COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 13 Dec 2007

Vote 9 - Office of the Revenue Commissioners.

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

Chapter 3.1 — Revenue Account.

Chapter 3.2 — Tax Written Off.

Chapter 3.3 — Outstanding Taxes and PRSI.

Chapter 3.4 — Revenue Audit Programme.

Chapter 3.5 — Prosecutions.

Chapter 3.6 — Special Investigations.

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

Chairman

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

Notwithstanding this provision in the legislation, I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official, either by name or in such a way as to make him or her identifiable. Members are also reminded of the provisions within Standing Order 158 that the committee shall also refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies.

I welcome the Chairman of the Revenue Commissioners, Mr. Frank Daly, whom I invite to introduce his officials.

Mr. Frank Daly

I thank the Chairman and committee members. I am accompanied by Mr. Paddy Molloy, head of our forecasting and analysis branch, Mr. Paddy O'Shaughnessy, head of our administrative budget branch and Mr. Ken Monaghan, our administrative budget manager. Our senior press officer is in the gallery.

Chairman

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.

Chairman

I invite Mr. Purcell to introduce Vote 9 and chapters 3.1 to 3.6.

Mr. John Purcell

The material before the committee for its consideration comprises six sub-chapters of my annual report dealing with my audit of the account of Revenue received in 2006, and the appropriation account which sets out the cost of operating the Office of the Revenue Commissioners for 2006.

Chapter 3.1 sets out the basis for my audit of the Revenue Commissioners and shows a summary of the tax collected in 2006. Net tax receipts at €45.5 billion represent a €6 billion increase over the previous year with significant percentage increases in corporation tax, capital gains tax and stamp duties. Members will note the totals in the table do not include PRSI of €8.4 billion, the health levy of €169 million and the environmental levy of €19 million which are also collected by the Revenue Commissioners on behalf of other Departments.

Chapter 3.2 gives some details of the €119 million written off by the Revenue Commissioners in 2006 as uncollectible. The comparable figures for the previous year are also shown in the tables. Both the internal audit section and my staff test checked the cases written off to establish if agreed procedures had been followed. On the basis of the results of those checks I was generally satisfied on that score.

Chapter 3.3 gives a breakdown of the €1.1 billion owed to the Revenue Commissioners at the end of March 2007, some of which is under appeal and so may not ultimately fall to be collected. However, €792 million is available for collection, representing 1.3% of the gross amount of revenue collected in 2006. This reflects ongoing improvement on the historical position, although it is worth noting that €334 million of the debt is over five years old.

Chapter 3.4 summarises audit activity in 2006. The number of audits completed was marginally down on the previous year, although the yield showed an increase of €125 million. On the other hand, the number of the less intensive assurance checks nearly doubled but the yield fell. The main thrust of the audit and assurance programme for 2006 was on the construction industry, in light of the high level of activity in that sector. One fifth of the total yield came from this work. The other main contributor to the audit tax take was from the various special investigations undertaken by the Revenue Commissioners using the additional powers given to them in the wake of the DIRT scandal.

Chapter 3.4 also gives information on the outcome of random audits or the taxpayer compliance testing programme, as it is now known. We have some results from the 2005, 2006 and 2007 programmes and, although it is too early to come to definitive conclusions, an interesting trend is emerging. In each of those years, on the basis of the audits completed, around 30% of the cases randomly selected resulted in an additional tax liability being established. Although the financial yield from these audits is modest when compared with targeted audits, there is enough evidence at this stage to support the continuance of the programme as a basis for estimating the scale of the underdeclaration of tax liabilities nationally.

Chapter 3.5 sets out the position in regard to the 81 cases that the Revenue Commissioners' investigation and prosecutions division had on hand at the end of 2006. I am glad to report that the Revenue Commissioners' efforts in this area finally began to bear fruit in 2007. The latest figures show that ten convictions have been obtained so far this year and that 16 cases are before the courts. This compares favourably with the three convictions for serious tax evasion obtained in 2006. Previous committees have stressed the importance of a tough prosecution policy as a vital element in the fight against tax evasion.

Chapter 3.6 summarises the progress being made on the various special investigations being carried out by the Revenue Commissioners. The figures in my report represent the position as of the end of May this year. A further €63 million or so has since been collected, but I will leave it to the Accounting Officer to give the committee the most up-to-date position.

The Revenue Commissioners just managed to live within their gross Estimate for the year and, due to an excess of appropriations-in-aid, were in a position to surrender €3.8 million to the Exchequer. The annual cost of operating the Office of the Revenue Commissioners, when calculated on an accruals basis and taking account of services provided by other Departments, came in at €450 million.

Chairman

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

Mr. Frank Daly

I thank the Chairman and members of the committee for this opportunity to make a short opening statement on chapters 3.1 to 3.6, inclusive, of the 2006 Comptroller and Auditor General's report.

Chapter 3.1 shows net receipts for 2006 at €45,536 million which represents an increase of over €6 billion, or 15%, on the figure for 2005. That overall strong growth in tax yield was spread across the whole range of taxes. Commensurate with this growth in tax yields was an impressive growth in the volume of our business. For example, year-on-year 2005 to 2006: personal calls to Revenue increased by 17% to over 900,000; telephone calls increased by 29% to over 6.8 million; the number of PAYE employments increased by over 5%; while self-assessed numbers, company registrations and VAT registrations all increased by 8%. Over five years our customer base has increased by 25% for PAYE employments, 33% for companies and 48% for self-assessed taxpayers.

Chapter 3.2 deals with tax write-offs and shows the amount written off in the year as €119.6 million. The Revenue Commissioners, like every other tax administration or business, inevitably experiences some bad debt. Indeed the lion's share, some €92 million, of the amount written off in 2006 related to insolvency type cases.

Our objective remains to minimise this in every way possible and we will only write it off when we are satisfied that it is genuinely uncollectible or uneconomic to pursue. Amounts written off should of course be viewed in the context of the amount collected. As a percentage of the total tax collected in 2006, the amount written off was less than one fifth of 1% of the gross collection of over €62 billion.

Chapter 3.3 deals with outstanding tax or arrears and shows the balance outstanding at 31 March 2007 as €1.107 billion. This is down €48 million on the 2006 figure. Arrears of tax as a percentage of total gross receipts now stand at an all time low of 1.78%. At less than 2% this is one of the best results for any tax administration worldwide. We have already surpassed our statement of strategy 2005 to 2007 goal of reducing arrears to 2.5% of gross collection by 2007. It clearly illustrates our continuing success in improving payments compliance over the past several years. Taxes outstanding have now fallen every year from a high of €5.466 billion, 62.5% of gross receipts, in 1985.

Chapter 3.4 reports on the Revenue audit programme which is an established and successful means of ensuring compliance with the self-assessment system. The yield from the 13,626 audits completed during 2006 was almost €650 million. In addition to audit activity, over 176,000 assurance checks were carried out yielding some €42 million. Over €22 million in arrears of tax was also collected by Revenue officers in the course of audit interventions. The total recovered under these interventions therefore amounted to well over €700 million.

Details of 601 cases settled in 2006 were published under the provisions of section 1086 of the Taxes Consolidation Act 1997. The total amount of the tax interest and penalties in published cases was €154 million. Last year saw a continuation of our policy of focusing compliance interventions on a sectorial basis. Up to 25% of our national audit and compliance staff were devoted to the construction sector alone, which yielded €125 million in tax, interest and penalties.

Following a 12-month trial period, a computer based risk analysis system was introduced into all districts in mid-2006. The risk evaluation analysis and profiling, REAP, system was developed on the basis of the experience and knowledge of Revenue staff and taps into the extensive data and information sources to which Revenue has access. This system reflects Revenue's intention to target its activities at risky cases and allocate resources accordingly.

Paragraph 3.5 deals with prosecutions for serious tax evasion. Although the cases reported on here are the most serious dealt with by Revenue, they only represent the tip of the iceberg in terms of prosecution activity undertaken by us. For example, in addition to the cases reported on in the paragraph, a further 515 convictions were obtained for smuggling offences, such as cigarette smuggling, unlicensed trading, marked mineral oil offences and oil laundering, and there were 1,295 convictions for non-filing of tax returns.

Finally, paragraph 3.6 deals with Revenue's major legacy investigation projects, most of which are now nearing completion. The focus of our ongoing work in these projects is to follow-up taxpayers who had not availed of opportunities to come forward voluntarily to Revenue. By the end of 2006, the cumulative yield from these projects had reached €2.28 billion. A further €111 million recovered during 2007 has brought the running total as at end November 2007 to €2.39 billion.

I thank the Chairman. I apologise, but I have a cold and I hope my voice holds out.

Chairman

Mr. Daly did very well and we did not even notice. May the committee publish this statement?

Mr. Frank Daly

Yes, it may.

Deputy Thomas P. Broughan

I bid good morning to Mr. Daly, Mr. O'Shaughnessy, Mr. Monaghan and Mr. Barry and welcome them.

As regards the Vote, the Comptroller and Auditor General has said the cost of the collection is something like €450 million on a €45 billion take in tax alone. What are the staff numbers, where are they based and what is the level of productivity vis-a-vis tax recovered per official?

Mr. Frank Daly

Total staff numbers at present are 6,618 spread over various locations throughout the country. Well over 50% of our staff are based outside Dublin, and that will increase as we deliver further on the decentralisation programme. There are about 130 offices throughout the country, some big, some small. We have significant offices in the mid-west, in Nenagh, Limerick, Ennis, and for the last month or so in Kilrush and Listowel. We have significant offices, also, in places such as Dundalk, Galway, Cork and the south east. I have the distribution figures for staff by county, but it is very detailed - I could keep the Deputy here for the morning going through it.

In terms of productivity, there is the cost of administration to be considered, which the Deputy refers to in terms of our Vote of €450 million as well as the tax take in 2006, or indeed in any year. One must also remember the other activities which do not collect tax directly, but are compliance measures, principally on the customs side, involving frontier control. The total cost of administration is less than 0.8 of the whole collection. This is probably one of the best ratios in Revenue administration worldwide and as such is a good indication of our productivity. I referred in my opening statement to the enormous increases in business Revenue has experienced over the last five or six years. We have managed that 30% to 40% upsurge in business with no significant increase in staff numbers, which are only marginally greater than they were over the last number of years. We have achieved much productivity from the use of technology and from encouraging online filing of tax returns and payments. We have got much productivity from the simplification of the tax system, making it easier for people to do business with us.

We never rest on our laurels and are continuously seeking to up our game. I am very pleased with the progress we make in that area.

Deputy Thomas P. Broughan

I was last on this committee ten years ago. The amounts of tax outstanding in that era, the mid-1990s, were of the order of £4 billion to £5 billion. Has the culture of tax evasion changed that much? Yesterday, there were reports of the Revenue's latest list of tax defaulters, with something like 148 settlements to give a total yield of €53.6 million. People have said through the years that the only two certainties in life are death and taxes. I notice from one smiling happy face looking out at me from the newspaper that somebody has avoided at least one of these in his lifetime. Going back to the Revenue's previous list of September this year, there were 136 defaulters, yielding €31.7 million. For June, 150 settlements yielded €34.35 million and in March, 131 settlements yielded €35 million. In September 2006, 179 settlements for the second quarter yielded €30 million and in June 2006 there were 150 settlements yielding €22 million. There seems to be growing levels of evasion as revealed by the defaulters' lists. Has the culture been changed? How do we know there is only €1.1 billion of tax, or 2% of the possible yield outstanding when we have these blatant lists of defaulters?

