We are expecting an official from the Department of Finance who has not turned up yet. Chapter 3.1 of the annual report of the Comptroller and Auditor General reads:
3.1 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 (the Act) 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 Act to carry out such examinations as I consider appropriate in order to ascertain whether systems, procedures and practices have been established that are adequate to secure an effective check on the assessment, collection and proper allocation of the revenue of the State and to satisfy myself that the manner in which they are being employed and applied is adequate. Sections 3.7 to 3.10 refer to matters arising from this examination.
Revenue Collected
Revenue collected under its main headings in 2006 is shown in Table 8.
Table 8 Revenue Collected
|
2006 Gross Receipts€m
|
2006 Repayments€m
|
2006 Net Receipts€m
|
2005 Net Receipts€m
|
Income Tax
|
15,450
|
3,075
|
12,375
|
11,340
|
Value Added Tax
|
17,809
|
4,358
|
13,451
|
12,126
|
Excise
|
5,834
|
138
|
5,696
|
5,391
|
Corporation Tax
|
7,271
|
586
|
6,685
|
5,503
|
Stamp Duties
|
3,674
|
42
|
3,632
|
2,673
|
Custom Duties
|
261
|
6
|
255
|
226
|
Capital Acquisitions Tax
|
355
|
12
|
343
|
249
|
Capital Gains Tax
|
3,134
|
35
|
3,099
|
1,982
|
Total
|
€53,788m
|
€8,252m
|
€45,536m
|
€39,490m
|
Of the net receipts of €45,536m, a total of €168m was paid during 2006 under Section 3 of the Appropriation Act, 1999, as amended, from the proceeds of tobacco excise to the Vote for the Health Service Executive. €45,536m was paid to the Exchequer which represented a prepayment of €418m. The amount prepaid at the end of 2005 was €250m.
3.2 Tax Written Off
The Revenue Commissioners have furnished me with details of the €120m of taxes and PRSI written off during the year ended 31 December 2006. Details of the total amount written off and the distribution according to the grounds of write-off are shown in Table 9 and Table 10.
Table 9 Taxes Written Off
Tax
|
2006€000
|
2005€000
|
Value Added Tax
|
45,253
|
48,433
|
PAYE
|
21,623
|
23,992
|
Corporation Tax
|
3,505
|
15,431
|
Income Tax
|
14,181
|
23,839
|
Capital Gains Tax
|
799
|
2,264
|
Other Taxes
|
10,486
|
4,653
|
PRSI
|
23,799
|
24,689
|
Total (€000)
|
119,646
|
143,301
|
Table 10 Grounds of Write Off
Grounds of Write Off
|
2006No. of Cases
|
2006€000
|
2005No. of Cases
|
2005€000
|
Liquidation/Receivership/Bankruptcy
|
592
|
46,313
|
1,263
|
69,928
|
Ceased trading - no assets
|
2,106
|
44,438
|
2,032
|
34,981
|
Deceased and Estate Insolvent
|
162
|
1,762
|
132
|
1,340
|
Uneconomic to pursue
|
4,644
|
8,829
|
60,911
|
19,358
|
Unfounded Liability
|
120
|
686
|
187
|
2,160
|
Cannot be traced/Outside Jurisdiction
|
644
|
12,391
|
588
|
9,680
|
Compassionate Grounds
|
179
|
1,865
|
206
|
1,627
|
Uncollectible due to financial circumstances of taxpayer
|
306
|
3,177
|
439
|
4,225
|
Examinership
|
6
|
185
|
4
|
2
|
Totals
|
8,759
|
€119,646
|
65,762
|
€143,301
|
In 2006, approximately €1m, consisting of cases with balances of less than €1,000 which were considered uneconomic to pursue, was written off on an automated basis. 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 2006 was €2.3m in respect of Employer's PAYE/PRSI and Relevant Contracts Tax owed by a construction company which had gone into liquidation. There were four 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 2006 audit examined a sample of 204 cases representing 33% (€39m) of the value of non-automated write offs (€118m). Internal audit was satisfied that all amounts were written off in accordance with the criteria prescribed, with one exception. In this case, a repayment of VAT of €39,679 on a property lease transaction was made to the lessee prior to the write off of a matching liability of the lessor. In the particular circumstances the correct procedure should have been to offset the repayment due to the lessee against the liability of the lessor. The repayment has since been recovered and the write off reversed. Internal Audit also examined the results of the five automated write off runs and confirmed the correct application of the authorised selection criteria for each run.
