage were open to AIM collection action. There was no indication of collection action in 9 of these cases. In relation to one of these 9 cases with tax outstanding of €51,000, Revenue has stated that the case is on the arrears list for AIM caseworking and that caseworking has now commenced. In another, the tax outstanding has since been written off. Revenue has stated in relation to the remaining 7 cases with tax outstanding of less than €8,000, that business plans for 2004 set a target of caseworking all cases with arrears greater than €20,000. For cases with arrears below this threshold, the Enforcement Referrals Unit will carry out enforcement where appropriate, prioritising cases based on the amount of the arrears. These 7 cases have not been selected for enforcement yet due to the amount of the arrears involved.

Table 17 Collection Stage of Cases Selected
Collection Stage	Number of Cases	Income Tax Outstanding for Year Selected	Total Tax Outstanding
		€m	€m
Awaiting Demand	3	5.80	5.80
Demand*	2	—	0.02
Repeat Demand	17	8.46	9.76
Warning	16	2.37	2.52
Sheriff	4	0.43	0.44
External Solicitor	8	1.30	1.45
Under Appeal	17	18.66	82.70
No Stage on Record**	1	—	—
Total	68	37.02	102.69

* The two cases in this category had Income Tax outstanding for the period selected of less than €4,000.

** In this case, the taxpayer had paid the outstanding amount of €2,500 at the time of review.

Table 18 shows how the liabilities arose in the cases examined. In almost half of the cases, the liability resulted from the normal process of receipt of return and issue of assessments. In 17 of the cases examined, a Revenue audit had been carried out for at least one period where tax was outstanding but the outstanding amount had not been paid. 9 of these cases that had been audited are under appeal and three have been sent for enforcement.

Table 18 Source of Liability for Cases Sampled
Source of Liability	Number of Cases	Income Tax Outstanding for Year Selected	Total Tax Outstanding
		€m	€m
Notice of Assessment	33	2.60	3.12
Audit	17	6.74	11.09
Share Options	18	27.68	88.48
Total	68	37.02	102.69

In two cases, Income Tax liabilities of over €300,000 arising from audit in each case had been sent for enforcement by the caseworker in the Collector General's Office. Subsequently, the taxpayers (who are related) both submitted returns which only showed PAYE income with no reference to the audit issues or amounts outstanding. The returns were processed by the tax district without reference to the auditor or the case notes, and assessments were raised for the lower amounts. The enforcement proceedings were withdrawn. Revenue has confirmed that the original assessments from audit have been re-instated and that enforcement would be initiated again at the earliest opportunity.

18 of the cases examined had liabilities arising from the exercise of share options, and the total outstanding tax in these cases was €88.5m (which includes a very large single case). A particular difficulty arises in many of these cases due to the individuals concerned having left the country. 7 of the 18 cannot be located and are understood to be abroad. In the remaining 11 cases examined where the individual had been located, whether in Ireland or abroad, none of the outstanding liabilities have been collected to date. However, 5 cases are under appeal.

An updated statement of the current position of the cases examined has been provided by Revenue, and is shown in Table 19.

Table 19 Revenue Update on Cases Examined
Stage	Amount of Tax	Number of Cases	Revenue Comment
Under Appeal	€82.52m	17	Not open for collection
Share Option	€17.26m	12	At various stages of collection. Some gone abroad
Other Large Liabilities	€3.29m	6	All being pursued
Smaller Liabilities	€0.13m	33	At various stages of collection/enforcement
Total	€103.20m	68

Inconsistencies were noted in the quality and maintenance of the AIM notes. Revenue has stated in this regard that additional information on cases is often available in paper records in the relevant Debt Management Unit of the Collector General's Office, and that there may also be activity occurring in the relevant tax district. However, Revenue recognises that the quality and consistency of AIM notes is a problem and has indicated that it is continually addressed at AIM training courses.

Conclusions

The Table of Outstanding Taxes is prepared from data extracted from the computer taxpayer database in summary form, and aggregated through a number of spreadsheets to allow the overall position to be presented. From a review of detailed listings of taxpayer balances, which are prepared at a date close to the summary extraction date, I have no reason to doubt that the Table gives a good indication of the debt owing to Revenue. The summaries of outstanding taxes are prepared for management information, and the detailed listings for collection activity. Measures to improve the assurance in respect of the outstanding taxes figures to financial statement standard would require that the summary extractions and detailed annual listings be prepared at the same time and reconciled, that no ‘balancing figures' are allowed stand without subsequent reconciliation, and that the process is governed by a procedures manual and is subject to supervisory checking.

The calculation of the Estimated Collection Rate is somewhat rudimentary in that the percentage reduction over the past five years in the total of all debt outstanding is established for the latest year available, and that percentage is applied to the overall total amount currently outstanding for each taxhead. That simple approach relates to a general reduction in debt as against a collection rate. It would be more appropriate to separate the contribution of the different components of the overall reduction i.e. payments received, discharges, and write off. The current approach also does not take account of the likelihood of different reduction rates as between the various taxheads. It would also be worthwhile to subsequently compare actual performance for each component and each taxhead with the annual estimated figures.

Revenue has set challenging targets in regard to debt levels in its Statement of Strategy 2003-2005 and, in particular, that all debt on record be less than six years old (or subject to active enforcement or Court proceedings). This is to be achieved by timely and robust action against late payment or non-payment of tax. However the focus on caseworking all cases over €20,000, coupled with the lack of collection activity noted in eight sampled cases with arrears under €8,000, raises the question as to how the large number of cases under €20,000 will be cleared within the six year deadline. Of the database of 201,000 Income Tax arrears cases totalling €163m created for this examination, over 200,000 or 99.5% fell into the sub €20,000 category amounting to €64m or 39% of the total.

The extent of share options arrears cases indicates that a particular problem arose in this area. Following a programme of verification audits in this area during 2001 and 2002, changes were introduced in the Finance Act 2003 which require payment of Income Tax due within 30 days of exercising the option to purchase the shares.

Other points of concern were:

·there had been no collection activity during the targeted period on one of the sampled cases with arrears of €51,000; caseworking has now commenced;

·enforcement proceedings in two cases, each of €300,000 in relation to Income Tax arrears as a result of audit were withdrawn following the issue of assessments for much smaller amounts by the local district on receipt of returns of PAYE income; the local district had not referred to the auditor or to the case notes on the computer system; audit assessments are now re-instated

·inconsistencies were noted in the quality and maintenance of the notes on the AIM computer system.

Accounting Officer's Response

The Accounting Officer confirmed the importance of the outstanding taxes figure as a performance indicator, which was reported on both in my Annual Report and in Revenue's Annual Report. As the figure measured the absolute size of the outstanding tax debt and was used to compare year-to-year performance in tackling it, it was important that there was confidence that it gave a reasonably accurate measure of the debt and that there was consistency in how it was calculated from year to year. He was satisfied, in that regard, on both counts, and noted that the audit conclusion was supportive of that view.

Revenue accepted that the reconciliation of certain figures used in the compilation process with other sources of those figures would give additional assurance value to the process, but noted that every additional layer of assurance came at a cost. Nevertheless, it was intended to carry out a study to examine the feasibility and the opportunity cost of aligning the ITP State of File Report with the AIM extract which would allow drill down to case level and cross checking of figures.

The Accounting Officer noted that there were factors in the present system which gave rise to both overestimation and underestimation of the collectability of arrears. On the one hand there was overestimation because the five-year look back on which the calculation was based included all debt reduction (collection, discharge and write off). On the other hand there was underestimation because some of the outstanding tax against which the five-year performance was measured may also be collected in the future. An underestimation bias was also built into the methodology because future collection rates were based on past performance and did not therefore fully reflect improvements in the collection process. The fact was that the collection rate was an estimate and had always been represented as such.

Revenue was currently looking at ways to improve the forecasting methodology in this area. One approach being considered was to focus on total debt reduction instead of just the collection rate. In that regard Revenue would also be looking at the possibility, though that may be difficult to achieve in the short to medium term, of splitting debt reduction estimates into collection, discharge and write off. A particular difficulty arose because pre-1991 Income Tax and Corporation Tax cases were not carried forward into ITP when that segment went live in 2001. There should be no difficulty in identifying the components of debt reduction for the years 2001 on. It was also intended to refine that analysis in the future by, inter alia, taking a look-back at the performance of individual taxes rather than the present method of collectively examining the macro performance of all taxes.

The Accounting Officer considered that it was a fair reflection of the success of the caseworking approach to tax collection that the bulk of arrears cases were for relatively small amounts. Revenue business plans included the target that collection caseworking would pursue any case that had accumulated arrears of over €20,000. Arrangements were in place for the debt management units to identify and act on all such cases identified. That approach would limit the risk to the Exchequer and had been a very effective tool in managing the overall debt in recent years. At the same time it was the intention to continually reduce the caseworking threshold, as resources permitted.

However the Accounting Officer stated that it must be recognised that it was not possible to casework each and every case that had a tax debt. The smaller debts called for somewhat different strategies. The numbers involved meant that individual caseworking was not a realistic option at this point in time. Cases with debts under the €20,000 threshold were instead subject to collection compliance and enforcement through the Enforcement Referrals Unit. This Unit reviewed cases with amounts outstanding below the caseworking threshold. Referral for enforcement was again prioritised based on accumulated tax at risk. Alternative computer enhancements, which would allow the unit to process greater numbers, were being considered.

