I ask Mr. Purcell to introduce Vote 9 and chapters 2.1 to 2.6, inclusive.
Chapters 2.1 to 2.6, inclusive, of the annual report of the Comptroller and Auditor General read:
2.1 Revenue Account
Basis for Audit
An account showing all revenue received and paid over to the Exchequer by the Revenue Commissioners is furnished to me annually. I am required under Section 3 of the Comptroller and Auditor General (Amendment) Act, 1993 to carry out such examinations of this account as I consider appropriate in order to satisfy myself as to its completeness and accuracy and to report to Dáil Éireann on the results of my examinations. The results of my examinations have been generally satisfactory.
I am also required under Section 3 of the Comptroller and Auditor General (Amendment) Act, 1993 to carry out such examinations as I consider appropriate in order to ascertain whether systems, procedures and practices have been established that are adequate to secure an effective check on the assessment, collection and proper allocation of the revenue of the State and to satisfy myself that the manner in which they are being employed and applied is adequate. Sections 2.7 to 2.10 refer to matters arising from this examination.
Revenue Collected
Revenue collected under its main headings in 2005 is shown in Table 2.
Table 2: Revenue Collected
|
Gross Receipts
|
Repayments
|
2005 Net Receipts
|
2004 Net Receipts
|
|
€m
|
€m
|
€m
|
€m
|
Income Tax
|
14,177
|
2,837
|
11,340
|
10,695
|
Value Added Tax
|
15,591
|
3,465
|
12,126
|
10,717
|
Excise
|
5,549
|
158
|
5,391
|
5,066
|
Corporation Tax
|
6,003
|
500
|
5,503
|
5,335
|
Stamp Duties
|
2,693
|
20
|
2,673
|
2,070
|
Custom Duties
|
234
|
8
|
226
|
174
|
Capital Acquisitions Tax
|
261
|
12
|
249
|
190
|
Capital Gains Tax
|
2,016
|
34
|
1,982
|
1,528
|
Total
|
46,524
|
7,034
|
39,490
|
35,775
|
Of the net receipts of €39,490m, a total of €168m was paid during 2005 under Section 3 of the Appropriation Act, 1999 from the proceeds of tobacco excise to the Vote for Health and Children. €39,240m was paid into the Exchequer which represented a prepayment of €250m. The amount prepaid at the end of 2004 was €332m.
2.2 Tax Written Off
The Revenue Commissioners have furnished me with details of the €143m of taxes and PRSI written off during the year ended 31 December 2005. Details of the total amount written off and the distribution according to the grounds of write-off are shown in Table 3 and Table 4.
Table 3: Taxes Written Off
Tax
|
2005
|
2004
|
|
€’000
|
€’000
|
Value Added Tax
|
48,433
|
72,369
|
PAYE
|
23,992
|
36,862
|
Corporation Tax
|
15,431
|
8,326
|
Income Tax
|
23,839
|
16,385
|
Capital Gains Tax
|
2,264
|
868
|
Other Taxes
|
4,653
|
1,120
|
PRSI
|
24,689
|
36,618
|
Total
|
143,301
|
172,548
|
Table 4: Grounds of Write-Off
Grounds of write-off
|
2005
|
2005
|
2004
|
2004
|
|
No. of Cases
|
€’000
|
No. of Cases
|
€’000
|
Liquidation/Receivership/Bankruptcy
|
1,263
|
69,928
|
2,097
|
88,519
|
Ceased trading – no assets
|
2,032
|
34,981
|
2,760
|
40,447
|
Deceased and Estate Insolvent
|
132
|
1,340
|
176
|
1,350
|
Uneconomic to pursue
|
60,911
|
19,358
|
19,359
|
23,162
|
Unfounded Liability
|
187
|
2,160
|
209
|
1,983
|
Grounds of write-off
|
2005
|
2005
|
2004
|
2004
|
|
No. of Cases
|
€’000
|
No. of Cases
|
€’000
|
Cannot be traced / Outside Jurisdiction
|
588
|
9,680
|
586
|
9,615
|
Compassionate Grounds
|
206
|
1,627
|
248
|
2,322
|
Uncollectible due to financial circumstances of taxpayer
|
439
|
4,225
|
706
|
5,150
|
Examinership
|
4
|
2
|
0
|
0
|
Totals
|
65,762
|
143,301
|
26,141
|
172,548
|
In 2005, €3.9m was written off on an automated basis, consisting of cases with small balances (less than €500) which were uneconomic to pursue. Cases under general investigation, potential Ansbacher cases, and cases under the control of the Criminal Assets Bureau are excluded from all write off procedures. The largest single amount written off in 2005 was €8.2m in respect of Corporation Tax owed by a company in receivership. There were five other cases where the amount written off was greater than €1m.