The Comptroller and Auditor General has assured us there are 80 cases down for prosecution in 2007. However, in 2006 there was virtually no activity regarding possible prosecutions. No custodial sentence was imposed for a conviction for serious tax evasion. A building contractor had a six month jail sentence suspended for two years for the submission of large incorrect VAT returns, and so on. Is there a problem with tax law, in that we do not have a serious level of prosecution of people? The defaulters' lists seem to indicate that tax evasion is flourishing. It is alive and well in our economy and society, despite the best efforts of the Revenue Commissioners, which I commend.

Mr. Frank Daly

I thank the Deputy. He has made a number of comments. Tax arrears, as such, in terms of the figures that appear here are based on—

Chairman

I am sorry to interrupt Mr. Daly, but there is a division in the Dáil. We shall continue, as I am sure pairing can be arranged.

Deputy Ciarán Cuffe

I believe there is an obligation on Deputies to attend the vote.

Chairman

We can continue with just one member. Therefore, members can make their own choice.

Deputy Ciarán Cuffe

I am conscious that I am second on the list to ask questions.

Chairman

I know that.

Mr. Frank Daly

The figure for tax outstanding is the one for tax where we know that a charge has been raised, either on the basis of a return or by ourselves.

There was a question on whether the climate had improved and whether tax compliance was better. Things have improved immensely in recent years for a number of reasons, some of which I will mention later. We are seeing success in the audit programme and the defaulter's list. We must remember that what is published in that list is not the full story of what is collected following an audit. It comes down to a much more focused approach by Revenue; therefore, we are getting very good results. That is an indication that things are improving and moving in the right direction. Even the results emerging on random audits indicate that while there may be some concerns, they are not of a scale that indicate that tax non-compliance is rampant. The results indicate to me that the systemic tax evasion that was a feature of recent decades is not apparent. There will always be tax evasion and that is a fact of life. However, we are much better at getting on top of it. The results point to this.

There is no problem with tax law. We have a considerable level of activity in prosecutions. There were three cases in 2006, which resulted in three convictions. One of those convicted received a six month suspended sentence and a fine; fines were imposed in the other two. This year there have been eight cases, which have resulted in eight convictions. In one case a 12 month suspended sentence was imposed. In another two, 18 month and nine month suspended sentences were imposed, while fines were imposed in another five. We have been upping our game on prosecutions progressively in recent years. As the Comptroller and Auditor General mentioned in his opening statement, the work is finally bearing fruit. We now have 100 cases under investigation for prosecution; they are either with the courts, the Director of Public Prosecutions or our solicitor's office. They are serious cases; not non violent prosecutions. This will be a feature of Revenue activity in the future.

There will always be audit settlements and civil penalties. Penalties of interest in audit settlements are very significant.

Deputy Thomas P. Broughan

The reality is that looking back to 2004, there were two three-month custodial sentences. That seems to have been the impact of the sanctions regime for tax evasion, which is such a serious crime.

Mr. Frank Daly

All we can do is get cases into the courts. We do not have control over what sentences are imposed by the courts. I have spoken about this issue before. We have an almost 100% success rate in securing convictions once we take a case, even though such cases are extremely resource intensive. However, I cannot do very much about the fact that the courts do not impose custodial sentences.

Chairman

Is Mr. Daly frustrated by that?

Mr. Frank Daly

I certainly feel frustrated from time to time. However, I need to be very careful. I do not want to come here and criticise the courts.

Deputy Thomas P. Broughan

Would Mr. Daly like to have a revenue court as a special division of the courts system?

Mr. Frank Daly

That issue was examined in detail by the Revenue powers group and the Law Reform Commission in the last few years. After a lot of study, the conclusion was that it was not really necessary to have such a court. I would not have been enthusiastic about it. The general courts are quite capable of dealing with Revenue cases.

Deputy Thomas P. Broughan

With regard to the last list that included a €6 million settlement, how can anyone settle for such a sum and not be prosecuted?

Mr. Frank Daly

We must pick our prosecution cases very carefully. There is no point in spending a couple of years working on a case with a view to prosecution if, from an early stage, we know we will not succeed.

Deputy Thomas P. Broughan

If one was to compare a case involving ordinary theft, where somebody steals an article from a shop, with one where millions are stolen, surely the authorities would look at the second case in a more serious way. Surely those involved should be prosecuted. For everybody who settled on the list taken from yesterday's newspaper, is it not true that the mere fact that they settled is a prima facie admission of guilt?

Mr. Frank Daly

It might be a prima facie admission of guilt to the Deputy and me, but it will stand for nothing in the courts. These are indictable cases and we must go to the Circuit Court and prove our case. Often the material needed to prove our case is not with the Revenue Commissioners because these are sophisticated frauds. It is not on the same scale as somebody stealing from a shop, where the evidence is on a CCTV camera or there are witnesses and so on. We must prove our case through a rigorous and frustrating process of going through documents, papers and so on. We have prosecuted quite a few cases where the amounts involved are very large. These cases have gone to court.

Deputy Thomas P. Broughan

Years ago when it was proposed to introduce a disgraceful series of tax amnesties, it was argued that people would do serious time, including famous entrepreneurs, if they availed of the amnesties but misbehaved again, yet in these accounts we see that many sailed through the amnesties and misled the Revenue Commissioners, but at the end of it are still not facing a custodial sentence. The lists of defaulters include those who held Ansbacher accounts. Is there something wrong with our legal system on this issue? Just a few days ago a famous entrepreneur in the United Kingdom and Canada, Mr. Conrad Black, was sent to jail for six years. He was facing life imprisonment for serious fraud, including tax fraud. Is there something fundamentally wrong with our administration that we cannot sanction persons who persist in evading tax year after year and appear on these lists, despite the best efforts of Mr. Daly and his staff?

Mr. Frank Daly

There is no lack of will on the part of Revenue to prosecute such cases which will increasingly come before the courts. I do not control the sentences imposed by the courts. I do not have such responsibility. All we can do is bring as many cases before the courts as we possibly can. It would be wrong to tie up all our resources in trying to build cases simply because they were high profile or there was big money involved. If I know that I will not succeed, that I can deal with a case and impose a very significant penalty and publish the list in the quarterly publication-----

Deputy Thomas P. Broughan

As long as Revenue does that, the culture will persist and people will believe it is not the same as any other crime. It is seen as not taking money away from neighbours or the community; that is the reality.

I would like to refer to chapter 3.4 and the compliance project. Clearly, the Revenue Commissioners have had some success in dealing with the construction industry. In fact, the bulk of the 3,872 audits run by Mr. Daly's officials in 2006 related to construction. My predecessor on this committee, Deputy Burton, had urged for a long time that construction be targeted. Mr. Daly clearly welcomed this suggestion. What area is Revenue now targeting? The media headlines this morning state that a Revenue official is a suspect in a tax fraud. This relates to imported vehicles which—

Chairman

Can we be careful in this regard? There may be prosecutions and anything members say may affect any future action.

Deputy Thomas P. Broughan

I will simply say a Revenue official is an alleged suspect in a tax fraud. Does this indicate Revenue has moved into this area? I have heard reference to this area in the Dáil. For example, reference was made to strings of cars, often with foreign registrations, sitting at the side of the road between Letterkenny and Donegal town. It was wondered whether Revenue had any interest in this area.

I commend the Revenue Commissioners on their efforts with regard to construction and areas such as restaurants and fisheries have also been targeted. Will the motor trade now be targeted? What does Mr. Daly believe would be the next useful area to examine, where funds which are being defrauded from the State could be recouped?

Mr. Frank Daly

We devoted 25% of our resources during 2006 to the construction sector and carried out 3,872 audits. The total yield from various activities in this regard was €146 million. To be fair to the construction sector, in terms of the results we achieved in that sector and the results achieved generally, the construction sector was not greatly worse than the generality. We are continuing our activity in the construction sector and to date in 2007 we have conducted a further 3,500 audits. We intend to continue this effort, with perhaps slightly less of a focus, in 2008. I suspect that at least 12% of our compliance resources will be devoted to the construction sector in 2008. There were other reasons for us to become interested in the construction sector in recent years, not least the supposed issue of bogus self-employment.

With regard to this morning's headlines I, like the Chairman, want to be very careful about what I say. Obviously, it saddens me and everybody in Revenue when a headline like this appears. I make the point that Revenue was involved in yesterday's operation with CAB and the Garda Síochána. There is no place in Revenue for anybody who in any way breaches confidence or anything like that. I will not make any comment beyond that because, as the Chairman said—

Deputy Thomas P. Broughan

What kind of internal security does Revenue operate? On a related matter, we have seen a spectacular example in the UK, where customs and excise were not linked as they historically have been linked here, of a loss of private data for a large section of the population, which went missing through a courier service. I ask with regard to the private information of individuals but also with a view to ensuring the organisation of more than 6,000 staff is absolutely secure. What does Revenue to do to ensure this is the case?

Mr. Frank Daly

I will come to that but I will finish on the other point first. The Deputy asked whether we would focus on the motor trade or any other sectors in 2007 or 2008. We will certainly investigate other sectors. To link this to the Deputy's earlier point on prosecutions, a couple of operations with regard to the motor trade have been ongoing for the past year or so. I expect that early next year approximately 30 cases will be considered for prosecution.

With regard to security of information—

Chairman

With regard to what Mr. Daly has just stated, given the role of solicitors and accountants in this episode and other episodes, how satisfied is Revenue with those two professions? Is there a focus on them and what checks and balances are in place?

Mr. Frank Daly

I always get into trouble when I talk about the accountancy profession at the committee.

Chairman

Mr. Daly should not worry.

Mr. Frank Daly

I have been speaking recently to accountants with regard to tax compliance, tax avoidance and aggressive avoidance behaviours. I was at pains to point out to them they are a very responsible group, the vast majority of whom support tax compliance and have been very supportive of Revenue in recent years. I pointed out that we are ratcheting up our anti-avoidance activity and that we would challenge schemes put together by accountants and, indeed, solicitors or anybody else. We have a number of active cases under challenge at present.

Since I made my very positive remarks, I was very disappointed to hear of one scheme that is being actively marketed around the country by one of the leading accountancy firms. It contains many of the characteristics of what I call unacceptable behaviour. The accountancy firm has devised the terms and, without any request from the taxpayer, has touted the scheme around the country. It is being offered, as I understand it, on a no foal, no fee basis by the firm. The scheme is as follows. The accountancy firm has suggested to motor dealers that they should lodge claims with Revenue for the repayment of VRT on sports utility vehicles, SUVs, because of what the accountants suggest is an ambiguity in the definition in 15-year old legislation, the Finance Act 1992, of those vehicles. The accountants suggest that because of this ambiguity, no VRT should have been paid on these vehicles and they are now encouraging motor dealers throughout the country to reclaim that VRT from Revenue.

This scheme has been peddled to dealers throughout the country in the past number of weeks. It is clear it is a try-on. The reality is that these vehicles would not have been entitled to be on the public road in the first place if they had not been registered. The VRT was built into the price and it was paid by the people who bought the vehicles. To be fair to motor dealers, there are quite a few who, despite encouragement, have not signed up for this scheme. Also, to be fair to SIMI, the Society of the Irish Motor Industry, it has refused to get involved.