He also stated that Revenue was working towards a position where all collection and compliance activity would be recorded in AIM, but that full migration to an electronic system of recording all caseworking notes takes time.

3.7 Direct Debit Payments

In 1992 Revenue introduced a method of payment of current taxes by means of Direct Debit. Under the arrangement, the taxpayer estimates the annual tax liability for PAYE/PRSI, VAT or Income Tax and makes payment to Revenue through bank account debits for agreed monthly amounts. The taxpayer is required to make only a single return, annually, for each taxhead, and to pay any balance between the total annual amount due under the return and the total of the monthly payments already made.

Eligibility for the Scheme

Taxpayers with a history of non-payment are specifically excluded from the direct debit facility. These are typically cases where Revenue has instigated enforcement procedures for recovery of taxes due. Direct debit is a concession by Revenue, and the facility is not granted where the proposed amount is too low or the taxpayer has a poor payment history.

The basic requirement for taxpayers paying VAT or PAYE/PRSI is that they must be up to date with their returns and payments. Taxpayers who have a pattern of late payments (as opposed to non-payment) are encouraged to avail of the facility. Taxpayers with a high VAT liability are not normally placed on direct debit.

For Income Tax, there is no restriction on who can avail of the Direct Debit facility. The taxpayer is also free to decide the amount of the direct debit payments. However a payment schedule requires the taxpayer to commence payment not later than October in the first year or by May in subsequent years.

Numbers Availing of Direct DebitArrangements

The amount collected through direct debit, and the number of taxpayers availing of the facility under each tax head for the three years 2001 to 2003 is shown below for each of PAYE, VAT and Income Tax. The total amount collected in 2003 exceeded €2.9bn.

31,500 cases availed of the arrangement for PAYE/PRSI, and almost 24,000 for VAT or 17% and 10% respectively of total PAYE and VAT registrations. The take up for Income Tax is still relatively small at less than 4,500. However this figure includes almost 1,700 new cases in 2003, which may be in response to changes introduced in 2001 that allow greater flexibility in payment frequency.

Table 20 PAYE/PRSI Direct Debit Cases 2001-2003
	2001	2002	2003
No. of cases	27,615	29,520	31,548
Total Amount	€1,306,280,861	€1,362,447,290	€1,432,909,628

Table 21 VAT Direct Debit Cases 2001-2003
	2001	2002	2003
No. of cases	21,983	23,168	23,946
Total Amount	€1,172,378,225	€1,287,864,693	€1,420,604,259

Table 22 Income Tax Direct Debit Cases 2001-2003
	2001	2002	2003
No. of cases	N/a	N/a	4,485
Total Amount	€36,953,490	€44,413,381	€57,193,855

Benefits and Risks

Under the standard return and payment procedure an employer is required to make standard monthly returns and payments for PAYE/PRSI, and a VAT-registered taxpayer is obliged to lodge returns and make payment of tax due bi-monthly. Under the monthly Direct Debit arrangement, the taxpayer is only required to make a single return at business year-end along with any balancing payment due.

In addition, taxpayers can vary the amount of each direct debit payment to match their business cycle e.g. to reflect seasonal changes. A monthly payment may even be cancelled if advance notice is given. Once payments are being made the taxpayer is considered by Revenue to be compliant.

Direct debit is also of considerable benefit to Revenue. Payments are received regularly on a monthly basis. Interaction with the taxpayer is minimised. The processing of returns and payments is greatly reduced as payments are electronically received, and paper returns are not submitted during the year.

However there are risks from the Revenue viewpoint. As the taxpayer is only obliged to make one annual return, it will be in excess of 14 months before Revenue can determine if correct payments have been made under direct debit. An insufficient level of monthly payment may cause a large underpayment to develop and possibly lead to the inability of taxpayers to pay the balancing amount.

Direct Debit will continue even if a return is not made. Contact only takes place with the taxpayer if the return is not made in time, the final or balancing payment is late, or any payment fails.

Taxpayers can take advantage of understated monthly payments to increase cash flow. On the taxpayer record, monthly liabilities are automatically estimated at the same amount as the direct debit payment. The true liability is not known until the annual return is made.

Controls

Taxpayers may set different amounts for various months when setting up the direct debit mandate, or may change the amount of individual payments during the course of the year. Revenue also allows taxpayers to cancel individual monthly direct debit payments in advance. All changes are made through Revenue. However, taxpayers on direct debit are obliged to ensure within the tolerances allowed that the total of the monthly payments is sufficient to cover the annual tax liability, and to make the annual return and balancing payment within the time allowed. Failure to lodge a return may attract the standard penalties or surcharges on late returns. Where the return and final payment are late, or the deficit is outside prescribed limits, interest charges are also applicable.

Where the taxpayer fails to lodge the annual return and balancing payment by the due date, interest is chargeable at a rate of 0.0322% per day (approximately 1% per month) on the balance outstanding from the due date to the date of receipt. Additional interest is also chargeable where the total of the monthly payments is less than 80% (VAT) or 90% (PAYE) of the yearly liability on the annual return. In such cases, interest is chargeable at a rate of 0.0322% per day on the total amount of the shortfall from a date six months before the due date of the annual return up to the due date.

In the case of Income Tax, taxpayers may set their own level of monthly direct debit payment. However, to meet their preliminary tax obligations, the total amount of direct debit payments in the tax year must be not less than the lesser of (i) 90% of the Income Tax liability for the year in question, (ii) 100% of the Income Tax liability for the previous tax year, and (iii) 105% of the Income Tax liability for the tax year preceding that previous year.

Audit Approach and Findings

The audit review objective was to establish the extent of any abuse of the direct debit tax payment facility together with any related Revenue response. Samples of PAYE/PRSI cases and VAT cases were selected and examined. A sample was also selected of cases under both tax heads which still operate under an outdated fixed mandate scheme. The primary focus was on the degree to which payments were maintained at the required levels, and whether significant shortfalls attracted the interest sanction.

PAYE/PRSI

The sample selection for PAYE/PRSI was made in two stages. Initially, a database of cases where the balancing amount was in excess of 10% of the annual total return was created from a listing of all PAYE/PRSI direct debit cases. The results are summarised in Table 23 below.

Table 23 PAYE/PRSI Direct Debit Cases with Balancing Payments Exceeding 10%
	Y/End Balancing Payments Total	No. of Cases	Total of P35 Returns
2003	€198,905,249	12,149	€675,317,798
2002	€216,099,295	13,551	€651,899,260

Two samples were then randomly selected from that database as follows:

·Balancing amounts recorded at end of December 2002 (20 cases)

·Balancing amounts recorded at end of December 2003 (20 cases).

PAYE/PRSI Sample No. 1

The results of the examination of the 20 cases where a balancing payment due at year-end 2002 was greater than 10%, and greater in amount than €10,000, are summarised below:

·In all cases the balancing payment was paid;

·Interest was charged in one case only;

·Only 7 of the cases had increased direct debit payments to cover their liability in 2003, the remaining 13 cases continued paying the same amount;

·Of the combined annual return (€2,556,234) in the 20 cases, 39% (€1,004,869) was in the form of balancing payments;

·Balancing payments ranged from €11,566 (23% of total annual liability) to €369,425 (65% of total annual liability).

PAYE/PRSI Sample No. 2

The results of the examination of the 20 cases where a balancing payment due at year-end 2003 was greater than 10%, and greater in amount than €10,000, are summarised below:

·In all cases, the balancing payment was paid;

·Interest was charged in one case only;

·15 cases also had balancing payments in excess of 10% in 2002;

·Of these 15 cases only 4 had increased the monthly payments in 2003;

·Of the combined annual return (€1,552,490) in the 20 cases, 33% (€512,479) was in the form of balancing payments;

·Balancing payments ranged from €10,946 (67% of total annual liability) to €92,105 (78% of total annual liability).

VAT

A full annual detailed listing could not readily be provided by Revenue for VAT due to the existence of multiple year-endings for that tax. Figures supplied were only in respect of cases with year ending in December. Table 24 shows cases from that database where the balancing amount was in excess of the 20% of total annual liability as permitted by the scheme.

Table 24 VAT December Direct Debit Cases with Balancing Payments Exceeding 20%
	Y/End Balancing Payments Total	No. of Cases	Total of Annual Returns
2003	€5,978,253	209	€14,498,774
2002	€2,669,042	194	€6,354,146

Two sample selections were then made as follows:

·Balancing amounts recorded at end December 2003 (20 cases)

·Balancing amounts recorded at end December 2002 (10 cases)

VAT Sample No.1

One case in the random sample selection did not start direct debit until April 2004 and was excluded, together with two further cases which, though selected, were within the limits. Of the remaining 17 cases:

·Three cases had, in fact, set direct debit amounts by December at a level which would have been sufficient to cover their annual liability. However, arrears arose in one case because two payments were cancelled during the year; in both other cases the amounts were varied upwards later in the year;

·No interest was charged in any case;

·8 cases had also incurred arrears in 2002;

·One case had the direct debit amount reduced during the year, and subsequently underpaid by 36%;

·Of the combined returns of the 17 cases (€2,060,537) the underpayment amounted to €910,275 or 44%; €459,951 of this amount remains outstanding in 13 cases;

·Balancing payments ranged from €10,241 (77% of total annual liability) to €292,412 (53% of total annual liability).