I have examined a sample of cases representing over 12% of the value written off through a review of the procedures followed and of supporting reports and records, with a focus on high value cases. The results indicated that, in general, the authorised procedures were followed.
3.3 Outstanding Taxes and PRSI
Table 11 reflects activities and transactions in the twelve month period ended 31 March 2007. Table 12 sets out an aged analysis of the balance outstanding at 31 March 2007. The tables were prepared on the basis of information furnished by the Revenue Commissioners.
Table 11 Outstanding Taxes and PRSI
|
|
Analysis of Balance at 31 March 2007
|
Balance at 31 March 2006
|
Tax or Levy
|
Net Charges Raised
|
Paid
|
Written Off
|
Balance at 31 March 2007
|
Under Appeal
|
Available for Collection
|
€m
|
|
€m
|
€m
|
€m
|
€m
|
€m
|
€m
|
227
|
VAT
|
12,288
|
12,279
|
40
|
196
|
74
|
122
|
137
|
PAYE
|
10,282
|
10,269
|
15
|
135
|
7
|
128
|
165
|
PRSI
|
7,775
|
7,764
|
16
|
160
|
2
|
158
|
276
|
Income Tax (excluding PAYE)
|
3,030
|
3,017
|
12
|
277
|
68
|
209
|
–
|
DIRT
|
306
|
306
|
–
|
–
|
–
|
–
|
161
|
Corporation Tax
|
5,202
|
5,217
|
2
|
144
|
65
|
79
|
141
|
Capital Gains Tax
|
3,393
|
3,375
|
1
|
158
|
89
|
69
|
3
|
Capital Acquisitions Tax
|
343
|
343
|
–
|
3
|
–
|
3
|
8
|
Abolished Taxes
|
–
|
–
|
–
|
8
|
–
|
8
|
37
|
Relevant Contracts Tax
|
64
|
66
|
9
|
26
|
10
|
16
|
1,155
|
Total Debt
|
42,683
|
42,636
|
95
|
1,107
|
315
|
792
|
2%
|
Debt as a % of gross collection
|
|
1.8%
|
0.5%
|
1.3%
|
Table 12 Aged Analysis of Debt at 31 March 2007
Tax
|
Total tax outstanding at 31 March 2007
|
Amounts outstanding for 2006
|
Amounts outstanding for 2005
|
Due for
2002 to 2004
|
Due for earlier periods (i.e. > 5 yrs old)
|
|
€m
|
€m
|
€m
|
€m
|
€m
|
VAT
|
196
|
23
|
26
|
126
|
21
|
PAYE
|
135
|
77
|
17
|
27
|
14
|
PRSI
|
160
|
99
|
22
|
27
|
12
|
Income Tax
|
277
|
3
|
75
|
71
|
128
|
Corporation Tax
|
144
|
52
|
6
|
35
|
51
|
Capital Gains Tax
|
158
|
10
|
30
|
21
|
97
|
Capital Acquisitions Tax
|
3
|
–
|
–
|
–
|
3
|
Abolished Taxes
|
8
|
–
|
–
|
–
|
8
|
Relevant Contracts Tax
|
26
|
7
|
3
|
16
|
–
|
Total
|
€1,107m
|
€ 271m
|
€179m
|
€323m
|
€334m
|
3.4 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. The type of intervention by Revenue depends on whether the risk is perceived to relate to one or more tax or duty headings 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 2006 programme of Revenue audits, together with assurance activity is summarised in Table 13.
Table 13 Revenue Audit and Assurance Activity
Category
|
2006
|
2006
|
2005
|
2005
|
|
Numbercompleted
|
Yield€m
|
Numbercompleted
|
Yield€m
|
Comprehensive Audits
|
4,127
|
436.2
|
5,077
|
323.3
|
Multi Tax/Duty Audits
|
1,757
|
56.2
|
1,220
|
52.3
|
Single Tax/Duty Audits
|
6,305
|
133.5
|
6,173
|
122.8
|
Single Issue/Transaction Audits
|
1,437
|
23.8
|
1,744
|
26.6
|
Total Audits
|
13,626
|
649.7
|
14,214
|
525.0
|
Assurance Checks
|
176,064
|
42.1
|
98,981
|
50.4
|
Total Interventions
|
189,690
|
€691.8m
|
113,195
|
€575.4m
|
A significant feature of the 2006 programme was a national compliance project in the construction sector. A total of 3,872 audits with a yield of €116m and 45,423 assurance checks with a yield of €21m were completed as part of the project. Included in these assurance checks were 1,615 site visits which identified 1,188 individuals who were not registered with Revenue, 447 sub-contractors who were re-classified as employees and 2,479 additional VAT or employer registrations. 55 cases were identified for possible prosecution activity.