The Internal Audit Branch in Revenue undertakes an annual examination of tax write offs. The 2005 audit examined a sample of 192 cases representing 32% (€45m) of the value of non-automated write offs (€140m). In one of the cases examined involving a write off of €211,200, the tax liability was based on system-generated estimates for a company which Internal Audit found had never traded. As a result of the internal audit, the write off was reversed and the estimate discharged instead. In another case involving the write off of €94,851, Internal Audit raised questions in relation to the evidence on file supporting the grounds of write–off i.e. compassionate grounds. The District concerned is re-examining the case and is to furnish a full report to Internal Audit on the outcome. Internal Audit also examined the results of the ten automated write off runs and confirmed the application of the authorised selection criteria for each run.
2.3 Outstanding Taxes and PRSI
Table 5 reflects the activities and transactions in the twelve-month period ended 31 March 2006. Table 6 sets out an aged analysis of the balance outstanding at 31 March 2006. The tables were prepared on the basis of information furnished by the Revenue Commissioners.
Table 5: Outstanding Taxes and PRSI
|
|
|
|
|
|
Analysis of Balance at 31 March 2006
|
Balance at 31 March 2005
|
Tax or Levy
|
Net Charges Raised
|
Paid
|
Written Off
|
Balance at 31 March 2006
|
Under Appeal
|
Available for Collection
|
€m
|
|
€m
|
€m
|
€m
|
€m
|
€m
|
€m
|
289
|
VAT
|
11,056
|
11,067
|
51
|
227
|
69
|
158
|
161
|
PAYE
|
10,100
|
10,106
|
18
|
137
|
1
|
136
|
176
|
PRSI
|
7,350
|
7,340
|
21
|
165
|
1
|
164
|
292
|
Income Tax (Excluding PAYE)
|
2,807
|
2,808
|
15
|
276
|
59
|
217
|
—
|
DIRT
|
184
|
184
|
0
|
0
|
0
|
0
|
140
|
Corporation Tax
|
4,436
|
4,474
|
11
|
91
|
27
|
64
|
148
|
Capital Gains Tax
|
2,200
|
2,206
|
1
|
141
|
85
|
56
|
3
|
Capital Acquisitions Tax
|
249
|
249
|
0
|
3
|
0
|
3
|
8
|
Abolished Taxes
|
0
|
0
|
0
|
8
|
0
|
8
|
—
|
Relevant Contracts Tax
|
0
|
0
|
0
|
37
|
11
|
26
|
1,217
|
Total Debt
|
|
|
|
1,085
|
253
|
832
|
2.5%
|
Debt as a % of gross collection
|
|
|
|
2%
|
0.5%
|
1.5%
|
Table 6: Aged Analysis of Debt at 31 March 2006
Tax
|
Total tax outstanding at 31 March 2006
|
Amounts outstanding for 2005
|
Amounts outstanding for 2004
|
Due for 2001 to 2003
|
Due for earlier periods (i.e. > 5 years old)
|
|
€m
|
€m
|
€m
|
€m
|
€m
|
VAT
|
227
|
30
|
49
|
117
|
31
|
PAYE
|
137
|
73
|
23
|
26
|
15
|
PRSI
|
165
|
97
|
26
|
29
|
13
|
Income Tax
|
276
|
4
|
73
|
66
|
133
|
Corporation Tax
|
91
|
19
|
8
|
27
|
37
|
Capital Gains Tax
|
141
|
6
|
24
|
18
|
93
|
Capital Acquisitions Tax
|
3
|
0
|
0
|
1
|
2
|
Abolished Taxes
|
8
|
0
|
0
|
0
|
8
|
RCT
|
37
|
12
|
9
|
12
|
4
|
Total
|
1,085
|
241
|
212
|
296
|
336
|
2.4 Revenue Audit Programme
Overall Audit Programme
In a self-assessment system, returns filed by compliant taxpayers are accepted as the basis for calculating tax liabilities. The validity of returns is established by the auditing of a selection of cases either through reviewing and seeking further verification of particular details or by the examination of documents and records at a taxpayer's premises. Revenue changed the categorisation of its audit activities in 2005 to reflect the fact that the intervention by Revenue depends on whether the risk is perceived to relate to one or more tax or duty heading or to specific issues or transactions. Assurance Checks are not audits but interventions that may involve tests, verification checks, desk examinations, visits to premises, searches, site visits and telephone contacts for supporting documentation.
The outcome of the 2005 programme of Revenue audits together with assurance activity is summarised in Table 7.