VAT Sample No.2

Of the 10 cases from 2002 in the second VAT sample

·No interest was charged in any case;

·One case had the direct debit amount reduced during 2002, and subsequently underpaid by 46%;

·Of the combined returns of the 10 cases (€690,837), the underpayment amounted to €384,096 or 56%; €114,764 is still due in respect of 6 cases;

·Balancing payments ranged from €12,189 (46% of total annual liability) to €134,477 (69% of total annual liability).

Fixed Mandate Cases

These are cases, for both PAYE/PRSI and VAT, where the amount of each direct debit mandate remains at the level set at the time when it was put in place. This type of mandate did not allow any flexibility. In order to vary the payment amount, the original mandate had to be cancelled and a new mandate set up. While there are 4,311 active fixed mandates dating back to 1992 for payment of VAT or PAYE/PRSI as indicated below, Revenue have not accepted new fixed mandate arrangements since 2001.

Table 25 Fixed Mandate Cases for PAYE/PRSI and VAT
Commenced	1992	1993	1994	1995	1996	1997	1998	1999	2000
No. of Cases	63	106	175	453	964	1,038	1,361	114	37

The results of an examination of a random sample of 20 fixed mandate cases, to include 2 from each year, are summarised below:

·While the sample ranged from 1992 to 2000, only in 2 cases had the direct debit mandate been amended at any stage.

·No annual return for 2003 had been received in 8 cases. Therefore the estimated liability recorded remains equal to the payments made. In the absence of a return it cannot be determined if overpayments or underpayments arose in these cases. Enforcement in relation to non-filing of returns has commenced in one case.

·There were 10 cases where the total payments made were less than the annual liability returned. 6 of these were in excess of the relevant 10% or 20% limit, but interest was not charged.

·2 cases have arrears outstanding, and enforcement procedures have started in one case.

·There is one case where the company has ceased trading (March 1999) but has remained on Direct Debit. There is a substantial overpayment on file (€62,026).

Audit Concerns

The direct debit payment schemes provide advantages to Revenue through the promotion of compliance and the reduction of administration costs. The scheme also offers advantages to the taxpayer. However there is a risk to Revenue of underpayment of tax through the year where direct debit amounts are set below the level required under the schemes. Any abuse of the scheme is reflected in the extent to which the final balancing payments exceed the limits allowed.

The findings of the review indicate that over 31,500 customers availed of the direct debit scheme in respect of PAYE/PRSI in 2003 and declared an overall liability of €1.4 billion. However in over 12,000 cases with a P35 liability of €675m, the year-end balancing payment was in excess of the 10% allowed by the scheme. Balancing payments in such cases totalled €198m as against an expected maximum of €68m. Monthly underpayments at that level could indicate an annual cost to Revenue of the order of €3m-€4m. On the basis of the samples examined, the imposition of an interest charge was very much the exception rather than the rule. Balancing payments for 2003 in the restricted VAT sample totalled approximately €6m as against the €2.9m indicated by the 20% limit.

I sought the observations of the Accounting Officer as to

·whether payment patterns and the size of year-end balancing payments were monitored in order to ensure compliance with the terms of each direct debit scheme,

·whether consideration was given to withdrawal of the schemes from those who did not abide by its terms, and

·why interest was not automatically demanded in all cases where balancing payments exceeded the limits allowed.

Accounting Officer's Response

The Accounting Officer stated that payment by direct debit was an important part of the collection process. In the absence of a significant number of taxpayers using the direct debit payment option, there would be an additional burden placed on normal payment processing systems and a likely increase in the workload of Debt Management Units in terms of the number of cases requiring referral to the enforcement agencies for collection of unpaid tax. In the context of VAT, direct debit had the advantage of securing payment on a monthly basis, as compared to bi-monthly payments under the normal payments method. Direct debit, of course, also had important benefits for the taxpayer by reducing the number of returns to a single annual return, and allowing better cashflow management throughout the year.

He also stated that, by definition, the amounts paid by direct debit throughout the year could not equate to the actual tax liability for the year. The real liability became apparent only on receipt of the annual return. However, the advantages of direct debit outweighed the downside of some potential underpayment of the tax liability throughout the year, provided any balance due was paid with the annual return and, where necessary, future direct debit amounts were increased. Where a business was growing, taxpayers could sometimes neglect to keep direct debit payments in line with tax liabilities. Unfortunately, there were also some taxpayers with cash flow and other problems who deliberately exploited the direct debit process by paying insufficient amounts throughout the year, leaving a significant balance due on the annual return. The return itself was often deliberately submitted late and, in some instances, by the time the return was received (as a result of Revenue pressure) recovery of the debt from the taxpayer could be extremely difficult.

The Accounting Officer indicated that the Collector-General's Division of Revenue had been aware of the direct debit problem for some time and that the monitoring process in relation to direct debit had been systematically increased over recent years. There were now more vigorous procedures in place to ensure compliance with the direct debit schemes. Examples of measures taken included the exclusion of taxpayers with arrears in 2000, the setting in the Finance Act 2001 of a minimum amount to be paid throughout the year as a percentage of annual liability, and programmes agreed by each Revenue Region in 2003/04 to systematically target outstanding returns in VAT direct debit cases. In February 2004 a revised Caseworking Guideline on direct debit was issued which emphasised that customers with tax payment problems should not be put on the direct debit system for current taxes. The guidelines also provided for withdrawal of the schemes from those who did not abide by their terms. However, it had to be borne in mind that a person on direct debit was at least making payment towards his/her tax liabilities and that withdrawal of the facility could be something of an "own goal" if it resulted in the taxpayer ceasing to pay altogether. For that reason, the preferred approach, if possible, was to try and bring the taxpayer into full compliance while remaining within the direct debit system. He considered that the measures already taken would help to reduce the debt management problem in relation to direct debit, but that it was undoubtedly an issue that needed to be kept under careful review. Further initiatives (such as automation of the estimate process where an annual return was not received and the development of AIM queries to identify annual non-filers) were currently under consideration to see if further safeguards could be put in place.

With regard to the charging of interest in direct debit cases, the Accounting Officer informed me that in the initial period after the 2001 Finance Act legislation the question arose as to whether taxpayers on direct debit should be formally warned in advance of the possibility of interest being charged particularly in the light of published caseworking guidelines that stated that for VAT and PAYE/PRSI cases the taxpayer should be warned in advance of that possibility. In November 2002 all VAT direct debit cases were issued with a letter outlining the details of the Finance Act 2001 legislation. On the PAYE/PRSI side, the 2002 P35 bulk issue in September 2002 included a reference to that legislation too. Thus, the raising of interest charges in direct debit cases on any systematic basis could only begin in earnest after those "warnings" had issued. Revenue's approach was to raise interest charges where it was considered productive to commit the resources necessary to ensure effective pursuit and collection of the charge. The effectiveness of that approach was supported by indications that the amount due on annual returns was now declining. For example, the number of direct debit cases with an annual PAYE / PRSI balancing payment exceeding the allowable balance declined by 8% between 2002 and 2003.

He pointed out that the Finance Act 2001 also gave taxpayers the right to a recalculation of the interest charge on balancing payments to ensure that the charge did not exceed that chargeable according to the rules applicable to non direct debit taxpayers, if such a recalculation is in the taxpayer's favour. That feature of the legislation meant that the interest charges were not as cut and dried as the raise, demand and enforce approach of other interest charges. In addition, in PAYE/PRSI cases directors' fees were often paid after year-end and could compound the interest-charging situation, resulting in further investigation and often re-negotiation of interest charges. The fact that directors' fees may give rise to a balancing payment did not necessarily mean that direct debit was abused.

The Accounting Officer noted that the final consideration in deciding on the level of resources to commit to the pursuit of interest was a decision as to the higher risk — the taxpayer who had actually paid the tax liability (albeit late) or the taxpayer who had not paid the tax liability at all. He indicated that the Collector-General's Division was currently engaged in a comprehensive Synergy Review of its entire operations. The purpose of the review was to ensure that the Division was making the best use of resources, both human and technical with the intention that resource savings identified would be devoted to debt management and compliance work. In that context, the Division was conscious of the necessity of monitoring compliance with the terms of the direct debit schemes and of taking the appropriate action in cases of abuse of the schemes.

3.8 Disclosure of Incentive Amnesty Cases

Section 2 of the Waiver of Certain Tax, Interest and Penalties Act, 1993, provided for an incentive amnesty to be availed of by all individuals who owed tax on declared or undeclared income or gains, and levies. Under the terms of the Incentive Amnesty, it was mandatory for taxpayers to make a self-assessed, full and true declaration of all income/chargeable gains in respect of which tax was unpaid, and to pay tax on the total amount at a concessionary rate of 15%. In addition to providing that incentive, the Act also made it mandatory for each individual who had been in receipt of untaxed income or gains to avail of the opportunity to settle their tax affairs. A total of some 38,400 individuals availed of the Incentive Amnesty and paid 235€m.