Comprehensive Audits
The yield of €436m from the 4,127 comprehensive audits completed includes interest charges of €187m and penalties of €110m. The highest settlements were €6.4m for Income Tax and €22.17m for Corporation Tax. Comprehensive audits were completed in 217 bogus non-resident account cases with settlements totalling €29m, in 595 offshore assets cases with settlements totalling €92m and in 766 life assurance product cases with settlements of €89m.
Risk Analysis System
A risk analysis system (REAP) was piloted in four Revenue districts in 2005 and was introduced 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. The facility to record that a case was selected for auditusing the REAP system only became available during 2007 and therefore the results ofsuch audits for 2006 are not separately available.
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. 410 cases were selected for audit under the 2005 programme. 62 cases were dropped where the taxpayer had ceased trading, had never traded, was deceased or not available for health reasons or where the case was under enquiry or had recently been audited.
Over 99% of the 348 caseload has been finalised. While no additional liability was established in 232 of the 346 cases finalised, settlements totalling €1.4m were agreed in the other 114 cases. The average yield from all the cases finalised was therefore €4,100. Audits have not yet been finalised in 2 cases. The outcome of the cases finalised to date is summarised in Table 14.
Table 14 Taxpayer Compliance Testing Programme 2005 - Finalised Cases by Size of Additional Liability
Additional Liability
|
Number of Cases Finalised
|
% of Finalised Cases
|
Nil
|
232
|
67%
|
< €2,000
|
27
|
8%
|
€2,001 to €5,000
|
31
|
9%
|
€5,001 to €10,000
|
21
|
6%
|
€10,001 to €20,000
|
18
|
5%
|
€20,001 to €50,000
|
13
|
4%
|
> €50,001
|
4
|
1%
|
Total
|
346
|
100%
|
402 cases have been selected for audit under the 2006 programme. 274 of these have been finalised as at 30 June 2007, 196 of which had no additional liability and 78 had additional liabilities totalling €431,905. An additional €158,410 was recovered for periods other than the period targeted for audit. The outcome of the cases finalised to date under the 2006 programme is summarised in Table 15. 401 cases have been selected for audit under the 2007 programme.
Table 15 Taxpayer Compliance Testing Programme 2006 - Finalised Cases by Size of Additional Liability
Additional Liability
|
Number of Cases Finalised
|
% of Finalised Cases
|
Nil
|
196
|
71%
|
< €2,000
|
36
|
13%
|
€2,001 to €5,000
|
18
|
7%
|
€5,001 to €10,000
|
13
|
5%
|
€10,001 to €20,000
|
7
|
2%
|
€20,001 to €50,000
|
3
|
1%
|
> €50,001
|
1
|
1%
|
Total
|
274
|
100%
|
It is too early to draw conclusions from the results of the programme to date about levels of underpayment of tax among the taxpayer population as a whole. The fact that the selection methodology is still being refined to ensure that it can be used as a sound basis for extrapolation also militates against the validity of any such exercise at this time. Firm conclusions must await the bedding down of the methodology and emerging trends over a number of years.
3.5 Prosecutions
Under Revenue's prosecution strategy, Regions and Divisions forward cases to Investigation and Prosecutions Division (IPD) for investigation with a view to criminal prosecution where there is prima facie evidence of serious revenue offences having been committed. Within IPD, these cases are further evaluated by the Prosecutions Admissions Committee before commencement of the resource intensive criminal investigation work that can take several years before reaching the Courts. In 2006, 33 cases of serious tax evasion were referred to the Division for consideration and 16 were accepted for investigation with a view to prosecution. The comparable figures for 2005 were 91 referred and 30 accepted.
Convictions were obtained in the three cases decided in court in 2006.