This is the type of behaviour by an accountancy firm that makes me wonder how I can be positive about that profession. However, I can generally be positive about it because accountants are highly responsible and supportive of tax compliance. This is an unfortunate recent aberration. I hope it is not an indication of other issues.

Deputy Thomas P. Broughan

Accountants, lawyers and people who effectively practice both professions are central to this issue. Is the core point not that there is a plethora of tax breaks to which the Finance Act refers year after year, and on which this committee reported in 2002? I know the Comptroller and Auditor General had concerns in this regard. We have had reports to the Department of Finance from Goodbody, Indecon and other consultants but is it not the reality that there are at least €5 billion to €10 billion in tax breaks in the economy? Ordinary business people may not be sure whether a scheme, such as the clearly illegal one outlined by Mr. Daly, is kosher because we are surrounded by a culture of tax breaks.

Moreover, this makes Mr. Daly's job very difficult.

Mr. Frank Daly

To be clear, what I have just described is not a tax break or anything like that.

Deputy Thomas P. Broughan

I understand that.

Mr. Frank Daly

It is a "try on" and I assure the Deputy that we will fight it every step of the way.

Deputy Thomas P. Broughan

However, there are people who advertise schemes that are completely legitimate under the Finance Acts. They are a tax break for some reason. The three reports produced by the Department of Finance are packed full of all kinds of legitimate tax avoidance mechanisms. Is it not hard to know what is kosher and what is not, given the existence of a huge number of legitimate tax avoidance schemes?

Mr. Frank Daly

I am not at all sure that it is difficult to distinguish what is kosher from what is not. Many incentives have been on the books legally for several years and most of them have delivered very good development. Most of them now are being wound down. Such incentives were quite legitimate, people were fully entitled to avail of them and accountants and others were fully entitled to advise people to avail of them. That is not what I am talking about.

Deputy Thomas P. Broughan

Revenue could not tell the Department of Finance how much tax would be foregone. It did not know. That is my final point.

Chairman

The Deputy has gone over his time by ten minutes. I have been lenient and the Deputy should allow Mr. Daly finish his point.

Mr. Frank Daly

The amount of tax that tax incentives have cost has been available from 2004 to 2005. An increasing amount of detail is becoming available as we ask people to provide that information in their tax returns. Most of the schemes now have been wound down or are coming to their end date. However, most of them also delivered very good infrastructure and development and it was quite legitimate for people to avail of them. The aforementioned VRT scheme, which has the potential to deprive the Exchequer of approximately €200 million, is a try on. It is particularly repugnant to me because those who are making the claims are not the people who bore the tax. Its intention is to get a windfall benefit for a very small group of motor dealers and an accountancy firm at the general expense of the Exchequer and every other taxpayer. This is completely different to people availing of genuine tax incentives.

Chairman

Did Mr. Daly mention the sum of €200 million?

Mr. Frank Daly

At present, claims have reached €170 million. I suspect that by the time the rest of the claims come in, it will be €200 million. I also am highly confident that no one will get a penny out of this. However, what I am talking about is the type of behaviour in which someone regards the tax system here as fair game. Certainly, Revenue will not lie down in this regard.

Chairman

I wish Revenue well.

Deputy Ciarán Cuffe

I assume the Chairman's generosity in the allocation of time will continue.

Chairman

It was purely practical because the Deputy was absent for his slot.

Deputy Ciarán Cuffe

On that note, the Government survived.

Chairman

I was tempted to take the slot but I restrained myself as Deputy Broughan was doing so well.

Deputy Ciarán Cuffe

I apologise in advance to the Chairman. I am new to the committee and if I stray from the protocols and procedures, I am sure he will put me back on track.

Chairman

I also am new but I will make sure of that.

Deputy Ciarán Cuffe

Thank you. With respect, you have more experience in the House than me and I apologise to the Revenue Commissioners if my line-----

Mr. Frank Daly

I want to ensure that I do not become involved in bringing down the Government this morning.

Deputy Ciarán Cuffe

There is agreement on two sides of the committee room in that regard, although I am unsure whether the other two sides would agree.

I note the Comptroller and Auditor General has issued an unqualified audit certificate indicating that there are no outstanding issues to be resolved and members should be pleased about that. The perception exists that Revenue runs a relatively tight ship, notwithstanding some headlines in recent days, and I compliment Mr. Daly in this regard.

I understand Mr. Daly is present to discuss the 2006 accounts. However, I note the recent resignation in the United Kingdom of the chairman of Her Majesty's Revenue and Customs arising from the loss of a massive amount of personal data that was contained on two compact discs. If it is in order, how does the Office of the Revenue Commissioners convey sensitive data between Revenue offices, both electronically and in hard copy? What suppliers does Revenue use and does this appear in the appropriation accounts? I am concerned about this issue. I noticed that Mr. Daly's opening remarks referred to the location of 50% of his staff outside Dublin and I assume a massive amount of data must be conveyed between different locations. I also note the increase in on-line filing. Can Mr. Daly comment on the procedures in place to ensure Ireland does not endure the appalling event that occurred in the United Kingdom, in which the personal details of 25 million people were lost in transit?

Mr. Frank Daly

The incident in the UK was extremely unfortunate and I know Mr. Paul Gray, the chairman who resigned, very well. Security in Revenue is much tighter. Obviously, we continually review this issue and Revenue has a risk management committee, which, as part of its responsibility, continuously reviews security. We do not engage in the type of exchange of information that seems to have been a feature in the United Kingdom. We certainly would not send out material from Revenue on discs in such an unprotected fashion. Certainly, encryption is an absolute minimum in everything we do in that area.

In so far as we have exchanges with other parties such as other Departments, banks or the like, we use a series of products. I do not have to hand the name of the products and in any event, it may not be appropriate for me to mention them even if I did. We have what is called a connect direct software package, one that is favoured in the financial community, for exchanging data between organisations. My understanding is that it is one of the most secure available. We use it quite extensively to exchange data with all the financial organisations in respect of electronic funds transfer, tax relief at source and SSIA returns. We also use file transfer from a secure website and again I am told that this is among the most advanced types of security. It contains many authentication checks including PINs, password secure ID, key fobs and so on. The Revenue on-line service, ROS, is probably one of the most secure websites that one will find. We spend a great deal of money and resources, including the employment of professional hackers from time to time, to try to break that website. They have not succeeded yet because security on that website is fundamental to confidence in our entire on-line approach. I am very confident about our security. I would never be blasé about it and I review it continuously. Since the incident in the United Kingdom, we again have set up a review of the entire data security issue. I am pretty confident in coming before the committee.

Deputy Ciarán Cuffe

Is Mr. Daly confident there have not been significant breaches of security in recent times?

Mr. Frank Daly

There certainly have been no breaches in Revenue of the type that have occurred in the United Kingdom.

Deputy Ciarán Cuffe

I am pleased to hear it.

On another issue, I note recent concerns in the media regarding Operation Tie of the Criminal Assets Bureau in respect of one of Revenue's employees.

Chairman

I remind the Deputy to be careful in this regard in view of possible prosecution.

Deputy Ciarán Cuffe

Is Mr. Daly satisfied with the internal procedures in place surrounding the collection of VRT? Is Revenue currently engaged in changes in that area?

Mr. Frank Daly

This matter emerged while the Deputy was in the Chamber and I am reluctant to comment on it. I stated that obviously, I and everyone in Revenue were greatly saddened by the headline that appeared in the newspaper this morning. We must await the outcome. I also pointed out that as Revenue were part of that operation yesterday, there is no tolerance in Revenue of any activity like that. We always review our procedures. I would be pretty satisfied about the procedures in our VRT offices. It is difficult to talk about it without possibly straying into an area where I should not go after yesterday but I can assure the Deputy that wherever there is a need for review or change, we would do that.

Deputy Ciarán Cuffe

I appreciate that. I had privilege speaking in the Dáil. I might move on to a more detailed analysis of the Vote.

Under No. 11, miscellaneous items, I see a payment of €551,000 re staff compensation for loss of earnings as a result of reorganisation. I understand that this was an increase of more than €400,000 based on the previous year's figure. Could Mr. Daly provide an explanation or breakdown regarding what this staff compensation was?

Mr. Frank Daly

The bulk of it related to people who had been on mobile patrols on our customs service and who, as a result of a reorganisation of that operation, were deployed to static duties. It is two or three years since we totally reorganised the mobile service in Revenue. As a consequence of that and a selection process to ensure that we had the right people on these mobile patrols, some people, for their own reasons, did not want to continue in the new operation. They had been in receipt of various allowances over a long number of years. This may not have gone to arbitration but would certainly have been dealt with within the normal industrial relations machinery. At the end of the day, this was recommended as a payment to them. It would be rather exceptional.

Deputy Ciarán Cuffe

Does Mr. Daly have a figure for the number of staff members who benefited from it?

Mr. Frank Daly

The number is 38.

Deputy Ciarán Cuffe

Moving on to table 10 and taxes written off by Revenue, could we focus on the issue of cases deemed uneconomic to pursue? Will Mr. Daly talk through the criteria that determine whether a case is uneconomic to pursue? I note from the figures that there has been a substantial reduction in the number of cases deemed uneconomic to pursue from nearly 61,000 in 2005 to 4,644 in 2006, which is quite a drop. From figures from previous years, I also understand that these figures have shown some degree of fluctuation from year to year. Could Mr. Daly explain this?

Mr. Frank Daly:

We have nine categories under which we write off tax. They include everything from liquidation, receivership and bankruptcy to compassionate grounds, unfounded liability and the fact that the taxpayer has left the jurisdiction and cannot be traced. The uneconomic to pursue category is one of those. Is Deputy Cuffe asking me about this?

Deputy Ciarán Cuffe

Yes.

Mr. Frank Daly

This is where the potential cost to Revenue in terms of time, money and resources is set against the chances of success and where the amount that might be collected makes it simply uneconomic to go with that. As the Deputy indicated, the number of cases in 2006 was 4,644 and the amount written off was €8.8 million. This has been progressively decreasing from a high number of 152,000 cases in 2002 to 38,500 cases in 2003, 19,500 cases in 2004 and 61,000 cases in 2005. By way of explanation, I should say that every so often, we do what is called an automated write-off where there are many small amounts in our system, typically well under €1,000. Rather than pursue each one individually, which would be an enormous waste of resources, we use a computer programme to write them off. It is pretty rigorously enforced and policed by both our internal audit people and the Comptroller and Auditor General. That would have explained some of the surge in 2005 and much of the surge in 2002.

The general points to be made about write-off at the moment are that liquidation, receivership and bankruptcy, where people just go out of business and where there are no assets whatsoever, would account for approximately 76% of the value of all write-offs. The other categories, such as uneconomic to pursue, are progressively becoming less important over the years.

Chairman

Will Deputy Cuffe allow me to ask a supplementary question?

Deputy Ciarán Cuffe

Of course.

Chairman

Looking at the headings for PAYE and PRSI in the table dealing with taxes written off, one sees a figure of €21.623 million in PAYE and €23.779 million in PRSI. What I do not understand is how that could be allowed to happen. If an employer takes PAYE and PRSI from me, he or she has to pay that to Revenue by the 14th day of the following month. Therefore, how could Revenue allow that accumulation of bad debts to happen? How did it allow employers to pocket the money and allow it to run on indefinitely? Basically, I would call this fraud by employers. Why were there no prosecutions in those cases?