Table 7: Revenue Audit and Assurance Activity
Category
|
2005
|
2004
|
|
No. of audits completed
|
Yield
|
No. of audits completed
|
Yield
|
|
|
€m
|
|
€m
|
Comprehensive Audits
|
5,077
|
323.3
|
4,058
|
382.3
|
Multi Tax/Duty Audits
|
1,220
|
52.3
|
848
|
18.4
|
Single Tax/Duty Audits
|
6,173
|
122.8
|
4,409
|
68.4
|
Single Issue/Transaction Audits
|
1,744
|
26.6
|
256
|
4.1
|
Verification Audits
|
0
|
0
|
6,750
|
76.4
|
Total Audits
|
14,214
|
525
|
16,321
|
549.6
|
Assurance Checks
|
98,981
|
50.4
|
n/a
|
n/a
|
Total Interventions
|
113,195
|
575.4
|
n/a
|
n/a
|
(n/a indicates figures not available).
Comprehensive Audits
To facilitate the recording of audit activity under the new audit categories, a new case management system – Audit Case Management – was introduced in July 2005. As a transitional measure spreadsheets were used to record audit activity under the new categories and, because of the administrative burden, Regions were not required to analyse settlements by settlement bands. Therefore, analysis by settlement bands was not available for 2005.
The yield of €323.5m from the 5,077 comprehensive audits completed includes interest charges of €124.6m and penalties of €52.7m. The highest settlements were €4.1m for Income Tax and €9.5m for Corporation Tax. Comprehensive audits were completed in 1,249 bogus non-resident account cases with settlements totalling €57.2m and in 1,594 offshore assets cases with settlements totalling €151.8m.
Risk Analysis System
A risk analysis system (REAP) was piloted in four Revenue Districts in 2005 and will be implemented in all Districts in 2006. The system analyses the information available on taxpayers by running a set of queries or rules through a database of taxpayer information, scoring the results and ranking the cases according to those scores. The rules have been derived from the knowledge and experience of Revenue auditors and are refined to take account of new risks and data sources. Based on the system ranking District officers analyse and assess the risk in each case to select suitable cases and decide on the appropriate intervention.
Random Audits – Taxpayer Compliance Testing Programme
Revenue introduced the Taxpayer Compliance Testing Programme in 2005 to replace the Random Audit Programme. The purpose of the programme is to measure and track compliance with tax legislation and to ensure that all taxpayers run the risk of being selected for audit. 411 cases were selected for audit under the 2005 programme. 53 of the selected cases were "dropped" as the taxpayer had ceased trading, had never traded or was recently deceased. Additional tax liabilities were established in 91 of the 298 cases that were finalised. Settlements totalling €1m were agreed in those 91 cases. The outcome of the finalised cases is summarised in Table 8. Analysis of the results of the 2005 programme will be performed when the outstanding 60 cases are finalised.
Table 8: Taxpayer Compliance Testing Programme — Finalised Cases by Size of Additional Liability
Additional Liability
|
Number of Cases Finalised
|
% of Finalised Cases
|
|
|
%
|
Nil
|
207
|
69
|
< €2,000
|
27
|
9
|
€2,001 to €5,000
|
24
|
8
|
€5,001 to €10,000
|
13
|
4
|
€10,001 to €20,000
|
11
|
4
|
€20,001 to €50,000
|
14
|
5
|
> €50,001
|
2
|
1
|
Total
|
298
|
100
|
2.5 Prosecutions
Under Revenue's prosecution strategy, Regions and Divisions forward cases to Investigation and Prosecutions Division for investigation with a view to criminal prosecution where there is prima facie evidence of serious revenue offences having been committed. These cases are further evaluated within the Division before commencement of the resource intensive criminal investigation work which can take several years before reaching the Courts. In 2005, 91 cases of serious tax evasion were referred to the Division for consideration and 30 were accepted for investigation with a view to prosecution.
Twelve convictions were obtained in the ten cases decided in court in 2005. Summary details of the cases are set out in Table 9.