A building contractor received a six months sentence (which was suspended for two years) and a fine of €3,200 for submission of incorrect VAT returns.
A ground works contractor was fined a total of €2,040 for various offences relating to VAT and Income Tax returns.
Fines of €33,782 were imposed on a petrol station owner for submitting incorrect VAT returns and evading excise duty on oil.
81 cases of serious tax evasion were on-hands in the Investigations and Prosecutions Division at the end of 2006. The status of those cases at the end of May 2007 is shown in Table 16.
Table 16 Status of Serious Tax Evasion Cases
Status
|
Number of Cases
|
Under investigation
|
28
|
Decision not to prosecute
|
7
|
With the Revenue Solicitor’s Office
|
4
|
Submitted to the DPP
|
10
|
Directions issued by DPP to prosecute
|
14
|
Bench warrant issued
|
1
|
Cases before the court
|
13
|
Convictions obtained
|
4
|
Total
|
81
|
In addition, there were 3 convictions for serious Customs and Excise evasion in 2006.
3.6 Special Investigations
Table 17 sets out the payments made to the end of May 2007 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 17 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
|
402
|
NIB
|
465
|
59
|
Ansbacher
|
289
|
76
|
Pick Me Up Schemes
|
71
|
0.8
|
Mahon Tribunal
|
27
|
3 32
|
Moriarty Tribunal
|
18
|
8
|
Offshore Assets
|
14,374
|
870
|
Undisclosed Funds - Life Assurance Products
|
5,276
|
430
|
Total
|
|
€2,329.8m
|
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. 210 of these were accepted as being correct, additional payments of €6,184,408 were required in 55 cases. Payments on account of €847,749 have been received in the remaining three open cases. All cases were reviewed for eligibility and 18 cases have been deemed to be ineligible. 15 of these have been settled with additional liabilities of €2,101,260. One of these cases was prosecuted and received a two year suspended sentence. The remaining three 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 the end of May 2007, payments of €402m 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 432 of the 465 cases identified as having invested in an offshore investment scheme operated by National Irish Bank. Settlements totalling €52.4m have been made in 309 of these cases while the other 123 cases had no liability. Investigations are continuing in the remaining 33 cases and payments on account of €3m have been received from 11 of these. Over and above these amounts, National Irish Bank has paid €3.5m in respect of Capital Gains Tax on compensation it paid to certain investors. Revenue estimates that a further €2m should be paid and that the investigation will be concluded by the end of 2007.
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.
Thirteen High Court orders have been obtained against financial institutions and third parties requiring the production of books, records and documentation. Over 250,000 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 248 cases have been settled to date, 106 of which had total liabilities of €68.44m. This includes a settlement of €7.5m with a Cayman Islands based bank. The other 142 cases settled had no liability and include 69 non-resident cases covered by the provisions of Double Taxation Agreements, as well as 20 cases covered by the 1993 Amnesty provisions. Payments on account of €7.73m have been received in 16 of the 41 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. 46 cases have been settled for a total of €562,328 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 yield. However, it is not expected to amount to substantially more than has been received to date.
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 three cases have been settled for a total of €7m. Payments on account of €1.4m have also been received in respect of two cases. 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 €5.5m have also been received in respect of 12 cases.
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.
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, 14 High Court orders have been obtained requiring financial institutions to supply details of transactions by their customers relating to offshore operations. The information received has been analysed and those who availed of the voluntary disclosure scheme are excluded from further investigation provided their disclosure is compatible with the information obtained from the financial institutions. Challenge letters have been issued to over 1,500 taxpayers who failed to avail of the voluntary disclosure scheme. A further €220m has been received since the voluntary scheme, arising from reviews of the voluntary submissions and payments from some 723 taxpayers who did not avail of the voluntary scheme. A further series of High Court orders is to be sought in 2007 and 2008. 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 €417m 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 section 140 of the Finance Act 2005 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 granted in July 2006 and a further three in March 2007). The information received on foot of these orders is being used to target taxpayers for enquiry. The first tranche of 5,300 enquiry letters issued in March 2007 and a further tranche of letters is scheduled for issue in September 2007. Revenue has received €13m from 126 taxpayers in the course of these follow up enquiries. Revenue expects this investigation to be substantially progressed by the end of 2007 and the final yield is estimated at €500m.