The implications for the people who have paid it are serious. If they get ill or become unemployed, they go to their social welfare officer and are told that their employer has not paid their PAYE or PRSI and that they will not get benefits. They then rely on the charity of the community welfare officer who may or may not give them funding for themselves and their families. It is serious for the individual. It is not being pursued vigorously enough.

Mr. Frank Daly

We try to ensure that those debts do not accumulate. The same comment would apply to VAT, which is also a fiduciary tax collected by a company or individual on behalf of the State. Again, these PAYE and PRSI write-offs would occur in the insolvency category, by and large. It is basically companies—

Chairman

I know that but why were they allowed accumulate to that level before insolvency took place?

Mr. Frank Daly

Sometimes they would accumulate because people on a direct debit payment may not be paying us enough during the year and suddenly go out of business before we catch up to them. Our pursuit of debt over the past number of years has increased enormously in terms of its effectiveness. I hope that figure continually decreases. I agree with the Chairman that—

Chairman

It has increased over the years. In 2003, the figure for PAYE was €17.5 million, while in 2006, the figure increased to €21.6 million. In the case of PRSI, it has gone from €16 million to €23 million over the three years. Rather than improving, the situation has disimproved.

Mr. Frank Daly

In terms of write-off, I am not sure if we are looking at the same figures.

Chairman

I am referring to chapter 3.2 and the headings dealing with PAYE and PRSI in the table at the bottom of the page dealing with taxes written off. Mr. Daly may not have the figure I have. I have a figure of €17.5 million written off for 2003, while for 2006, the figure is €21.6 million. In respect of PRSI, €16.6 million is written off for 2003, while for 2006, it is €23.7 million. The situation has deteriorated.

Mr. Frank Daly

I agree with the Chairman in terms of the comparison with 2003. However, if he moves on to later years and compares 2005 and 2006, he can see that the figures have actually decreased. That goes back to the point I made about more vigorous pursuit and earlier intervention in the case of companies and individuals to ensure the debt does not build up.

This is down to good debt management by Revenue. It involves early intervention and getting in there before the debt accumulates. While I agree with the Chairman that it is unfortunate that amounts like this should have to be written off, it is an area where we have been improving considerably over a number of years. The figures I gave for debt management or outstanding taxes would indicate that we are doing well. It is unfortunate that there are arrears of €1.1 billion in the system, but we have reduced it significantly over the years. We hope to reduce debt to less than €1 billion by 31 March next year. Our main focus is on ensuring new debt does not accumulate, which addresses the Chairman's point about PRSI directly.

Chairman

I was not unfair in focusing on PRSI. It affects an individual who is at the mercy of the system when an employer defaults.

Mr. Frank Daly

It does, but in fairness to my colleagues in the Department of Social and Family Affairs with whom we consult on this matter sometimes, if the default has been totally on the part of someone else and no fault resides with the individual whose PRSI has been genuinely deducted, the Department of Social and Family Affairs is quite—

Chairman

It takes time for the system to be on the individual's side.

Mr. Frank Daly

I agree. It would be better were that not the case.

Chairman

I apologise to Deputy Cuffe. He will be given injury time.

Deputy Ciarán Cuffe

I am watching the clock. More PAYE than income tax seems to have been written off in 2006, which is curious given that PAYE is withdrawn at source. Mr. Daly's answer referred to this.

Mr. Frank Daly

Concerning PAYE and PRSI, part of the problem is that, while we may receive payments on a monthly basis, we do not get returns until the end of the year. Sometimes, a company might get itself into trouble during the year and stop paying us enough. We are trying to get a handle on this issue, but it is sometimes the reason the figure accumulates.

It is important to say that, of the €1.1 billion in arrears, €315 million is under appeal, as the Comptroller and Auditor General pointed out in his opening statement, and may not be real debt. Of the €792 million available for collection, €163 million is under control, namely, it is the subject of instalment arrangements or will eventually be paid. Some €227 million is at enforcement, namely, with sheriffs or solicitors. Some €402 million is out for collection and is being handled by our staff. We expect 97% of the €792 million to be collected in one form or another during the coming years.

Concerning current debt, a problem arises with PAYE or PRSI. In 2006, for example, only €270 million of the total charges in the tax system remained uncollected by 31 March 2007. In other words, we collected 99.2% of the charges for that year. We are on top of collecting current debt and it is not building up.

Deputy Ciarán Cuffe

Moving to table 12, the outstanding taxes in PRSI and the age analysis of debt, some €8 million is down as abolished taxes of debt greater than five years. Is this residential property tax? What is the nature of the abolished tax and what steps are being taken to reclaim it, given that it has been hanging around for at least five years?

Mr. Frank Daly

I suspect that much of it is residential property tax, but probate taxes are also involved. I do not have the details, but my colleague informs me that it is residential property tax, old estate duty, employment levies and probate taxes. While it is old and I would be less sanguine about the chances of collecting it, we have not yet reached the stage of being unable to collect it and of writing it off.

Deputy Ciarán Cuffe

On the issue of prosecutions in chapter 3.5, which Deputy Broughan raised as I entered, no one goes to jail for tax crimes most years. This seems to send out a curious message. While a significant number of people are imprisoned for not paying small sums for television licences, inferior court summonses, etc., no custodial sentences were imposed through the Revenue Commissioners' dealings in 2004, only two custodial sentences in 2005 and none in 2006. I worry about the message this sends, namely, that white collar crime pays. A considerable number of individuals do not go to jail for significant tax evasions.

Chairman

I do not want to interrupt the Deputy, but we dealt with this matter while he was voting. I am trying to be helpful.

Deputy Ciarán Cuffe

I want to put on record my concerns. If the committee dealt with the matter previously, so be it. May I move on?

Chairman

It will be the Deputy's last question.

Deputy Ciarán Cuffe

It is on chapter 3.4, the Revenue audit programme. The introduction of the new risk evaluation analysis and profiling, REAP, computer system in all districts in 2006 seemed to be the dawn of a new era, but the facility to record a case selected for audit using REAP only became available in 2007. On the face of it, REAP is an extraordinary system, but there may have been a time lag in its implementation and use to good effect. Will Mr. Daly clarify?

Mr. Frank Daly

It is an extraordinarily effective and dynamic system that is constantly evolving and being improved upon on the basis of feedback from our auditors. It has only been in full use since mid-2006. As the capacity to extract information from it on the basis of outcomes has only existed since the beginning of this year, we have no hard facts about its effectiveness. However, our evidence is more than anecdotal because it is based on discussions with auditors and feedback to the REAP team. Early evidence in cases that come to the top shows that the number of yielding audits and the yield per audit are increasing.

The system will be the main basis on which we identify risky cases. Everything my colleagues and I have seen indicates that REAP will be highly successful. It assesses cases on the basis of the pattern of taxpayers' behaviour with Revenue and the assessment of the data in tax returns and the accounts we receive. The building in of third party information - suspicious transaction reports, rent subsidy data and so on - will make it more sophisticated. It is a powerful system with the capacity to scan every case in our database in a matter of hours. As every self-assessment case is scanned by REAP at least once per year and sometimes more often, the situation in which some cases were not examined somewhere in Revenue will no longer obtain. I am confident that, next year, we will be able to report hard and good facts on the basis of the REAP selection process.

Deputy Ciarán Cuffe

I am pleased to see joined-up thinking in the Department. In 2006 the Department concentrated on the construction sector. Will Mr. Daly comment on the direction his office is taking in 2008?

Mr. Frank Daly

We will continue work on the construction sector in 2008. A minimum of 12% of compliance activity will focus on this. Other areas for 2008 include risk evaluation analysis and profiling, REAP. We will not hit a particular sector to the degree we did in the past but we will examine the cash business in the building trade, the takeaway and restaurant business, leisure boat owners, the entertainment industry, the clothing industry, auctioneers, doctors, market traders, waste management companies and health and fitness centres. It is a mixed bag.

Deputy Ciarán Cuffe

The characters in "The Sopranos" should be concerned.

Chairman

Before I ask Deputy Clune to contribute, the Revenue Commissioners expect a yield of €2 million in 2007 from the offshore investment investigations into NIB. The Revenue Commissioners have some 250,000 documents relating to the Ansbacher investigation received under High Court orders. The High Court judgment of Mr. Justice William McKechnie, as reported in The Sunday Business Post of 25 November, calls into question the right of the Revenue Commissioners to access personal banking data in overseas subsidiaries of Irish banks. Mr. Justice William McKechnie believes it is downright disrespectful to a foreign jurisdiction to seek documents from banks if they have subsidiaries abroad, even if they have headquarters here. How serious is that judgment in the Revenue Commissioners’ pursuit of Ansbacher account holders and the investigation?

Mr. Frank Daly

The judgment refers to offshore inquiries and is not directly related to the Ansbacher. We do not regard it as serious. It refers to one bank, NIB, whose set-up in the Isle of Man was quite different from those of other banks. We do not regard it as having any effect beyond, possibly, NIB. I use the word "possibly" because we have appealed the decision to the Supreme Court and there is no outcome as yet. I do not regard it as having any wider effect.

Regarding offshore investigations, we have received practically all the information we require from other banks. It is not an issue and does not affect the Ansbacher investigation. We now have 300,000 documents for the Ansbacher, we received an additional 50,000 since we last briefed the chairman. Some 260 of the 289 cases have been dealt with. In 13 of the remaining 29 the account holders have made payments on account and tax assessments have been entered in 15 cases. In many cases we are in negotiation. Members have seen a number of names on the recent defaulters list arising from the investigation. We will pursue it as long as we must, as I have stated before. There is a further €50 million to emerge, a material sum that we must follow through.

Chairman

Are prosecutions under way?

Mr. Frank Daly

Ansbacher is an area in which it will be difficult to sustain prosecutions. It is a very old scheme at this stage. It is not back in the mists of time but it is a long time ago. We are still pursuing the money, interest and penalties.

Chairman

The only reason I am unhappy is that if I were found to have broken the law 20 years ago I would be liable to prosecution today and I would face the wrath of the law.

Mr. Frank Daly

That would depend on the offence. There are time limits on indictable offences. Evidence is a major problem and in the Ansbacher investigation some of the main players involved in designing the scheme are no longer with us.

Chairman

Is it the law or the attitude to implementation of the law by the Judiciary that is the problem?

Mr. Frank Daly

I think the Chairman would have to go a few steps before reaching the Judiciary. There is nothing wrong with the attitude of the Revenue Commissioners to taking prosecutions. We cannot flood the court with prosecutions because that would tie us up in knots for years and would not achieve results. Our objective is focussed on prosecutions and exemplary cases. I do not think there is anything wrong with the legal system in this case and if I go beyond this I am being brought into the area of courts.

Chairman

What worries me is that I see a famous jockey, who I will not name, being jailed in the UK for tax offences. We rarely see that here.