The purpose of the 1993 amnesty was to provide a final opportunity to individuals to put their tax affairs in order having regard to the penalties that were introduced by the Act, and to secure payment in respect of pre-April 1991 liabilities. The Act provides a scale of penalties for failure to make the full and complete returns required by the Act. The penalties on conviction range from a fine of between 25% and 200% of the tax underpaid and up to eight years imprisonment. The Act also directs that where the declaration by the taxpayer did not contain a full and true statement of income, or where a person did not subsequently deliver a full and complete return of income in respect of the year of assessment 1992-93, the benefits of the amnesty are to be set aside. In that situation payments made at the 15% amnesty rate are then treated only as payments on account of the full tax assessed at normal marginal rates, with interest and penalties to be added.

A key feature of the Incentive Amnesty was the statutory guarantee of confidentiality to those who availed of it. This was achieved through setting up a statutorily independent Office of the Chief Special Collector to receive payment and administer the amnesty. Those who availed of the Incentive Amnesty received a two-part certificate. The first part (the Certificate) recorded name and address, the income or gains declared and the amount paid. The second part (the Form of Evidence) only showed name and address. Revenue could not become aware that the Incentive Amnesty had been availed of unless that was revealed by a taxpayer's decision to invoke the form of evidence against a demand from the Collector General for pre April 1991 arrears, or the certificate in dealing with an Inspector of Taxes enquiry. Under the Act such enquiries could only continue in cases where the Revenue official satisfied the Appeal Commissioners that there were reasonable grounds which indicated that the declaration made to the Chief Special Collector did not contain a full and true statement of total income from all sources. The application to the Appeal Commissioners for a ruling must be made within 30 days of the receipt of the certificate.

The stringent penalty provisions applying to non-compliance with the terms of the Incentive Amnesty would appear to indicate a firm resolve that the benefits granted under the Incentive Amnesty were on particular terms, and that contravention of those terms either by understatement of liabilities in the original declaration or in the 1992/93 return was a serious matter attracting strong sanctions including reversal and penalties. Nevertheless, due to the effectiveness of the confidentiality guarantee, and as the provisions of the amnesty legislation related to periods in the early 1990s, it is unlikely that the scheme would in the normal course have much relevance ten years later beyond the very occasional exceptional instance where it was decided to sanction the major extension of a Revenue audit.

However events in more recent years have resulted in the extensive disclosure of significant undeclared income that reached back to the amnesty periods. These events have come to be categorised under the collective titles of Special Investigations and Tribunals, Bogus Non-resident Accounts and, most recently, Offshore Assets. Much of the tax liabilities arising in relation to these undeclared funds have or are being resolved through various settlement schemes. But under the 1993 legislation there may be a further retrospective impact arising from the discovery of undeclared funds that predated 1993 in cases where the taxpayer had previously availed of the Incentive Amnesty.

During a review of Bogus Non-Resident Account holders (BNR) voluntary returns it was noted that, of the 3,754 cases that submitted a voluntary BNR1 return, approximately 208 had availed of the 1993 Incentive Amnesty. However, only 4 of such ‘amnesty cases' had been included in the total of 268 cases selected by Revenue for liability review.

I enquired of the Accounting Officer as to the extent to which Revenue had systematically examined the declared 208 amnesty cases in order to establish whether the terms of the Incentive Amnesty provisions had been met. I asked whether Revenue considered that the provisions of the 1993 Act required that such an assessment be applied to all instances availing of the BNR1 scheme and which declared themselves to have previously availed of the amnesty. I also asked for details of the number of cases in which the amnesty settlement was set aside, and subsequently treated as a ‘payment on account' against total liabilities due.

In order to establish the overall position, information was also sought as to:

·the number of cases which had declared themselves to have availed of the 1993 Incentive Amnesty during the course of Revenue activity in the areas of:

-Revenue Audits

-The various Special Investigations and Tribunals

-Non-voluntary BNRs

-Offshore Assets

·The extent to which Revenue examined, in each case, the issue of whether the 1993 Incentive Amnesty provisions had been breached,

·The number of cases in each area in which the benefits of the 1993 Incentive Amnesty had been set aside, and amnesty payments treated only as a payment on account of total liabilities due.

Information was further requested as to the number of cases which had been (i) considered for prosecution and (ii) prosecuted under the terms of the 1993 Waiver of Certain Tax, Interest and Penalties Act, the number of convictions, and the penalties imposed.

Accounting Officer's Response

The Accounting Officer emphasised that the whole Revenue approach to examining the BNR1 cases (including the "amnesty" cases) was very much risk-driven — in the interests of completing the checking of these cases as quickly as possible. The primary target group was those bogus non-resident account holders who had chosen not to come forward by the November 2001 deadline. A further 8,000 bogus non-resident account holders were subsequently identified from that group and an additional €305 million collected. He considered that the pursuit of those cases had a major knock-on effect in attaining high levels of voluntary disclosure from subsequent offshore campaigns.

In the context of the approach adopted to examining and checking the 3,754 BNR1 voluntary disclosures Revenue saw no reason to single out the 208 amnesty cases as a high risk category per se that warranted special treatment — either in carrying out the basic eligibility checks or in the selection processes for the more detailed liability reviews. If a person had properly availed of the 1993 amnesty there was no real incentive for them to send in a BNR1; they were entitled to wait until audited or challenged by Revenue. Such "volunteers" presented less of a risk than the "wait and see" amnesty cases.

He indicated that all of the BNR1 disclosures were examined as part of the eligibility review. One factor considered was whether the amnesty was an issue and, if it was, what action was required to be taken. Consequently each of the 208 individuals who indicated that the amnesty had been availed of were the subject of basic review. Statistics were not readily available on the number of cases where amnesty certificates were forwarded to, or sought by, Revenue. The probability was that most claims were accepted at face value, unless the basic review indicated a particular risk, having regard to the available information or materiality considerations. He pointed out that face value acceptance of amnesty claims at the BNR1 stage did not rule out further scrutiny at a later stage.

It was the understanding of Revenue that the 1993 Amnesty Act did not require, or even suggest, that it should carry out an assessment of, and check the underlying validity of, each amnesty claim it became aware of. If anything, given the confidentiality safeguards (Section 7) and the "burden of proof" obstacles (Section 5) in the Act, it was fairly clear that Revenue should not challenge an amnesty declaration unless there were reasonable grounds (from post-April 1991 enquiries or otherwise) to convince an Appeal Commissioner that an amnesty declaration was likely to be untrue or incomplete. None of the BNR1 amnesty claimant cases were submitted to the Appeal Commissioners under the section 5 procedure.

With regard to instances where an amnesty settlement was set aside, the Accounting Officer stated that taxpayers had been advised in the lead up to the 15 November 2001 deadline for BNR1 disclosures that if they had not properly availed of the 1993 amnesty, they would lose the benefits of the amnesty. They were of course entitled to a ‘payment on account' credit for their amnesty payments. 62 individuals made disclosures under the BNR1 disclosure scheme where amnesty settlements were set aside and which resulted in total payments of over €3 million. The remaining 146 amnesty cases who came forward under the BNR1 scheme did not have to make any additional payments in excess of those arising from their BNR1 disclosures, as the amnesty declaration had disclosed their full liability.

Statistical information relating to the number of amnesty cases that declared themselves arising from Revenue activity in other areas was provided as follows:

Table 26
Area of Activity	Amnesty Cases*	Revenue Comment
Revenue Audits	320	Probably on the low side
Special Investigations/Tribunals	14	Nos. may change as inquiries ongoing
Non-Voluntary BNRs	550	Best estimate
Offshore Assets	7	Very early stage

*With the exception of Investigations/Tribunals, the numbers are estimated.

In relation to the extent to which Revenue examined in each case whether the amnesty provisions had been breached, the Accounting Officer said that in every case where the 1993 amnesty arose, a judgment call had to be made by the official handling the case. Where it was considered that investigations were warranted, and taxpayers were seeking to prevent this from happening, applications were made to the Appeal Commissioners. In the majority of cases identified to date, Revenue had accepted that no further action was warranted. He added that while there were no detailed statistics on instances where the amnesty had been set aside, the reality was that the numbers involved would be small. Because of the confidentiality and "burden of proof" constraints, Revenue officials would generally only seek to withdraw the benefits of the amnesty where they had reasonable and solid grounds, based on fact rather than mere suspicion, to indicate that the amnesty had not been properly availed of.

The Accounting Officer informed me that no case had, as yet, been the subject of a prosecution under the terms of the 1993 amnesty legislation. However, in the case of a number of investigations carried out by Revenue Prosecution Units, consideration had been given to the inclusion of offences under section 9 of the Amnesty Act. To date, Revenue had not been able to assemble sufficient admissible evidence to sustain a conviction in this area. He pointed out that Revenue had taken independent legal advice, and had also consulted with the DPP, on the elements of the section 9 offences and the standard of proof required to sustain a conviction. The prosecution must prove all of the matters set out in section 9(1), including 9(1)(b). Part of the difficulty in that regard related to the fact that the confidentiality provisions in section 7 were very tightly drawn. But, notwithstanding the significant evidential and burden of proof difficulties, he stated that prosecutions for section 9 offences were at present being actively considered in a number of cases.