Table 9: Convictions during 2005 for Serious Tax Evasion
Occupation/Activity
|
Fine
|
Custodial Sentence
|
|
€
|
|
Oil Distribution Company
|
4,000
|
—
|
and
|
|
|
Director of above Oil Company
|
7,400
|
3 months prison sentence
|
Stainless Steel & Engineering Company
|
15,000
|
—
|
and
|
|
|
Director of above company
|
—
|
3 month prison sentence
|
Retired Farmer
|
125,000
|
2 year prison sentence if fine not paid within 3 months
|
Sales Administrator
|
10,800
|
3 month prison sentence suspended on condition of 120 hours community service
|
Contract Cleaning and Security
|
—
|
6 month prison sentence suspended on condition of 240 hours community service to be completed within 12 months
|
Endodontist
|
4,500
|
—
|
Building Sub Contractor
|
18,700
|
6 month suspended prison sentence on each of 4 counts to run concurrently
|
Disc Jockey and Promoter
|
13,887
|
—
|
Veterinary Surgeon
|
—
|
Pleaded guilty in 2005, awaiting sentence
|
Shoe Retailer
|
—
|
Pleaded guilty in 2005, awaiting sentence
|
Of the 84 cases of serious tax evasion on hands in the Investigations and Prosecutions Division at the end of 2005, 36 remained under investigation at June 2006 and seven had been closed. The status of the other 41 cases was
5 are with the Revenue Solicitor's Office
12 have been submitted to the DPP
The DPP has issued directions to prosecute in 9 cases
Bench warrants have been issued in 1 case
14 cases are before the court.
In addition, there were 12 convictions for serious Customs and Excise evasion in 2005.
2.6 Special Investigations
Table 10 sets out the payments made to the end of June 2006 as a result of each of the Special Investigations being carried out by Revenue. A short summary of progress to date in the investigations follows.
Table 10: Payments arising from Special Investigations
Investigation
|
Cases Involved
|
Payments to Date
|
|
|
€m
|
DIRT — Look Back Audits (financial institutions)
|
37
|
225
|
DIRT — Underlying Tax
|
|
|
Voluntary Disclosure Scheme
|
3,675
|
227
|
Post Voluntary Disclosure Investigations
|
c. 8,500
|
390
|
NIB
|
465
|
57
|
Ansbacher
|
289
|
62
|
Pick Me Up Schemes
|
71
|
0.8
|
Mahon Tribunal
|
27
|
330
|
Moriarty Tribunal
|
18
|
8
|
Offshore Assets
|
13,990
|
826
|
Undisclosed Funds – Life Assurance Products
|
5,150
|
398
|
Total
|
|
2,223.8
|
Underlying Tax on Bogus Non-Resident Accounts
A total of 3,675 taxpayers paid €227m under the Voluntary Disclose and Pay Scheme whereby underlying tax relating to funds deposited in bogus non-resident accounts was required to be paid by 15 November 2001 to avail of the incentives of a cap of 100% on interest and penalties and an undertaking not to prosecute or publish details of the settlement. Revenue selected 268 of these cases for liability review. 208 of these were accepted as being correct, additional payments of €5,816,408 were required in 54 cases and six cases are still being examined. Payments on account of €1,097,769 have been received in four of the six open cases. All cases were reviewed for eligibility and 17 cases were deemed to be ineligible. Ten of these have been settled with additional liabilities of €1,669,325. One of these cases was prosecuted and received a two year suspended sentence. The remaining seven cases are at various stages of investigation.
Revenue used their powers under Section 908 of the Taxes Consolidation Act, 1997 to obtain information from financial institutions to help identify bogus non-resident account holders who did not avail of the Voluntary Disclose and Pay Scheme. Eighteen orders under Section 908, seeking information on account holders from 26 financial institutions, were granted. At June 2006, payments of €390m had been received from bogus non-resident account holders over and above the proceeds of the voluntary scheme.
Revenue estimates that the likely future yield from the DIRT underlying tax investigation will be of the order of €20m and will arise over the next couple of years.
Offshore Investments via National Irish Bank
Investigations have concluded in 430 of the 465 cases identified as having invested in an offshore investment scheme operated by National Irish Bank. Settlements totalling €51m have been made in 308 of these cases while the other 122 cases had no liability. Investigations are continuing in the remaining 35 cases and payments on account of €3.2m have been received from 12 of these. Over and above these amounts National Irish Bank has paid €3.1m in respect of Capital Gains Tax on compensation it paid to certain investors. Revenue estimates that a further €4m should be paid and that the investigation will be concluded within approximately 12 months.
Ansbacher Investigation
Cases directly involving Ansbacher type arrangements, as well as other cases involving offshore funds and deposits, are being investigated. There are 289 cases, comprising 179 cases on the High Court Inspectors' Report and 110 similar cases discovered by Revenue or listed in the Authorised Officer's Report.
Ten High Court orders have been obtained against financial institutions and third parties requiring the production of books, records and documentation. Some 220,000 documents have been received under the terms of the High Court Orders. Also, documentation has been received on foot of the June 2004 High Court order which allowed for access to certain documentation relating to clients of Ansbacher named in the High Court Inspectors' Report and those persons found by the High Court Inspectors to have failed to co-operate with their enquiry.