Deputy Deirdre Clune

I thank Mr. Daly and I apologise if I refer to material that has been covered. Chapter 3.4 refers to an audit programme. In 2006 the Revenue Commissioners concentrated on the construction sector. The figures seem high, with 1,615 site visits and 1,188 individuals not registered with the Revenue Commissioners, a 75% hit rate. Will Mr. Daly comment on the industry? Was there much non-compliance in this industry that has blown up in the past few years and settled down more recently? Was it targeted in 2007? We all hear stories but why did the Revenue Commissioners pick it? Much time and effort has gone into the investigation.

Mr. Frank Daly

We always had a focus on the sector because of its size, its importance to Ireland and its importance to the tax take. We did not view the sector as less compliant than others but characteristics of it make it easy for people to default deliberately or by negligence. The mobility of many of the people who work in the sector is a factor. The focus on the sector in 2006 was due to the output value of the sector, €36.5 billion. This had increased by 10% in one year. It accounts for more than 24% of GNP in this country. Employment in the construction sector had gone from 166,000 in 2000 to 288,000 in the space of six years. One in eight people is employed in the sector. The volume of business and its importance in the Irish business sector led to our focus on it. We put 25% of our audit and compliance resources into it in 2006 and approximately the same in 2007. As I mentioned earlier, we will probably put approximately 12% of our compliance resources into it in 2008. This will give the committee an indication that in so far as non-compliance exists we feel we are getting on top of it.

The total output for 2006 was 49,000 interventions and of those, 3,800 were audits. We obtained a €46 million yield from this sector. We had roughly the same number of interventions in 2007 and we obtained a yield of €151 million. As has been stated, we found 1,188 unregistered cases in 2006 and we found 799 to date in 2007. We carried out 1,615 site visits in 2006 and 1,066 in 2007.

We were also interested in the construction sector for non-revenue reasons. Committee members may recall the debate about the classification of people and whether they were self-employed or employees. We did not find this issue to be on the scale which was indicated. In 2006, we reclassified 447 people from sub-contractor status to PAYE employee status and only 244 in 2007. By and large, we are sure we have a handle on it.

This year, we interviewed 7,081 persons during the site visits. Despite the number of visits and the thousands interviewed, the end result is that the total number of bogus self-employed was 691, which is not indicative of a major problem, and 1,088 people were not on the register. Given that the number employed in the area is 280,000 and given the make up of the workforce, this concerns us but it is not a disaster. All of these people are now in the net and correctly classified. It was necessary to focus on this issue, we obtained a result and we will continue to focus on it.

Deputy Deirdre Clune

With regard to revenue forecasts, we hear about and have evidence of a slowdown in the construction industry. The Construction Industry Federation estimates a 30,000 reduction in the number of houses built next year and this will have consequences such as job losses. Does Mr. Daly consider this will have an effect on returns next year?

Mr. Frank Daly

I hope it will not slow down to this extent and other figures suggest it will not do so. Quite a lot of revenue is connected to the construction sector such as stamp duty, VAT and capital gains tax along with PAYE and income tax from people employed in the sector. A slowdown such as that described by Deputy Clune would affect tax revenues. This is taken into account in the forecast for 2008.

Deputy John Curran

I welcome Mr. Daly. I have a number of questions and as I had to leave the committee room earlier, if Mr. Daly indicates some of them were asked already I will pass over them quickly.

The committee has examined the issue of random audits on numerous occasions and I would like to know how it is progressing. It is now called the taxpayer compliance testing programme. Without delaying too long on the matter, the trend seems to be that approximately 30% of purely random audits show a liability. Is the quantity of random audits sufficient? What policies and strategies do the Revenue Commissioners have to reduce the number of people who have a liability?

This has to do with self-assessment and compliance and it may be a broadly-based figure. However, if these are truly random audits the result is that 30% of self-assessments are not compliant. This is a large number. I do not want to go into this in detail but the number must be reduced.

Mr. Frank Daly

The Deputy asked about the sample size and it has been consistent at 400 for a number of years. This is what we are advised is a sample size which is statistically useful. If it is distributed properly and the samples are taken without stratification - which was a problem in earlier years - this is----

Deputy John Curran

It is purely random.

Mr. Frank Daly

Yes, it is purely random. It is a sample size we can stand over in terms of extrapolation for the future.

The figures are improving. I am discussing extremely preliminary 2007 figures and I do not want anybody to read too much into them because by definition the cases completed at this stage might be the easier ones with no or little yield. The non-yielding figures have improved progressively from 2005 to 2007. We could state that 83% of cases yielded either nil or less than €2,000 in recent years. I would never state an amount is insignificant. However, this is not a large amount.

Deputy John Curran

Based on the sampling done, have the Revenue Commissioners quantified what they expect to be the total amount of liability?

Mr. Frank Daly

We have not done this and we have had this discussion in recent years. We need a trend for a few more years before we can safely use this as an analysis to identify a tax gap.

Deputy John Curran

The relevance of the figure is that if it is identified as an issue it can be allocated resources.

Mr. Frank Daly

One cannot really talk about this without going back to the discussion with Deputy Cuffe about REAP and targeting audits. The end game is to identify risky cases and ensure they are audited. At the same time, the random audit programme should be used to ensure everybody runs the risk of being audited and not only those who come to the top in the risk analysis system. The risk analysis approach should be validated and ultimately we should come up with a figure for what might be missing and the gap on which to focus. We probably need another year or two to reach this stage.

Deputy John Curran

We will keep an interested eye on it.

Mr. Frank Daly

What I am absolutely clear on is that the yield we obtain from the targeted audit is far more significant than that obtained from a random audit. In 2006, the average yield from all random audits was €3,090 whereas the average yield from targeted audits was approximately €48,629. We incur a large opportunity cost in conducting a large number of random audits but this is not to invalidate the reasons for continuing with this programme and we are committed to doing so.

Deputy John Curran

The first part of the special investigation into life assurance products was voluntary disclosure and we know the Revenue Commissioners received more than €400 million from more than 5,000 taxpayers. In March and September of this year, letters were issued to other people on foot of prior court hearings. What progress is being made in the second part of this investigation which deals with those who did not comply with the voluntary disclosure?

Mr. Frank Daly

Phase 1 comprised the 5,150 people who availed of the voluntary disclosure scheme and paid a total of €382 million. We subsequently received details of approximately 80,000 policies from the insurance companies as a consequence of High Court orders. We analysed these policies and took the view that most probably did not present serious risks of tax evasion. We had stated from the outset of this investigation that a lot of people genuinely held these single premium policies, as opposed to our pursuit of off-shore and bogus accounts which were probably opened for only one reason. We issued 5,500 challenge letters in March and a further 4,000 last month. As of the end of last month, an additional €60 million has come in as a result of uplifts in the earlier submissions. We are awaiting the responses to the latest letters but the response to the March letters indicated that most cases do not involve serious evasion, so we are following through on a relatively small number.

Deputy John Curran

It is coming to its own conclusion.

Mr. Frank Daly

It is coming to its own conclusion but we have been at pains in this investigation to ensure we do not intrude on the vast majority of people who genuinely held these policies in respect of after-tax income. It is not easy to find the line and, unfortunately, people will receive letters from us. However, we are inviting them to tell us whether the policy comes out of after-tax income. Next year should see the investigation reach its own conclusion.

Deputy John Curran

Mr. Daly referred to risky cases. I appreciate he cannot comment on the specifics of cases but I ask him to address the issue in general. Yesterday, CAB was involved in an investigation on the motor industry.

Chairman

I cautioned a previous member on this and ask Deputy Curran to be careful.

Deputy John Curran

I will be very careful. My inquiry relates specifically to VRT. It has been suggested to me on the basis of anecdotal evidence from the insurance industry, separate to yesterday's operation, that Japanese cars were imported with higher engine capacities than were set out in their registration documents. This practice was discovered as a result of accidents. In light of yesterday's operation and the comments made by people in the industry, issues seem to arise in regard to how VRT is policed by Revenue. It may be too soon to ask whether plans have been considered but questions certainly can be asked about the verification process for VRT on imports.

Mr. Frank Daly

Revenue was also involved in yesterday's operation and has been focussing on the VRT area for some time. I expect 30 cases will be considered for prosecution from another operation we ran over the past year. We are very active in the area. From time to time, the question arises of whether the engine power or additional features of a vehicle on the road matches its description as registered. The Society of the Irish Motor Industry has approached us on that issue. I always hesitate to say something is overstated but it is not as easy to get away with that as has been implied. I acknowledge we have a risk-based inspection system.

Deputy John Curran

Not every car is inspected.

Mr. Frank Daly

We do not examine every car but we take a risk-based approach. We always evaluate whether our approaches are adequate in light of emerging developments.

Chairman

How will Revenue adjudicate on cars in the context of the budget proposals on CO2 emissions?

Mr. Frank Daly

Every car on the road has a certificate of conformity and other documentation. That documentation will now deal with emissions standards.

Chairman

I understand that some of the models on sale in this country have been fitted with filters in the UK to reduce their emissions. How will Revenue decide whether cars have filters?

Mr. Frank Daly

The measure does not come into effect until July and work remains to be done with the industry but my understanding is that we will proceed on the basis of the official certificate that accompanies the car. That certificate ultimately comes from the manufacturer and is policed at EU level. I do not see us getting into the area of fitting a filter after the event in order to reduce emissions because it would be an administrative nightmare if one could be pushed into a lower category of VRT by registering a car on the basis of a certificate and then doing something to reduce its emissions. I find it difficult to see how we could manage that, although a lot of negotiations remain to be conducted with the industry before July.

Deputy Róisín Shortall

I wish to return to the issue of the small number of tax evaders who serve custodial sentences. The Chairman referred to this issue and many of us have said that, if we had a few Lester Piggott type cases, we could make a huge difference to our culture of tax evasion. I take it Mr. Daly would welcome an increase in the use of custodial sentences as a deterrent to others who may be inclined to evade their taxes. He said Revenue has no control over what happens in the courts but I would like him to give us the benefit of his experience in this area. Does he believe the legislation currently available to Revenue is not sufficiently robust to secure a greater number of custodial sentences or that the Judiciary is operating to different criteria? Is there a need for better educating the Judiciary on the importance of this matter? Will he offer his opinion on the changes that could be made to introduce a regime that is tougher on tax evaders?

Mr. Frank Daly

The Deputy is taking me into a tricky area with regard to the Judiciary. In respect of what can be done to improve the situation, we are currently focussing on prosecutions to a much greater degree than heretofore. We will continue to push cases through the courts and that is the most basic approach we can take.

I do not think anything is wrong with the legislation. Any law enforcer would ask that it be made easier to achieve convictions by reducing the evidential burden. However, that has to be balanced with the rights of the individual. In terms of the balance between the rights of the individual and our capacity to prosecute, the law is robust and contains serious penalties, from monetary fines to jail sentences and community service. I cannot address the question of whether the Judiciary is operating to different criteria. We take the cases to court and the judicial system decides on the sentence. We have an almost 100% conviction rate, but beyond that it is out of our hands.

Deputy Róisín Shortall

I appreciate that but we have a different regime here than in the UK and a number of European countries. The Revenue Commission takes the cases but a minuscule number of people serve prison sentences. What is wrong? I am not pointing the finger at the Revenue, I am asking Mr. Daly's opinion. What is the difficulty? Why do we not secure convictions that result in custodial sentences?

Mr. Frank Daly

If the Deputy is asking me a general question then I cannot answer it because it is not my area of responsibility. It would be wrong of me to comment.