Mr. John Purcell

To begin with chapter 3.6, each year in my report I include a table showing details of the outstanding debt on Revenue's books at a current date. At the end of March 2004, the figure was €1.36 billion and the Office of the Revenue Commissioners expects to ultimately collect approximately 80% of this sum. This is in stark contrast to the corresponding figures of ten years ago, at which time almost €3 billion was outstanding. The Revenue Commissioners estimated at the time that it would collect only €670 million of this amount. The great improvement that has been made in the meantime has resulted from a combination of factors, including a new write-off policy, more accurate tax estimates in individual cases and better collection of amounts outstanding.

Since the amount of tax outstanding is an important indicator of the effectiveness of Revenue's collection system, I decided to undertake a detailed review of how the figures were established and, in particular, the way in which the estimate of the amount likely to be collected was determined. We also examined, in a selection of cases, the extent of collection activity in the year.

We found that the means of calculating overall tax arrears was generally sound and that any refinement to bring it up to financial account reporting standard would have to be justified on a cost-benefit basis. On the estimation of the amount of tax arrears that would ultimately be collected, we found this was more of an estimate of the rate at which the arrears would be reduced because it did not distinguish between tax collected, discharged or written off.

The Revenue Commissioners are looking at ways to improve the forecasting methodology in this area but are hampered in some respects by the way in which some of the older collection records are structured. The Revenue Commissioners' arrears collection strategy is focused on cases where the amount outstanding is over €20,000. This is a reasonable approach that seeks to maximise the use of resources. However, in some respects, it may run counter to the stated objective in regard to debt levels in the statement of strategy that all debt on record be less than six years old or be subject to enforcement, bearing in mind that the vast majority of arrears cases are for under €20,000.

Looking at the specific collection targets in value terms, at the end of March this year, 46% of the debt was over three years old while the target to be reached in 2005 is that no more than 25% of debt should be in that category. This is against a background where there is no provision for an increased level of write-offs and where the stated focus in the current strategy is on timely and robust action against late payment and non-payment of tax. There is still some progress to be made if these challenging targets are to be met.

Chapter 3.7 focuses on the operation of the direct debit scheme, which is one of the payment options the Office of the Revenue Commissioners makes available to taxpayers. It offers benefits to both the taxpayers and Revenue in terms of better cash flow management and reduced processing costs. Under the scheme, the taxpayer can set a level of monthly payment and is only required to make a return to Revenue at year-end, together with a balancing payment for any shortfall. As long as the debits are going through, the taxpayer is regarded as compliant. The scheme is popular, with more than 55,000 participants paying €2.9 billion in 2003. The scheme is positive from a Revenue viewpoint as long as it is managed in a way which minimises the risk of taxpayers pitching their instalments deliberately low and gaining the advantage of having the use of money over an extended period which would otherwise be payable to Revenue.

Proactive management would involve adjusting instalments where they have proved to be inadequate, penalising taxpayers where the balancing payment is substantially out of line with the level of instalment without good reason and prompt follow-up of outstanding payments. My examination found evidence that taxpayers were taking advantage of the scheme to a significant degree. In the case of PAYE, more than 12,000 employers were making balancing payments in excess of the 10% allowed under the scheme. On the VAT side, where the latitude is 20%, indications were to varying degrees that the direct debit amounts were not commensurate with deductions required to meet the annual liability in many cases.

Although there is legal provision to charge interest where the balancing payment is outside the tolerances allowed, we found that the imposition of interest was very much the exception rather than the rule. Members will note that the Accounting Officer explains that the charging of interest in direct debit cases was not a straightforward matter and the raising of interest charges in this area on a systematic basis could only begin in earnest after warnings had been issued to taxpayers in 2002. Even then, the computation of interest charges was not as cut and dried as in normal cases of tax arrears.

Revenue's approach was to raise interest charges where it was considered productive to commit the resources necessary to ensure effective pursuit and collection of the charges. The Accounting Officer suggested that this approach was contributing to the decline in the amounts due on the annual returns. He agreed that the scheme should be kept under careful review to ensure that compliance with its terms is monitored and that appropriate action is taken in cases of abuse of the scheme.

With regard to chapter 3.8, the 1993 incentive amnesty was designed to give a final opportunity to individuals to put their tax affairs in order. The underlying legislation set out severe penalties for those who either failed to avail of the amnesty or made a false declaration of their liabilities. The incentive amnesty provided for a concessionary tax rate of 15% of previously undeclared income and, as members will recall, the collection of the consequential tax liabilities was ring-fenced within a special office to ensure absolute confidentiality. Revenue could not become aware that the incentive amnesty had been availed of unless that fact was revealed by a taxpayer following a demand from the Collector General for pre-amnesty arrears or on foot of an inquiry by an inspector of taxes. Bearing in mind that the incentive amnesty related to pre-April 1991 liabilities, it would be unlikely to feature as part of current assessment and collection work in the normal run of things.

However, events in the past few years have resulted in the extensive disclosure of significant undeclared income which reached back into the amnesty periods. The advent of tribunals and the investigations into bogus non-resident accounts and off-shore assets have meant that incentive amnesty considerations have had to be revisited. For instance, the terms of the incentive amnesty would have to be set aside for those who did not make a clean breast of it at the time.

Of the 3,754 taxpayers who came forward in the voluntary disclose and pay phase of the bogus non-residents accounts investigation, 208 indicated that they had previously availed of the incentive amnesty. Some 62 of those lost the benefit of the incentive amnesty and made additional payments totalling €3 million. The remaining 146 claimed that their amnesty declarations had disclosed their full liabilities at the time, including liabilities relating to bogus non-resident accounts, and that therefore, they did not have to make any additional payments in excess of those arising from their voluntary disclosures. It appears that, in general, these claims were accepted at face value by Revenue.

The incentive amnesty also comes into play in the case of those among the 8,000 who did not avail of the voluntary disclose and pay scheme but had bogus non-resident accounts which pre-dated April 1991. Since it was mandatory for an individual who had been in receipt of untaxed income or gains to avail of the incentive amnesty at the time, by not doing so such an individual would, on the face of it, have committed an offence under the Waiver of Certain Tax, Interest and Penalties Act 1993.

The 1993 Act was an exceptional piece of law that balanced generous concessions with strong sanctions which were highlighted both during the passage of the legislation and in the promotion of the incentive amnesty at the time. However, no prosecution under the 1993 Act has been taken to date, although the Accounting Officer has indicated that prosecutions are being considered in a number of cases, notwithstanding the significant evidential and burden of proof difficulties.

Chairman

Thank you, Mr. Purcell. I invite Mr. Daly to make an opening statement.

Mr. Daly

I thank the Chairman and members of the committee for this opportunity to make an opening statement. Paragraph 3.6, which deals with outstanding tax, shows the balance outstanding at 31 March 2004 at €1.363 billion. This is the equivalent of 3.1% of gross tax receipts for 2003 and illustrates our continuing success in improving payments compliance over the past years. Taxes outstanding have now fallen every year from a high of €5.466 billion in 1985. Ten years ago outstanding taxes were €2.812 billion or 18% of gross receipts. While I am very pleased with this progress, I can assure the committee that we have no intention of resting on our laurels. Revenue is now in the process of compiling a new statement of strategy for the next three years and in this regard we will be looking at ways to further improve our effectiveness as well as critically examining the performance indicators that we use to measure it.

Paragraph 3.7 reports on an audit examination of the direct debit payments facility operated by Revenue. Direct debit is important in providing an additional payment option to Revenue's customers and accounted for some €2.9 billion in 2003. By providing choice and flexibility to our customers, we make it easier for them to comply with their tax obligations and so encourage voluntary compliance with the tax code. As I indicated in my response to the Comptroller and Auditor General's audit, the advantage of direct debit for both Revenue and its customers far outweigh any disadvantages. We have increased, over the past few years, the monitoring of cases where balancing payments exceed the levels permitted under the scheme and intend to allocate more resources to direct debit compliance work when they become available following the synergy review of the Collector General's division which is referred to in the audit.

Paragraph 3.8 is broadly concerned with the impact of the 1993 incentive amnesty, the Waiver of Certain Tax, Interest and Penalties Act 1993, on the voluntary disclosure scheme relating to underlying tax on bogus non-resident accounts and on other investigations generally, and on prosecutions under the Act. There is very little to add beyond that which is set out in the paragraph. The committee will be well aware from previous discussions before it, of the confidentiality aspects of the amnesty which was administered by the independent office of the Chief Special Collector and of the evidential requirements for prosecution. Nevertheless, we are continuing to examine a number of amnesty cases with a view to criminal prosecution.