A total of 210 cases have been settled to date, 83 of which had total liabilities of €50.77m. This includes a settlement of €7.5m with a Cayman Islands based bank. The other 127 cases settled had no liability and include 66 non-resident cases covered by the provisions of Double Taxation Agreements, as well as 18 cases covered by the 1993 Amnesty provisions. Payments on account of €11.16m have been received in 27 of the 79 on-going cases. As some of the cases are likely to proceed to the Courts, it is not possible for Revenue to predict either the potential yield or the time frame to completion.
Pick-Me-Up Schemes
Pick-me-up Schemes involved expenses for goods or services incurred by a political party being invoiced by the supplier to another trader who paid the supplier as a means of supporting the party. Such payments were not deductible for tax purposes, the VAT was not reclaimable and the invoices issued were not in accordance with the legal requirements. The investigation found a total of 71 cases that apparently avoided tax by engaging in "picking up" expenses, which were proper to political parties. 44 cases have been settled for a total of €552,344 including interest and penalties. Payments totalling €226,165 have been received in connection with ten other cases including Tribunal cases which are still to be finalised. It is proving difficult to conclude certain cases because of the age of the payments, which were made in the 1980s or early 1990s, and the lack of documentation and records gives rise to difficulty in confirming liability. It is not possible for Revenue to estimate with any degree of accuracy the final outcome and yield in connection with outstanding matters.
Tribunals
Matters disclosed at the Moriarty and Mahon Tribunals, which suggest that tax evasion may have occurred, are being investigated as they come to notice. Eighteen cases are being investigated as a result of the Moriarty Tribunal and two cases have been settled for a total of €6.3m. Payments on account of €1.4m have also been received. Twenty-seven cases are being investigated as a result of the Mahon Tribunal and four of these have been settled for €26.5m; payments on account of €3.6m have also been received.
The Moriarty Tribunal is nearing completion and it is not expected that further cases will arise. Revenue does not know if any additional cases will arise from the Mahon Tribunal or when that Tribunal will conclude. In relation to the cases being investigated, a further yield of €5m over the next two years is expected.
Offshore Assets
This investigation is concerned with those who have not paid tax due on funds held in offshore accounts and investments. The voluntary phase of the investigation required taxpayers to give Revenue notice of their intention to make a qualifying disclosure by 29 March 2004 and submit a statement of disclosure and any payment due by 10 June 2004. The benefits of meeting these deadlines were mitigation of penalties, settlement details would not be published and there would be no prosecution. Disclosures were received from 13,651 taxpayers and €650m was received both from this phase of the investigation and from two earlier investigations.
As a follow-up to the voluntary phase, nine High Court orders have been obtained requiring financial institutions to supply details of transactions by their customers relating to offshore operations. Revenue has been receiving information in relation to these Orders but it is not anticipated that all data will be received before the end of 2006. "Challenge letters" have issued in a number of cases and more will issue during 2006. Further information and court orders will be required to identify persons who could not be identified from the information originally submitted. A further €175.7m has been received since the voluntary scheme, arising from reviews of the voluntary submissions and payments from some 339 taxpayers who did not avail of the voluntary scheme. This follow-up work is likely to run for at least a further two years and the final yield from the investigation may approach €1 billion.
Life Assurance Products
Investigations into the use of life assurance investment products to hide undisclosed income or gains began in 2004. The voluntary disclosure phase of the investigation set a deadline of 23 May 2005 for those who invested undisclosed funds greater than €20,000 in such products to give notice to Revenue of their intention to make a voluntary disclosure. Full disclosure and payment was then required to be made by 22 July 2005. The benefits to the taxpayer in availing of the voluntary scheme were that the settlement details would not be published, there would be no prosecution and penalties would be mitigated in accordance with the Code of Practice for Revenue Auditors. About 10,000 notices of intention to make disclosures were received and some 5,150 taxpayers made payments of €398m under the voluntary scheme.
The second phase of the investigation involves identifying those who did not avail of the voluntary scheme. Revenue used new powers provided in the Finance Act 2005 (section 140), which allows it to sample the information held by a life assurance company that relates to a class or classes of policies and policyholders, where there are circumstances which suggest that such policies have been used to invest untaxed funds. The information obtained can only be used to assist in making an application to the High Court for an order to have wider access to the information. Revenue has completed the sampling work in 14 assurance companies. The information gathered from that work and from the voluntary disclosures is being used to assist in applications to the High Court for orders directing assurance companies to furnish details on individual policyholders and policies to Revenue (11 orders were applied for and made in July 2006). Revenue expect this investigation to take a number of years to complete and the final yield may exceed €500m.