Deputy Róisín Shortall

I am asking Mr. Daly for his view.

Mr. Frank Daly

Before this committee or anywhere else I cannot give a view that is critical of the Judiciary. That is not my job. We take the cases to court and we get the convictions. The Judiciary then takes a view of each case. Maybe it is influenced by the high level of civil penalties payable in tax cases. Maybe it regards those as the equivalent of a criminal sentence. Under legislation the Judiciary has mitigation powers, which it uses. I cannot comment further.

Deputy Róisín Shortall

Given Mr. Daly's wide experience and knowledge of what happens in other jurisdictions I thought he would have a view on this. Is it appropriate to ask Mr. Purcell for a view on this issue, or might he give that later?

Chairman

I shall ask Mr. Purcell to speak when Mr. Daly has finished.

Deputy Róisín Shortall

I shall move on to write-offs. Last year the largest single write-off was €2.3 million for a construction company that went into liquidation. That is an enormous figure. There is a perception that there is a difficulty in the construction industry and that many fly-by-night companies are going into liquidation and reappearing under a different guise some time later. I want to ask Mr. Daly about that decision to write off €2.3 million. Does that mean there are no tax implications for the principals of that company? If the principals keep a low profile for a time and then one or more of them establish a new company, does the Revenue disregard the €2.3 million they owed in the past? What are the implications?

Mr. Frank Daly

The liability was with the company. As it was a limited company, there was limited liability for the people running the company. When we write off tax debts or have a problem with any company or individual, we have a rigorous process of tracking those people and their businesses and activities to ensure they do not repeat the problem. Our phoenix programme monitors the re-emergence of an entity that was in trouble and the commonality programme looks across all companies and individuals to see if an individual involved in a company operates elsewhere in the system so we can monitor him or her from the beginning. This company went into liquidation after action was taken by the Revenue. The liquidation activity is not finished and action may be taken under the Companies Acts, which have a provision to make directors of a company personally liable for the debts of a company, which could include tax. As this is still in process I do not want to go into it in more detail. We may write off tax but we always retain the ability to write it back on again and to pursue it if we become aware that there is the possibility of doing so. This is not often appreciated. This was an unusual case. We are improving and would not normally be exposed to the loss of that amount of money.

Deputy Róisín Shortall

What are the PRSI implications for employees of those companies?

Mr. Frank Daly

The Department of Social and Family Affairs acts in a practical and sympathetic manner in such cases, where the PRSI has been paid by the employee but has not been handed over by the company. We give them any assistance or information we can in such cases.

Deputy Róisín Shortall

The Comptroller and Auditor General said the taxpayer compliance testing programme showed there was tax due in 30% of cases. How does that figure compare with international best practice and can we take this as a measure of the Revenue's performance? Is it fair to say it is a measure of the effectiveness of the Revenue at ensuring people are paying their share of tax?

Mr. Frank Daly

On the latter point, over time we are trying to reach a situation where we will be able to say with confidence that it is a measure of what has not been collected of the tax gap. We are doing this through the random programme, which has been truly random only over the past two years. In his remarks in the report the Comptroller and Auditor General said we need a few more years to reach that stage. I pointed out earlier that we can all look at figures. Some 70% of these cases are non-yielding. Some 83% either yield nothing or less than €2,000. We must examine the scale of this. One or two outlier cases are coming and there are bigger cases. One of the encouraging aspects of our risk-based approach and the REAP system we talked about earlier is that we are confident those cases would have come up as risky cases in that, so we would have picked them up anyway. I would like to run this for another couple of years before we draw any firm conclusions. I am heartened by the fact that as we move from 2005 to 2006 and 2007, the rate of non-yielding audits increases, but let us wait until the end of the 2007 programme before we definitively say that.

Deputy Róisín Shortall

Is there a figure available for international best practice?

Mr. Frank Daly

I am not aware of a figure for random programmes such as this, although one may exist.

Deputy Róisín Shortall

It would be interesting and Mr. Daly might try to find out if there is such a figure. I would like to ask about the automatic repayment of expenses that qualify for tax relief which the Minister announced. There are two areas. I am talking about relief on medical expenses. Some years ago the Revenue moved to a system whereby it did spot checks on medical expenses claims. What percentage of cases does the Revenue spot check and what do those spot checks reveal? The Revenue has only recently begun automatic repayment of expenses for the drugs payment schemes that operate through the HSE. I was surprised to see that happening, especially in the case of a person who had made no tax returns for last year but was awarded a tax rebate on medical expenses. It seems like unusual practice. Why would that happen?

Mr. Frank Daly

On the simplification agenda, and as the Deputy will know, we proposed this to the Minister last year and he announced it in the budget. Since then we have delivered on three areas in particular. The age credit is being credited to people automatically on the basis of date of birth information, which we get from the Department of Social and Family Affairs. The DIRT relief for people over the age of 65 is now being automatically granted, not collected. We have made arrangements with the banks to allow people over 65 receive this deposit interest retention tax, DIRT, related payment gross, without deduction of taxes. In terms of the simplification agenda we are pleased to have delivered on these two areas. Approximately 20,000 people are benefitting from the DIRT exemption and approximately 70,000 are benefitting from age relief.

With regard to the matter referred to, on the basis of information received from the Health Service Executive, we have been able to automatically grant tax relief on drugs payments in 2006. Approximately 52,000 people have received unrequested cheques from Revenue in the past week or two.

Deputy Róisín Shortall

My question related to the payment of this in the context of a person who did not make tax returns for last year.

Mr. Frank Daly

PAYE taxpayers are not required to make tax returns and we do not encourage them to make returns unless their circumstances have changed materially. We have records on individuals containing details from their employers so the fact that they have not made returns does not necessarily mean they are not entitled to rebates.

Deputy Róisín Shortall

I appreciate that but there could be a situation wherein Revenue gives an unsolicited tax rebate to a person who owes it money in taxes.

Mr. Frank Daly

That is theoretically possible but the 52,000 automated refunds were made after checks on the Revenue accounts of the recipients. This makes it unlikely we will enter the area the Deputy mentioned. We do not encourage PAYE taxpayers to make returns, though this will probably change. There was a time when PAYE taxpayers mainly had only PAYE income and we had a strong grasp on this through their places of employment but this pattern has changed with increasing prosperity. Many PAYE taxpayers now have interest payments, dividend payments and rental income. In future we may require PAYE taxpayers to make returns, though perhaps not for every person every year; we may ask them to make returns every two or three years.

Deputy Róisín Shortall

Can the witnesses refer to the figures relating to spot checks on claims for medical expenses?

Mr. Frank Daly

I do not know the figure is but I would say around 5% or 10%. I can inform the Deputy at a later date rather than give a figure today that might be misleading.

Deputy Róisín Shortall

I would appreciate that as I just wondered if there had been any abuse of this system.

Deputy Darragh O’Brien

I thank Mr. Daly and the Revenue staff for attending today. Our job is to ask questions but I feel Revenue should be commended on the changes that have occurred in recent years. Arrears of tax are less than 2% and this compares well with international figures. More importantly, services for taxpayers, particularly at PAYE level, have improved through the introduction of the Revenue online service and such innovations have made it easier for people to deal with Revenue. I have received positive feedback relating to Revenue.

Regarding chapter 3.6 and life assurance products, I see Revenue seeks to yield around €500 million and the response to Deputy Curran since this figure was given suggests the €13 million mentioned has changed to €60 million for this year. There was €417 million in 2005 and it was stated that Revenue received a further €13 million from 126 taxpayers. Am I correct that the latter figure rose to €60 million?

Mr. Frank Daly

As of November an additional €60.7 million had been secured.

Deputy Darragh O’Brien

Has Revenue nearly hit the target of €500 million?

Mr. Frank Daly

Not really, as our total figure for single premium policies at the end of November is €442.7 million.

Deputy Darragh O’Brien

I was interested in a comment made earlier as I worked in the life insurance sector and understand that when these letters are sent to customers there is the possibility they may intrude on many people who have nothing to worry about in terms of Revenue but who will assume there is a problem on receipt of the letter. What sort of co-operation from life assurance companies and the Irish Insurance Federation was received during the course of the investigation? There were 14 life assurance companies involved; did Revenue receive the co-operation it sought?

Mr. Frank Daly

Generally the IIF co-operated very well, as did the insurance companies, though some were initially reluctant to write to policy holders, for what they felt were legitimate reasons. Co-operation was excellent in terms of the subsequent follow through and provision of material relating to High Court orders.

Deputy Darragh O’Brien

That is good to know. A level of €20,000 and over was set for the investigation, though it was suggested a year ago that Revenue will reserve the right to examine sums under that figure, perhaps from €10,000 upwards. Are there plans to continue the investigation from a lower single premium base of, say, €7,500 upwards?

Mr. Frank Daly

We have not made a final decision on that. However, as I mentioned earlier, we issued a further 4,000 letters last month and 5,000 issued in March. We will analyse the results of these to determine whether there is significant risk below the level of €20,000. This is not an area we want to enter because there are many genuine cases there. We will examine the possibility, weigh the options and make a decision in the new year.

Deputy Darragh O’Brien

With regard to the money laundering and compliance issues insurance companies and banks must deal with for investments and following the investigation into single premium policies, is Revenue satisfied with tax compliance in the sector to the extent that another review like this will not be necessary? How does Revenue interact with the Financial Regulator on regulations it sets down on disclosure and procedure for banks and the insurance industry?

Mr. Frank Daly

The Deputy's first question referred to general compliance in the sector and I am quite satisfied with that as I am not aware of any other systemic issue like the one that triggered the single premium investigation. I am also satisfied with the level of compliance with regulations on money laundering as we have received 42,800 money laundering reports from the entire financial sector. Many of these cases met the criteria and people had to report. Of those 42,800 cases 14 face prosecution, 3,200 are subject to audit, 10,877 have been closed as holding no tax risk and the rest are still being examined. Generally I am satisfied on the STR side, in terms of financial institutions and insurance companies.

We co-operate closely with the Financial Regulator and meet regularly. There is provision in the legislation for us to make information available to each other if necessary. It is a very good relationship.

Deputy Brendan Kenneally

I too welcome Mr. Daly and his staff and commend them on the tremendous job they are doing. Perhaps a lot of people do not like them, but they are certainly doing a good job.

Mr. Frank Daly

If we were popular we would get worried.

Deputy Brendan Kenneally

Mr. Daly mentioned in his presentation the extensive use made of data and information sources. Could he elaborate on that? In particular, I wonder whether this is co-ordinated with the database and information of the Department of Social and Family Affairs.

Mr. Frank Daly

I mentioned various sources of information. The information we get from third parties is as follows. From the Department of Agriculture, Fisheries and Food we get certain information about payments to the agricultural community. We also get information on rent subsidies from the Department of Social and Family Affairs and on refugee and asylum seeker accommodation payments from the Department of Justice, Equality and Law Reform. Those are the main sources of information at the moment.

Deputy Brendan Kenneally

That is fair enough. Mr. Daly mentioned the VRT scheme being peddled by a particular firm of accountants. If an accountant or tax adviser wanted to do something he thought would be financially beneficial to one of his clients, could he go to the Revenue Commissioners and ask whether it is in compliance with tax law, or does he go ahead with the action and then find out in the courts if it was not in compliance?