With the permission of the Chairman, I will take this opportunity to bring the committee up to date on an important development which will impact on some of the special investigations referred to in paragraph 3.5 of the report. Following an application under section 908 of the Taxes Consolidation Act 1997, the High Court granted an order on Monday last, 29 November, requiring an Irish-based bank to provide certain information and documentation within ten weeks on the transactions on an account held in Dublin of a Channel Islands based subsidiary. The order covers the period between 1991 and 1996. The order also requires the bank to provide information and documentation on certain other accounts. Another part of the application seeking supporting documentation, relating to lodgements and withdrawals to the account, was adjourned to next Monday for the parties to agree a timeframe, in advance, for the provision of this material. Further High Court applications are being prepared. This material will enable the Revenue Commissioners to advance their investigations into certain Ansbacher cases and, most importantly, to begin the second phase of its offshore account project.

This examination is being carried out by the Department of Finance and the Revenue Commissioners. We have begun the process of working on this examination. Our objective is to do what we are required as quickly and effectively as possible. I do not have a definite timeframe but we will advance it quickly. I briefed our management advisory committee this morning on the issue and by early next week we will have identified the unit responsible to carry out this work. Some work has already been on this.

Deputy McGuinness

I welcome Mr. Daly and his officials. Having been in business for several years, I have observed the changes that have occurred with tax collection. The improvements are positive and they move along swiftly. My only disappointment is that the diligence displayed in the collection of taxes does not rub off on the other Departments that come before the committee.

Yesterday the Minister for Finance announced a review of certain of tax reliefs. It adds further to the workload of the Revenue Commissioners. It adds to the existing work of implementing collection programmes, chasing down tax evaders and examining other schemes. Has the number employed by the Revenue Commissioners gone up? How many special units are there? Has its office been restructured to take on the new challenges constantly presented through the available tax schemes? How will the offices in the State continue to investigate and collect taxes?

Mr. Daly

We have approximately 6,500 employees. Staffing levels have been reducing rather than increasing. I prefer to look at resources in terms of productivity we can get from staff and through investments in technology and new approaches to work. Computerisation can release staff from routine processing and work. We have been successful at that over the last several years.

Last year, we completed the most fundamental restructuring of the organisation since it was founded in 1923. It was focused on a regional approach and its structure is based on four geographical regions, headed by assistant secretary grades. They deal on a whole case management approach with all taxpayers in the separate regions. That philosophy was informed by studies of other administrations and our conviction that those in the regions know their taxpayers better than those in head office in Dublin. In the restructuring, we created a large cases division that deals with the financialsector, high worth individuals and large corporations. These groups pay a significant amount of the tax paid in the State. One is also dealing with tricky tax and customs issues. One is meeting expert people, in-house experts, accountants and tax professionals and we decided to build up our own expertise. The other significant division is the investigations and prosecutions section, with a focus on bringing more prosecutions into the frame. The majority of tax default will always be dealt with by settlement on payment of interest. However, it is recognised that we need to increase numbers of prosecutions, even if only for the exemplary effect. The Collector General's division continues as the powerhouse of collecting tax and there are various policy and legislation units in the national offices.

Mr. Daly

Perhaps I might clarify one point. The tax outstanding on 31 March totals €1.363 billion while the figure reported for last year totals €1.322 billion. There is, therefore, an apparent increase. The reality is that we changed the reporting period for this report, simply because we wanted to bring out our annual report earlier. Debt was normally reported on 31 May and we brought that forward to 31 March for the first time. If we had stuck with the May figure, representing the full 12 months, our estimation is that there would have been a reduction and that the figure would have been €1.25 billion. That represents a reduction of €72 million in the 12 months, despite a significant increase in gross collection in that same year.

I wish to make a point on the profile of the reduction of the debt. We have made much progress in reducing the debt even since this table was published on 31 May 2003. In the following ten months to 31 March 2004, during which €30.69 billion was raised in new charges, only €356 million or 1% of that current year charge was outstanding. That is important in terms of our focus on early intervention and not allowing a build up of debt. A total of 99% of charges were collected, written off or discharged by March 2004. This emphasises our focus on current debt. There is €19 million of debt dating back pre-1990 and 1991. Most of this involves bankruptcy or receivership. Some amounts are subject to court proceedings, or are under appeal or subject to payment in instalments. We are also chasing some people involved in tribunals.

Deputy McGuinness

What period is that?

Mr. Daly

I am referring to very old debt, which is institutionalised. It is not like normal debt which we are trying to collect or enforce. There is a reason for its existence. We must wait to see what happens in tribunals, appeals, receiverships and bankruptcy proceedings. If one looks at more recent debt, the profile includes all types of tax payers. It is not confined to a particular segment or sector. Our objective is not to have old debt.

In his opening remarks, the Comptroller and Auditor General mentioned the challenging target we set ourselves that by the end of 2005 we will not have more than 25% of debt which is three years old. We will possibly not meet that target because of the figure of 46%. We are questioning the value of having that target at all. Perhaps the real focus is the amount of debt which is more than five years old, and how much debt are we collecting. Are we allowing it to accumulate in the first year? That is the time we need to address the debt. We must do so quickly.

Deputy McGuinness

Looking at the age analysis of 1990 to 2001, the debt was €737 million. In 2002 it was €223 million, which was reasonable. The outstanding amount in 2003 was €356 million. Did the Revenue continue to chase those amounts? Is there a case against individuals in that they are either under review or in court or involved in tribunals, etc? Is that what happened during those years?

Mr. Daly

With regard to all of the debt, there is activity at some level.

Deputy McGuinness

There is activity for period 1990 to 2001. Would it go back that far?

Mr. Daly

I explained the pre-1990 and 1991 debt of €19 million. That is tied up in bankruptcy and similar proceedings. Earlier debts could be at collection enforcement stage, with the sheriff or a solicitor, or at appeal stage.

If the debt in any individual case is greater than €20,000, it has either been or is being case worked. If it is less that €20,000 we do not automatically case work the debt, because we do not have the resources to do so. There may be an issue of value for money as to whether it is worthwhile. We are trying to build a new approach in computerised debt collection which would target cases under €20,000. Our approach in the past was to churn out reminders, most of which were ignored. The sheriff would then call at the creditor's door. Our approach has changed radically in the past number of years. We now have active case working by our own staff. We hope to build on that soon.

My colleague, Mr. Liam Irwin, has been promoted, but technically he is still the Inspector General. He initiated a synergy project to radically review staff in his offices in Limerick and Nenagh and see if there was routine work which could be done in another way, releasing them for debt compliance. There are 13 debt management teams of 12 people each working on this debt. When the synergy project is completed, there will be two more teams. One team is coming on this month, and another will come on in a couple of months.

Deputy McGuinness

I am trying to understand. Even within the age debt analysis of the period 1990 to 2001, and bearing the figures in mind, the Revenue mainly deals with bigger fish with debts of over €20,000. Another page of the report refers to 1997 when the Revenue attempted to control its outstanding uncollectable debt. This resulted in an almost 300% increase in write-offs. In 1997, €357 million was written off, and in 1998, €274 million was written off. A set of people had taxes written off in 1997. Do these same people reappear in figures for 1998? Are these tiny tax debts? Is it not value for money to collect them? One wonders how these overall figures were arrived at. It is fine to say there are debts of under €20,000. However, both figures are sizeable and were written off in those two years. It makes the Revenue's collection rate look good, but these debts were written off somewhere in the figures.

Mr. Daly

We do write-offs every year. Last year we wrote off €119 million compared to €178 million the year before. The year before that we wrote off €140 million. There were sizeable write-offs in the year the Deputy mentioned. In the middle of all of those, we did an automated write-off for a couple of years to weed small amounts out of the system. I cannot remember the money figure, but it was a significant amount.

Undoubtedly, the figures include some old debt. We are dealing with the legacy of a time when the Revenue's collection machine was not as efficient as it is now. The Deputy earlier referred to commercial practice. If we applied commercial criteria, we would not just apply them to commercial aspects but also to write-offs. Commercial enterprises would probably look at a debt which is five, six or ten years old, decide they would never see the money and write it off. That option is not available to Revenue, because this is taxpayers' money. There is stuck, hard debt included in the figures. The only way to deal with it is through attrition, to knock it down by case working old debt while ensuring new debt does not build up. I am encouraged by last year's figure where 99% of the amounts raised were disposed within the year. A small legacy of current debt is then carried forward. That is the solution to our problems.

Chairman

Deputy McGuinness is well over his allocated time. I am sure he has more questions. I will let him ask them later.

Deputy Deasy

I welcome Mr. Daly, not just as the Chairman of the Revenue Commissioners but also as a Dungarvan man. It is nice to have him here. I am a relatively new member of this committee. I have not been here for any of Mr. Daly's previous visits, including the one a couple of weeks ago, where he raised the issue of single premium insurance policies. I am interested to some extent in tax evasion as it relates to advisers. Some of this has been raised previously in this committee and has been dealt with. However, I would like to raise it again because I have found the responses to have been confusing in some cases, that is, the official responses from the Revenue Commissioners as well as the Department of Finance.

What was discussed in the committee a couple of weeks ago related to the inquiry that is taking place as regards the single premium insurance policies and the people who may have aided and abetted clients who availed of those schemes. Since I was elected to the Dáil for Waterford, I have met a number of people who had bogus non-resident accounts and whom the Revenue Commissioners have identified and are dealing with, in some cases quite severely. These people never said to me that what they did was not wrong, or tried to get around that. They are sorely aggrieved, however, with regard to bank officials who, in their opinion, presented and promoted the schemes to them. In some cases these people make it clear to me that they were hounded by these officials into involving themselves in these bogus non-resident accounts.