Mr. Frank Daly

He absolutely should go to the Revenue Commissioners and ask whether something is in compliance. We would be quite happy to give a view on that in most cases. In fact, one of the characteristics of the schemes and behaviours that we dislike is that the people involved do not come to the Revenue Commissioners but stay well away because they know we would give them the wrong answer. They effectively design schemes which are based on hiding the details from Revenue. I am not talking about the particular scheme I was referring to this morning, but generally.

Deputy Brendan Kenneally

No, I am not referring to that.

Mr. Frank Daly

One of the hallmarks of what we call aggressive tax avoidance is that the details are hidden from Revenue. The people involved stay well away from us and do not come to us looking for opinions or views.

Our message is that if one is in doubt about something or is thinking about getting involved in a scheme about which one is afraid to put all the cards on the table with the Revenue Commissioners, perhaps that scheme should be avoided. If people come to us we will give them our views. There is a scheme called protective notification whereby one can draw the attention of Revenue to something one is doing, and the fact that one has drawn our attention to it gives one protection in the future against penalties and so on. It is happening more and more that advisers are engaging with Revenue to see whether something is acceptable.

Deputy Brendan Kenneally

What is the attitude of the Revenue Commissioners towards small business people who get into tax difficulties through no fault of their own? Many small businesses depend totally on their accountants or financial advisers, who do absolutely everything for them, including PAYE returns and so on. It may be a considerable period of time before they discover that returns are not being made, and suddenly they, rather than the accountants, are liable, although they may not have the wherewithal to pay their debts. What attitude is taken towards such cases?

Mr. Frank Daly

To give the Deputy the hard answer, the liability always rests with the taxpayer, not with the accountant or adviser. The taxpayer cannot really hide behind the excuse that he allowed the adviser to deal with everything but the adviser did not do what he was supposed to do. I certainly encourage businesses, or anybody in business, to keep a close eye on what is happening with their advisers. I do not think it happens very often, but occasionally we get cases such as this. If we genuinely believe this is what has happened we will certainly be sympathetic towards the taxpayer and we will probably make an arrangement with him for the payment of the arrears over a period of time. We are as flexible as we can be. However, I am afraid that simply saying that one gave everything to one's adviser but he did not do what he was supposed to do is not acceptable. At the end of the day the responsibility is still with the taxpayer.

Deputy Thomas P. Broughan

There are a couple of related points I want to make.

Chairman

A couple of short points.

Deputy Thomas P. Broughan

Our colleagues, who did a very good job last year dealing withthe 2005 accounts, raised the issue of the discrepancy between the tax forecast and the actual amount realised. Has this been addressed? There was a 5% discrepancy last year, ranging to 10% or 11%. This relates to questions asked by Deputies Shortall, Curran and others about the total amount that is really out there. Has forecasting improved? What is being done in this area?

Mr. Frank Daly

With regard to general forecasting, 2006 was a rather exceptional year in which the actual yield was 15.3% higher than that obtained the year before. This year, as Deputies know, because of the economic situation, particularly in the last couple of months, the outcome will be a shortfall against forecast. In some ways it is quite clear what has happened. Most of this is related to the construction sector, which has been in decline since the middle of the year. Many of the Exchequer returns from November reflect the downturn in this area.

Forecasting has been talked about at this committee several times before. It is very difficult. I do not think anybody could have predicted at the beginning of this year what would happen in the middle of the year and particularly towards the end of the year. I do not think any expert, whether in the Revenue Commissioners, the Department of Finance or the private sector, was predicting that.

A tax forecasting methodology review group was re-established last year to consider the methodology. It contains experts from Revenue, the Central Bank, the ESRI and the Department of Finance. The terms of reference for that group were to review the existing tax forecast methodology, to examine the reasons for the tax forecast divergences, analyse the information bases on which forecasts are made, review the structural parameters of tax elasticities, consider the experiences of other relevant jurisdictions and make recommendations for changes to the forecasting methodology where appropriate. My understanding is that the report is being completed.

Deputy Thomas P. Broughan

Clearly, the consequences could be quite serious for the Minister if the expected downturn in construction occurs in 2008. Following from that is the area of special investigations. We have seen bogus non-resident accounts, NIB, Ansbacher accounts, the "pick-me-up" system - which we should not forget to mention as political parties were involved - tribunals, offshore assets, life assurance products, and a range of other tax evasion scams. Mr. Daly has mentioned one thing on which the Office of the Revenue Commissioners is zeroing in, a possible VRT-type scam involving SUVs. Is there a section, such as an intelligence or forward planning section, that looks out for scams? Is there another scam on the horizon that we will have to watch out for and that could appear in accounts in the coming years?

Mr. Frank Daly

I do not want to put the VRT scam I mentioned in the same category as the Ansbacher accounts. Ansbacher accounts and all the other scams were black and white in terms of tax evasion; the other one is a bit of a "try on".

Deputy Thomas P. Broughan

If somebody did that with a car, he or she would defraud the State, and that is a crime. Is that not the bottom line? What is the difference? They are small amounts of money involved. This relates to the point I raised earlier. If somebody on the list Revenue published yesterday ripped us off to the tune of €3 million, €4 million or €6 million and went to live in a warm climate, he would basically get away with it, but the rest of us have to suffer. We did not have that €54 million to run the education system, and what a difference that could have made to our schools or to the health system where a ferocious embargo currently operates. Should we not take all of that seriously? Are there any other scams about which we should know?

Mr. Frank Daly

There are no other scams of which I am aware. The Deputy will be familiar with the term "scanning the horizon". However, we are not interested in scanning the horizon but in scanning the ground on a continuous basis to make sure nothing else emerges.

Deputy Thomas P. Broughan

It is striking that it was our predecessors on this committee and the Comptroller and Auditor General who did an excellent job in investigating some of the most notorious of these scams, but it was often some distinguished journalists in the media and others, and whistleblowers, who eventually led us to uncover what we are dealing with now. Mr. Daly does not see anything else in the undergrowth?

Mr. Frank Daly

No, I do not. I give full credit to everybody who assisted in uncovering all of this but much of this was uncovered by Revenue also and I would like to make sure our own people get credit for it.

Deputy Thomas P. Broughan

I want to make a final point—

Mr. Frank Daly

The biggest yielding investigation of all, the offshore assets one, was driven by some very dedicated people in Revenue.

Deputy Thomas P. Broughan

Regarding bogus non-residents, is Revenue still having a difficulty in tracking all our golden geese, the people we read about on a daily basis who come into the country for race meetings and other wonderful social occasions and then leave, like Cinderella before the clock strikes midnight, in their private jets? Such travel to and from the country represents a huge business here. A new company, JetBird, whizzes people in and out of the country. Has Mr. Daly any idea of the number of people who live here but do not pay any tax? Is the number of bogus non-residents increasing? I admit some distinguished businessmen, with some of whose IR policies I would not agree, appear to be living here, for which I salute them. How is the investigation proceeding of that group of high rollers and others who appear to have such glamorous lives and whizz in and out of the country?

Mr. Frank Daly

The Deputy has used many terms but I must point out that these are not bogus non-residents; they are non-residents, they are not bogus.

Deputy Thomas P. Broughan

Is. Mr. Daly sure?

Mr. Frank Daly

The Deputy asked initially if we had any difficulty tracking them. We do not, but I have advised this committee previously that the necessary legislation is in place and all we do is implement it. Provided they do not break the terms of that legislation, which in essence states that they cannot spend more than 183 days in the State during the year, they are regarded as non-resident here for tax purposes.

Deputy Thomas P. Broughan

Does Mr. Daly check with other jurisdictions, be it Switzerland, Portugal or Malta, for example, that the arrangements are kosher?

Mr. Frank Daly

I explained to the committee two years ago that we do an exercise, which we do frequently, on people who claim non-resident status to make sure they are complying with the legislation. Part of that involves carrying out various checks from tracking movements to checking diaries to verifying where they are at particular times, and we did not find they were in breach of the legislation.

Deputy Róisín Shortall

How is Revenue performing in respect of income from rental accommodation? I note that in reply to another question Mr. Daly said that Revenue has access to data on rent supplements. Does he have access to data held by the Private Residential Tenancies Board? Is standard cross-checking carried out between declared income by landlords and claims for relief on rental expenses by tenants?

A further point I wish to raise in that general area relates to the section 23 relief on student accommodation. I have had difficulty in the past in getting answers to parliamentary questions on this matter. What level of supervision does Revenue operate of people who claim under that scheme regarding such accommodation and ensuring that it is students who rent it?

Mr. Frank Daly

I believe this issue is up for discussion at the next meeting.

Chairman

I am being charitable today.

Mr. Frank Daly

Specifically regarding the Private Residential Tenancies Board, we have the right to see information on landlords who have registered with the board; we have the right to do this on a case by case basis. As I mentioned earlier, we also get information from Department of Social and Family Affairs on rent supplements. We try to match the information on private landlords and tenants, and we might be able to go into that in more detail at the next meeting.

Deputy Róisín Shortall

On the question of section 23 relief—

Mr. Frank Daly

Like any other relief, we carry out exercises from time to time in supervising whether the relief is properly claimed and supervised. I do not have details of what checks we carry out, but the student accommodation scheme is one that has been on our radar in recent years.

Chairman

I thank the members and Mr. Daly for his clear presentation and clear responses to all the questions. I compliment the Department on its performance, as outlined by Mr. Daly and the Comptroller and Auditor General.

Deputy Róisín Shortall

Does the chairman propose that we go into private session or will he conclude the meeting?

Chairman

We met in private session at the start of the meeting.

Deputy Róisín Shortall

I thought the chairman said he would return to the Comptroller and Auditor General—

Chairman

Yes, now as part of the public session. Before he speaks on that, I would like him to comment on the situation regarding the appeal commissioners and the access the Comptroller and Auditor General has to them. Perhaps Mr. Daly would also comment on the appeal commissioners and his dealings with that area? The appeal commissioners are independent but they should be accountable for their decisions. Perhaps Mr. Daly, initially, and then the Comptroller and Auditor General would comment on that area.

Mr. John Purcell

It might be better if I put this in context because I raised the matter of the efficiency and the effectiveness of the tax appeals system last year and reported on that in the chapter. To carry out that exercise it was necessary to examine what the Revenue did but also what the Office of the Appeal Commissioners did. There was a slight problem in accessing some of the data there to track cases right through because the proof of the pudding is in the eating in the sense that one can examine systems but one needs to track appeals through the system to ascertain how efficiently they were dealt with. The appeal commissioners, of whom there are two, had a slight difficulty with my staff accessing the material and they referred the matter to the Attorney General's office. Since that time I am glad to say the Attorney General's office has come back and said that I and my staff should have access to this material. That is the position as far as I am concerned and it bears out what my view was when we started that exercise last year. It was referred to in the committee's report on its examination of the accounts for 2005, which I think the Chairman signed off on a few weeks ago. That is the situation with the appeals. I do not know if the Chairman wishes to refer to the Accounting Officer on that matter.

Mr. Frank Daly

Chairman, I have no comment on the matter to which the Comptroller and Auditor General referred. As you correctly say, there was a time when Revenue was responsible for the appeal commissioners. We took the view that it did not give the proper perception of their independence so for several years we have divorced ourselves from them, although we still provide some support services on a service level agreement basis. There is no doubt that we would like to go further, in the sense that we still have responsibility for listing cases for the appeal commissioners. Revenue considers it appropriate to get out of that business. The commissioners should take it on themselves. That probably brings us into the area of their resources, which was dealt with at the last meeting. It is also no secret that Revenue would like decisions from the appeal commissioners to be published on a regular basis. That would assist in the whole process. However, that is a matter for the appeal commissioners, not for me.

Deputy Thomas P. Broughan

Would Mr. Daly like the office to be completely independent?

Mr. Frank Daly

It is, in effect.

Deputy Thomas P. Broughan

Would Mr. Daly like that to be under-pinned by legislation to demonstrate it has nothing to do with Revenue? It sounds a little like the ESB and the national grid. They are located in the same building and so forth and they are basically still the same outfit, more or less.

Mr. Frank Daly

They are quite independent. We have moved far away from them. They are certainly not in a Revenue Commissioners building but we would like it to go even further. We would not like to be involved in the listing of the appeals with the appeal commissioners in particular. However, they need to get to the stage where they can do that themselves before we can get out of that. We would be happy to get out of it.

Chairman

You say you do not compile the waiting list. What type of waiting list is there for appeals?

Mr. Frank Daly

I do not have figures for that but it is not particularly long. The issue is not that there is a long waiting list but the timing of when the appeals will be heard and decisions given.

Mr. John Purcell

To supplement what the Accounting Officer said, we examined and discussed these issues last year. It was clear that more resources were needed as well as more commitment to transparency in terms of the website and so forth. The website was promoted or underpinned by the Institute of Taxation, which I considered to be the wrong way of communicating one's decisions. Certainly, in recent years there were very few references to decisions made and we believed that was not helping the process and, perhaps, was leading to a plethora of appeals that could have been avoided if the information was on the website. It should be brought up to modern standards.

Deputy Shortall asked a question on prosecutions. For years I was critical in this committee of what I saw as the settlement culture in the Revenue Commissioners, to the exclusion of a prosecution culture. It is only fair to say that it has changed and, as I said in my opening remarks, I believe it is beginning to bear fruit. It is a labour intensive operation. One cannot have one exclusively of the other; both are necessary. I agree with the Accounting Officer on that. It is really only in the past year or two that we are seeing some equilibrium in that effort.

With regard to what should be prosecuted, the Accounting Officer mentioned the Law Reform Commission's report which was published in December three years ago. The commission recommended that a list of offences which would be liable for prosecution, even where a qualifying disclosure is made, could be based on a number of criteria. These could include the nature of the offence, which could be to a financial threshold, the duration of the offence and if there were previous convictions or settlements for tax related offences. That appears to be sensible. If one is dealing with a recalcitrant taxpayer who, year after year, settles with the Revenue Commissioners, that does not send out the right message. Cases involving repeat offenders, even where there was a qualifying disclosure, appear eminently suitable for prosecution assuming there is evidence to sustain a successful prosecution.

I have always believed that a few exemplar cases are necessary and that somebody should go to jail, even if some people prefer to go to jail than be hit in the pocket. There must be a balance and it would be no harm if there were a number of high profile cases both on the published settlements side and on the prosecutions side. However, like the Accounting Officer, I do not wish to get into trouble and get a lash from the Bench with regard to sentencing and so forth.

Deputy Róisín Shortall

That is fine but I am anxious to hear the Comptroller and Auditor General's view as to why people do not go to prison. Is it a cultural matter or due to a legislative shortcoming? Have any of the Law Reform Commission's recommendations been adopted by the Government?

Mr. John Purcell

I am not sure of that.

Mr. Frank Daly

To address the points the Comptroller and Auditor General mentioned about the criteria for good cases, we take account of the ones he mentioned when selecting cases for prosecution.

Mr. John Purcell

I do not believe there is a legislative problem. It is up to the courts. The judges hear the evidence in the cases; that is what they are appointed to do. There are cases where—

Deputy Róisín Shortall

They do not give substantial sentences.

Mr. John Purcell

There are examples in other areas where there might be sentencing guidelines, but that is a matter for the administration of the courts and the Judiciary. The Judiciary is independent in exercising its function, just as I am in exercising my function. I would not like somebody to tell me how to do my job.

Deputy Thomas P. Broughan

How many people who availed of a tax amnesty subsequently offended and were punished and jailed?

Chairman

That is a question for Mr. Daly.

Mr. Frank Daly

There have only been two tax amnesties in recent years, in 1988 and 1993. I do not believe anybody has gone to jail. We have prosecuted some people but I do not have the figures with me.

Deputy Thomas P. Broughan

How many people have gone to jail for tax offences so far?

Mr. Frank Daly

Does the Deputy mean people who actually went into jail?

Deputy Thomas P. Broughan

Yes.

Mr. Frank Daly

My recollection is that in recent years there were approximately half a dozen. I am referring to people who went into Mountjoy or Castlerea or the like. How long they were in there is another matter. People certainly went to jail. It is a myth that nobody has gone to jail for tax evasion.

Deputy Thomas P. Broughan

It can still be counted on the fingers of one hand.

Mr. Frank Daly

It is better than none.

Deputy Thomas P. Broughan

Yes. This was the argument in 1992 about the amnesty, which Deputy Shortall and I vividly recall. People were passionately declaring we would go down the route that resulted in the famous Lester Piggott incident. They said high profile people would be involved and they would be an example.

Chairman

We are straying into policy on amnesties.

Deputy Thomas P. Broughan

The House agreed to an amnesty on incredibly spurious grounds. The Chairman's party opposed it.

Chairman

It is policy still.

Deputy Thomas P. Broughan

Having been given such incredible discretion, people then blatantly misled the Revenue Commissioners. They were serious crimes.

Deputy Róisín Shortall

I have one follow-on question. We were certainly led to believe when each of the amnesties was introduced that this would be the last chance for people. It would be interesting if Mr. Daly could obtain figures for us for the number who availed of each of the two recent amnesties who were subsequently found not to have been entirely kosher in their returns.

Mr. Frank Daly

There is a difficulty because there was a provision in respect of the 1993 amnesty that precluded Revenue from gaining access to the names of those who had availed of it.

Deputy Róisín Shortall

Yes.

Mr. Frank Daly

I cannot give the Deputy a figure because of that.

Deputy Róisín Shortall

Can Mr. Daly tell us the number of cases he examined where he subsequently found out that a person had availed of the amnesty, yet he was precluded from investigating? It may have come to his attention and he had a concern about it, but he was unable investigate because the person concerned had availed of the amnesty.

Mr. Frank Daly

We could probably get the Deputy that figure.

Deputy Róisín Shortall

It would be interesting to hear what it is.

Chairman

Before we wrap up, I ask Mr. Purcell to address a number of the issues that have arisen as a result of our interaction.

Mr. John Purcell

I will certainly not go into the amnesty issue but I had some of the same concerns expressed. I remember being in the High Court concerning the particular amnesty as regards access and matching data. As the Judiciary has spoken on the matter, I will not revert to it.

Deputy Broughan mentioned tax forecasting, on which this year's report contains a chapter. Primarily, the Accounting Officer for the Department of Finance takes responsibility for the matter. Clearly, Revenue has a large input into the forecasts. The matter would have concerned me also. It will be taken up in the new year with the Department of Finance.

The Chairman and former members of the committee will know that the random audit is a particular hobby horse of mine and I am glad to see that it is now established Revenue policy. The figure averages out at 30%, although it is a little less for 2007 but I suspect that when all the cases are known and the more difficult ones are resolved, it will creep up from 27% to around 30%. It is too early to be statistically definitive but it is still a concern if 30% of the returns were found to be incorrect in terms of an under-declaration of tax liabilities. This must be kept in mind but I am reassured that it is now firm Revenue policy to have random audits, as has been reiterated by the Accounting Officer.

Deputy Róisín Shortall

Is there an internationally recognised benchmark for measuring the effectiveness of the tax collection system?

Mr. John Purcell

No, there is not. A year or two ago there was a proposal from my Canadian counterpart to carry out such an exercise. At the time I informally approached the chairman of the Revenue Commissioners to see if they would be prepared to participate in it. He was positive but for reasons unrelated to anything here the Canadians did not pursue it.

Deputy Róisín Shortall

One in three seems exceptionally high.

Mr. John Purcell

It depends on the system. It might be different in the United States where they have a self-assessment system. They have the mother and father of an audit which scares the life out of people and that may have an impact. One must compare like with like, which is the problem the Canadians had. While they were upbeat initially, their interest waned once they conducted a preliminary feasibility study.

Deputy Cuffe mentioned the clean audit certificate. I was in a position to give a clear audit certificate for Revenue's collection and appropriation accounts. As the committee knows, my audit of Revenue does not purely cover the figures. At the next meeting of the committee, it will include matters such as rental income and how well Revenue is using the information available to it. There are four chapters devoted to such matters. Therefore, the critical material will come up for discussion. While I can say with hand on heart that it is a clean audit certificate in a financial audit sense, there are other matters which in my opinion merit public accountability.

It was useful to hear what the Accounting Officer had to say about this scam - a tax avoidance scheme suggested with regard to VRT. However, there have been others. How does Revenue get to know about them? It got to know about one of them from a former chairman of this committee, concerning VAT on property dealings. There are many intelligence sources but our public representatives on this committee often have their ear to ground, unlike the rest of us. If they become aware of any latent schemes hiding in the undergrowth, as Deputy Broughan said, they should let Revenue know about them. Credit was given to the previous committee for its work on the DIRT issue, which led to a totally different culture. Resistance to the granting of extra powers to the Revenue Commissioners was overcome. This has enabled Revenue to do its job in a more effective way, which is borne out by the success of its work on offshore assets. It all goes back to the DIRT inquiry; in that respect, the committee can claim some of the credit.

Chairman

I thank Mr. Purcell. I thank everybody for their co-operation. We have concluded our consideration of chapters 3.1. to 3.6, inclusive. May we dispose of them? Is that agreed?

Deputy Thomas P. Broughan

Agreed. We could stay here invigilating these matters until 3 p.m. or 4 p.m. or later. These are probably our most important officials in terms of the administration of the State and I commend them for their work. I am aware of the colossal achievements during the years since the last time I was a member of the committee. If there are one or two items we want to tease out that are not strictly germane to the accounts meeting after Christmas, can we raise them at the end of that meeting?

Chairman

We will be able to do that. We have disposed of chapters 3.1. to 3.6, inclusive, and the appropriation accounts and are leaving the Vote open until January.

We must agree the agenda for the meeting to be held on 17 January 2008 as follows: 2006 annual report of the Comptroller and Auditor General and appropriation accounts; Vote 9 - Office of the Revenue Commissioners; chapter 3.7 - control of alcohol tax warehouses; chapter 3.8 - stamp duty on property transactions; chapter 3.9 - passenger controls at airports; chapter 3.10 - aspects of rental income taxation; and relevant chapters from value for money report No. 56 of the Comptroller and Auditor General, Improving Performance: Public Service Case Studies.

I thank everybody who attended the committee from the Revenue Commissioners, the Department of Finance, members of the committee, the Comptroller and Auditor General and his staff, as well as our own staff. I wish everybody a happy and peaceful Christmas.

The witnesses withdrew.

The committee adjourned at 1 p.m. until 10 a.m. on Thursday, 17 January 2008.