Mr. Daly has made his opinion clear in that regard and takes the view that the fault lies clearly on their own shoulders. That is fair enough. However, what I have found since getting involved with these people and this issue is that the responses from the Department and the Revenue Commissioners have been extremely confusing. I asked the Minister for Finance a question in February of last year with regard to bank officials, who presented and promoted these schemes. The verbatim response I received a few days later was that there was no evidence to suggest that any bank official or financial institution was involved in the presentation or promotion of these bogus non-resident accounts. That was an extraordinary reply and ran contrary to some of the statements issued by the Revenue Commissioners and other official sources. Perhaps Mr. Daly will respond to that. Does he agree or disagree?

Mr. Daly

I thank the Deputy. I have made the point before at this committee that there is a large difference between evidence and what people might believe on the basis of anecdotal evidence. I do not believe I ever denied that there must have been some — and I choose my words carefully — encouragement or advice given by bank officials to people as regards bogus accounts, and indeed offshore accounts. It beggars belief that so many thousands of people could suddenly have thought of these schemes without getting advice from somewhere. The problem for Revenue relates to aiding and abetting and in taking action against anybody who might have done that is we can only work within the law as it exists. The law in question is the aiding and abetting charge under section 1078 of the Taxes Consolidation Act 1997. That charge is constructed in such a way that the individual to be charged has to be very close to the action of making the false tax return. In effect, he or she would have to be standing over the shoulder of the individual making the tax return, namely, the taxpayer. It is virtually impossible, I believe, to get to that situation as regards bank officials, banks or indeed accountants and bookkeepers, although one might say it might be easier to get there.

I do not want to comment on any statement that the Minister may have made, but if he said there is no evidence, I believe that is right. There is no evidence. We all might have views, however.

Deputy Deasy

I emphasise that this is an extraordinary statement. I cannot believe that people, to this day, say there is no evidence, even the Chairman of the Revenue Commissioners. I recall a conversation recently with someone who worked for NIB. The reason this person was employed, I was informed, was for this very reason, to tackle AIB and ensure the bank was competitive as regards these non-resident accounts. This person was very forthright about it. Bank officials were encouraged to bring in new business. They were hired and there was rivalry between various branches of the banks. In June last year Mr. Daly was talking about Bank of Ireland and saying it had a responsibility to make a disclosure to the Revenue Commissioners. If someone was found guilty of tax evasion and was shown to have aided and abetted, "we would have to find out who did that", was his comment.

I find it somewhat contradictory that in many cases Revenue's official line is that the evidence does not exist on which to bring such cases and that people have not and are not willing to come forward. I do not believe that. Many people are perfectly willing to come forward and to give the type of evidence that is needed. Mr. Daly talks about the closeness of the situation, someone standing over a particular individual's shoulder. I do not believe that. I believe there are many people who are perfectly willing to give that type of evidence, sign affidavits etc. As regards the law, if Mr. Daly has known that the law was weak in this regard for some time, a couple of years, say, what steps has the Revenue taken to change it, and what discussions has it had, in particular, with the Department of Finance, to go about changing the law as it pertains to tax advisers who gave this type of assistance?

Mr. Daly

There has never been an unwillingness on the part of Revenue to try to find an aiding and abetting charge against advisers, banks or anyone else, if for no other reason than the fact I would not have to come before this committee so often to explain why it does not. There is an absolute determination to do it. We have looked at Ansbacher cases, at NIB CMI, bogus non-resident account and offshore cases for people who will come forward. Many people tell us they will co-operate during an investigation, but we have not found one person willing to come in to give the affidavits and the type of depositions the Deputy refers to. It just does not happen. Many people will talk about this, but when it comes to the reality of standing up in court and supporting the Revenue, they will not do it. Our experience is that if people have had to deal with Revenue and settled a bogus or offshore account, then they want to run a million miles away and do not want to have anything further to do with us either in supporting a prosecution against a bank or anyone else.

As regards the legislation, we certainly have a view that it is too tightly drawn for us to have realistic chances to make prosecutions. We will be making representations shortly to the Department of Finance for a change in the upcoming Finance Bill, as regards aiding and abetting. I believe I mentioned at the last meeting of this committee that what we are thinking of, while accepting that there are rights on the other side, as well, is a fairly simple charge, worded in the nature of anybody who takes steps to facilitate the fraudulent evasion of tax — that type of approach. The current provision refers to anyone who knowingly aiding, abetting, assisting, inciting or inducing another person to knowingly or wilfully make an incorrect tax return, etc. The emphasis on the tax return is unhelpful in the current situation. To be clear, I do not see that this new legislation will be retrospective, because it cannot be.

Deputy Deasy

I will come to that. The difficulty I have is that Mr. Daly appeared before the committee over a year ago and stated that, in the future, prosecutions against those who aid and abet tax evasion would feature quite prominently in the Revenue's work following a decision made at a management meeting. We are now discussing contacting the Department a year later with regard to changing the law. There appears to be a bit of tardiness here.

I am confused about the focus as regards these investigations. I am not merely concerned about the people who held these accounts; I am interested in the focus regarding whether advisers will bear the brunt of the law. I refer here not only to non-resident accounts but also to single premium insurance policies. People from Revenue and the Department of Finance have talked about this matter for two or three years but nothing has happened. They were aware of what occurred in banks up to 20 or 30 years ago but there was no real willingness to change the law in order to bring these people to justice.

In previous appearances before the committee, Mr. Daly said — I believe in reply to Deputy Joe Higgins — that aggressively pursuing the banks would have resulted in a stand-off and a lengthy legal battle with regard to those officials. He also stated that for reasons of practicality it had been decided to seek the repayment of DIRT from banks rather than to attempt to apportion blame. He further stated that Revenue had to go about this in a practical way because, had it done otherwise, the shutters would have come down. It seems that, ultimately, there was no great willingness on the part of Revenue to tackle those officials who involved themselves with and presented and promoted these schemes to individual. It appears that it was purely a case of going after the account holders.

Mr. Daly stated that he has met representatives of the Irish Insurance Federation. Did he indicate to them that he was going to change the legislation as it affects those insurance brokers who may have aided and abetted the individuals who used single premium insurance policies for tax evasion purposes? If we are going to institute an inquiry in respect of these insurance policies, we will have to ensure that there is balance on this occasion. I accept Mr. Daly's argument that it is not possible to go back 30 years with regard to some of the non-resident accounts. However, if we are to move on as far as this insurance issue is concerned, we must ensure that the law — as it affects everyone, including advisers, involved in putting these schemes together — is correct.

Mr. Daly

The Deputy referred to what I said a year ago. What I said at that stage was very much in the context of the bogus non-resident accounts investigation and also in the context of the recommendation from this committee that Revenue should take a pragmatic and effective approach to dealing with it. Regardless of whether one agrees with that approach, it involved trying to encourage the maximum number of people to sort out their affairs and to get the banks to pay DIRT interest and penalties. It was in that context alone that I expressed the view that we decided not to go near the banks, in terms of prosecutions, because it would have meant we would have received no co-operation. That was very much in the context of that historical investigation.

I did not raise yesterday with the Irish Insurance Federation the issue of aiding and abetting. That was not the context of the meeting. However, I have made it clear on several occasions to many public bodies, including this committee, that in future, if possible, we will pursue charges relating to aiding and abetting. I hope we will be able to do this through a new item of legislation. Again, however, that legislation will not be retrospective. If the Deputy wants me to say to insurance brokers, insurance companies, banks, etc., who, in future, aid and abet people that Revenue will pursue them in the context of much improved legislation, I will do so. However, even in the insurance investigation we are going to be looking back 20 years.

Deputy Deasy

That is right. Mr. Daly made that clear and he even stated it might be 30 years.

Mr. Daly

Changing the position in next February's Finance Bill will not, as I understand it, have an impact on actions that were taken by somebody ten or 15 years ago.

Chairman

Or yesterday.

Mr. Daly

Yes or at any time before the Finance Bill is signed into law.

Deputy Deasy

Essentially, Mr. Daly is saying that a change in the Finance Bill, as it relates to tax and insurance advisers who may have aided and abetted people, will make no difference whatsoever.

Mr. Daly

I am saying that we still have the existing section and we still examine cases — whether they relate to offshore accounts, bogus accounts or insurance premiums — as they come in to see if there is a possibility to bring charges of aiding and abetting. We might come across a case where it would be possible to bring charges. However, the existing legislation is so difficult that this is unlikely.

Deputy Deasy

We have some prosecutions. We are examining the 26 for prosecution, but I understand they are not good cases for prosecution. To be honest, the issue of prosecution and the amnesty is extraordinarily difficult. We were talking earlier to Deputy McGuinness about resources and priorities. We have two cases coming before the courts and a lot will depend on the outcome of these as to whether we decide prosecution is a waste of time or, if the two cases are successful, decide to prosecute other cases.

In theory we could say that many of those who availed of the BNR and offshore accounts should have availed of the amnesty and that therefore, technically there is an offence. How far should we keep working back to try to get prosecutions under that when the burden of proof is notoriously difficult.

Chairman

Does this mean the Revenue Commissioners taking the pragmatic view of collecting the money and moving on?

Mr. Daly

It would be nice to get some prosecutions under the amnesty and we have two cases in the pipeline. Let us see how they go. I am not writing the matter off or not saying we will not do more. However, if those two cases prove extraordinarily difficult, we would have to wonder whether it is worth going forward.

Chairman

How imminent are they?

Mr. Daly

One case could be decided in the next month or so, but I am not quite sure about the case in the Circuit Court. It is in the system and both have been listed. It is not as if they have not got beyond the DPP.

Deputy McGuinness

I have a few remaining questions on this Vote. However, before asking them I would like to point out that Deputy Deasy has opened an interesting area with regard to how the DIRT inquiry worked. As public representatives we must be careful how we approach this matter. We understand the Revenue Commissioners were given a job to do and legislation is available to help them do that job. I understand that any new legislation relating to advisers, banks or institutions of that kind cannot be applied retrospectively.

I wonder whether there is humanity and compassion within the tax system when we press for prosecution or encourage the Revenue Commissioners to take that line. With regard to DIRT, the banks have paid their due. Account holders were also pursued and they too paid or are paying, depending on where they are in the process.

Looking at the published lists, "the butcher, the baker and the candlestick maker" from High Street, Ireland were involved in the DIRT inquiry. I believe the high number of those involved came about because 20 years ago the attitude prevailed that if the parish priest or bank manager said something, it was right. People did not dare question either. When I see some of the names on the list from my constituency or some of the names representing groups, it is obvious that some of the people involved would not have known where the next train station was, not to mind know where the money went. They were taking advice from serious players who are still in business here. I do not condone tax evasion. The Revenue Commissioners were given a job to do and they have done it well.

To return to the issue, dealing with humanity is messy. We must confront the issue of how much of the mess is within the tax system and be measured in our approach. I have come across many cases where there is evidence that leads me to believe that the banks and advisers had a central role in what happened. They competed for the business. However, from what we have heard today with regard to evasion and conviction, it appears that the butcher, baker and candlestick maker were forced to pay because they were the easy target. Some of them have lost their life savings. In the case of couples one spouse may survive and have to carry a huge burden, particularly in terms of bad publicity. Many of them would regard that as the highest price to be paid.

In other European countries that sort of price is set off against a conviction. While this is not a reflection on the work of the Revenue Commissioners who did the job they were asked to do, we in this House should recognise the truth of what happened. The perception is that the banks and advisers got away with it because of who they were. The deal done with the Revenue Commissioners was that if they paid up there would be nothing further in terms of prosecution and they would move on to others. The Revenue did its job in that regard.

I will emphasise my point by giving an example. At one point, it became clear to the Department of Health and Children that there was a shortage of beds for the elderly. The public capital programme was not able to fund the provision of such beds in the network of old county homes which became the modern geriatric hospital network. A policy decision was taken to give tax relief to encourage the provision of nursing home beds, with the intention that on certain occasions the local health board would contract out the nursing home beds to accommodate people they could accommodate in geriatric hospital. While this was a great approach, no assessments were done to cost the price of a bed in specific tax levered and tax driven nursing homes in terms of tax foregone as against the price if the bed had been provided through the public capital programme.

A review will tell us much unless case studies of this nature are done on the different schemes. It is not enough to argue that the provision of a large number of beds in nursing homes was a major social benefit. One must also ask whether the provision of such beds by means of borrowing or the public capital programme would have delivered good value for money and determine the comparative costs. The same applies down the line. Many of what I would describe as bricks and mortar schemes could be assessed on the same basis.

The private sector theory is that capital is always used more effectively when invested by the private sector and that when people are allowed to hold on to their money and given tax reliefs, one gets a better bang for one's euro than funds expended through the public capital programme. There is little evidence to support or shoot down that theory. Will the Revenue Commissioners, in the course of the review, produce such evidence?

This issue kicks into other areas such as public private partnerships, the current manifestation of privately funded capital projects. Would we better off building roads and bridges through the public capital programme, public private partnerships or a combination of the latter and tax levers which encourage private sector involvement? If the Revenue Commissioners are not considering taking the approach I have outlined, I strongly advise that they do because the results of the review will give us a more valid basis for comparison.

Mr. Daly

I will note the Chairman's points and talk to my colleagues in the Department of Finance, who, I presume, would eventually publish the review.

Chairman

I call on Mr. Purcell to make his concluding remarks.

Mr. Purcell

To conclude, anything I say will be in recognition of the difficulties Revenue has in getting best value for the resources it puts into the collection exercise. I appreciate what the Chairman says and the necessity for it. In the ten years since the Act introducing the incentive amnesty of 1993 was passed, while there has been abundant evidence, in the broadest sense of the word, that the terms of the amnesty have not been complied with, no prosecutions have taken place. Perhaps there is something about the way we write our legislation.

In that context, 8,000 people who had an opportunity to come clean on the bogus non-resident accounts under the voluntary disclose and pay scheme did not avail of the opportunity and may or may not have availed of the amnesty. It is likely that many of these individuals would have had pre-1991 bogus non-resident accounts. What the Revenue Commissioners are saying, on the face of it, as I said in my opening remarks, is that it seems that having a substantial bogus non-resident account prior to that date and failing to avail of the amnesty is de facto an offence. I have read the Act, including section 9. If it has taken until now — ten years later — to even try a prosecution under it, it seems there has been a failure somewhere along the line, even taking account of the laudable objective of Revenue of trying to maximise what it gets for what it puts in.

Even if we take another side of things, I get a feeling that there is a kind of tiredness about the 1993 amnesty. We thought it had gone into the dust and that was it. Now, with these latest investigations and so on, it has come to the fore again. The issue, I suppose, is one of the will to deal with the consequences of the amnesty and I am not absolutely sure that will is there. We heard today that 2,000 of those who had received letters of inquiry from Revenue stated that they had availed of the amnesty. I think I heard the Chairman say that 26 of those paid additional amounts. We talked about the conditions earlier in response to the Chairman's question that, to benefit from the amnesty, taxpayers would have to make a correct declaration of their liabilities when availing of it. However, they were also required to make a return of their income for 1992-93 by the statutory date. Again, perhaps the following exercise is not worthwhile from a quantum of tax point of view. However, the figure of 2,000 less 26 leaves 1,974 taxpayers. I do not know whether the Revenue Commissioners checked whether each of these had made a statutory return of their income for 1992-93 by the statutory date because failure to do so will have resulted in them losing the benefits of the incentive amnesty. All I am saying is there seems to be a wish for collective amnesia as regards the incentive amnesty. I am sorry if I go on about it — it is the last time I will do so — but it needs to be said at some stage.

Mr. Daly

I will make a general comment even though there are two cases going to court or in court now. This is not the first time we have tried for a prosecution but we have not got beyond the DPP before. I will not gild the lily either as we have not tried in an awful lot of cases. We did, however, try before.

As regards the 1,974 cases of individuals who came forward and said they availed of the amnesty, that phase of the investigation is still not over. There is no question of just accepting that on face value and not looking beyond it. The general point is that when this legislation was put on the Statute Book in 1993, the way in which it was made a mandatory issue was understandable. If one had an issue, one had to avail of the amnesty. The confidentiality clauses in the legislation, taken in the context of a wish to push everybody into availing of this amnesty and make as many people as possible compliant, were quite understandable at the time. It was very creative legislation.

The reality for Revenue 11 years on is that the confidentiality clause is a significant legislative handcuff on us in terms of taking the type of prosecutions that were intended. It was very good legislation at the time but, in hindsight, if we were to construct such legislation again, not that we would ever have another amnesty, I doubt if it would be done in that way. I just wanted to make that general comment.

Chairman

Can chapters 3.1 to 3.8, inclusive, be disposed of and Vote 9 noted? Is that agreed? Agreed.

The witnesses withdrew.

Chairman

Is there any other business? No. We will agree the agenda for Thursday, 9 December. The proposal is as follows: 2003 annual report of Comptroller and Auditor General and Appropriations Account: Department of Education and Science, chapter 9.1, Residential Institutions Redress Board (resumed) and the Office of Public Works, Vote 10, chapter 4.1, River Nore (Kilkenny City) Drainage Scheme (resumed) and chapter 4.3, Procurement Procedures in Dublin Castle.

The committee adjourned at 1.55 p.m. until11 a.m. on Thursday, 9 December 2004.

COMMITTEE OF PUBLIC ACCOUNTS debate - Thursday, 2 Dec 2004

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

Vote 9 — Office of the Revenue Commissioners.

Chapter 3.1 — Revenue Account (Resumed).

Chapter 3.2 — Tax Written Off (Resumed).

Chapter 3.3 — Revenue Audit Programme (Resumed).

Chapter 3.4 — Revenue Prosecution Activity (Resumed).

Chapter 3.5 — Special Investigations (Resumed).

Chapter 3.6 — Outstanding Tax and its Collectability.

Chapter 3.7 — Direct Debit Payments.

Chapter 3.8 — Disclosure of Incentive Amnesty Cases.

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COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 2 Dec 2004