COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 26 Feb 2009

Chapter 3.13 — Benefits-in-Kind.

Ms Josephine Feehily (Chairperson, Revenue Commissioners) called and examined.

Chairman

This morning we will examine the 2007 annual report of the Comptroller and Auditor General and Appropriation Accounts dealing with the Office of the Revenue Commissioners, and we will examine chapters 3.8 to 3.13, inclusive. Witnesses should be aware that they do not enjoy absolute privilege. As and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 grants certain rights to persons identified in the course of the committee's proceedings. These rights include the right to give evidence; the right to produce or send documents to the committee; the right to appear before the committee, either in person or through a representative; the right to make written and oral submissions; 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 persons identified in the course of proceedings who are not present may need to be made aware of these rights 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 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 refrain from inquiring into the merits of a policy or policies of the Government or of a Minister, or the merits of the objectives of such policies.

I welcome Ms Josephine Feehily, chairman of the Office of the Revenue Commissioners, and call on her to introduce her officials.

Ms Josephine Feehily

I am accompanied by Mr. Gerry Harrahill, assistant secretary, collection division, Mr. Paddy O'Shaughnessy, principal officer, corporate services division, and Mr. Ken Monaghan, assistant principal officer, corporate services division, Revenue Commissioners. Mr. Dave Coleman, senior Revenue press officer is in the Visitors Gallery.

Chairman

I invite the Comptroller and Auditor General Mr. John Buckley to introduce the remaining sections of chapter 3 of his annual report. The full text of chapter 3 can be found in the annual report of the Comptroller and Auditor General or on the website of the Comptroller and Auditor General at www.audgen.gov.ie.

Mr. John Buckley

As the committee is aware from last week's session, there were 13 sections in the chapter on the Revenue Commissioners. Last week the committee discussed issues around the following: the collection of the revenue including the amounts of revenue collected and outstanding; the amounts written off and an analysis of major write-off cases; the influence of risk assessment on the checking activities of the Revenue Commissioners; the extent to which non-compliance and recidivism is dealt with in the audit approach; and the desirability of using random audit as a way of gauging collection performance.

This week we are moving on to the remaining sections which cover issues relating to the investigation, deterrence and penalisation of non-compliance. Overall, while the charging of interest on late payment is underpinned by the tax law — the Revenue Commissioners reserve imposing interest charges to cases of serious default including where there is a pattern of late payment, a warning has been issued and compliance has not improved.

Consequently, interest is not widely used to encourage prompt payment. The Revenue Commissioners have pointed out that the automatic imposition of interest prior to self-assessment had led to demands which had later to be written back when the underlying position was ascertained. In those circumstances interest imposition had not supported compliance.

However, in an era of self-assessment it would be worth considering whether automatic interest charging might be appropriate given that the underlying tax liability is self-declared. It is desirable that those who pay late should not get an advantage over compliant taxpayers or pocket the interest value of what is in effect a loan from the State. While Revenue would need to weigh up any change in practice carefully to identify likely benefits and downsides in terms of speedier collection and taxpayer behaviour, any measure that holds the prospect of speedier revenue inflows would be worth examining.

There were 82 cases of serious tax evasion under consideration at the end of 2007. Thirty seven of these were under investigation and a further 37 were at some stage in the legal journey leading to criminal prosecution. Separately, there were five convictions for evasion of customs and excise duties. At the end of June 2008, €2.4 billion had been recovered as a result of special investigations. The details are set out in table 19 to my report.

The latest investigation is into undisclosed funds held in Irish bank accounts. It will investigate holdings of funds in Irish bank accounts made up of income not declared for tax purposes. Interest payments above a certain threshold returned by the banks will provide the basis for the review of potential tax liabilities. The Accounting Officer will have up-to-date figures on the investigation yield.

Voluntary disclosure by non-compliant taxpayers was an option allowed by Revenue in the case of several special investigations. This option pertained in particular in the case of individuals who had taxable income in non-resident accounts for the purpose of evading DIRT, held undisclosed income in offshore accounts and investments or used life assurance products to hide income or gains.

It was found that 883 persons who sought to avail of concessions for early disclosure were ineligible. The bulk of ineligible applications related to income not reported when advantage was taken of previous voluntary disclosure schemes. The undisclosed income came to light when Revenue checking noted that this previously undisclosed income was subsequently being declared to avail of the benefits that went with a new voluntary disclosure scheme. Ultimately, €50 million in additional revenue was collected from these persons and the benefits of the 1993 tax amnesty were withdrawn in 76 cases where undeclared income had arisen prior to 1993 to 1994.

The SSIA scheme that cost the Exchequer a net €2.5 billion came to an end in 2007. Under the scheme the onus was placed on financial institutions to ensure compliance while Revenue carried out supervisory checks. A review by my office found that while some checks remained to be done on electronic reports submitted by financial institutions after the maturity of the investments, in general, the scheme had been well administered.

The Vote for the Revenue Commissioners amounted to €400 million in 2007 and is applied in assessing, collecting and accounting for the revenue activities of the State. The collection cost represents something of the order of 0.7% of the taxes and levies collected. Up to 80% of the total sum is applied on staff resources. The office also deploys technology extensively in all areas of its operation.

Chapter 3.13 deals with an administrative issue. It discloses that Revenue paid €1.6 million in respect of a settlement for benefits-in-kind that staff had availed of including the use of official vehicles for travel to work and paid expenses associated with travel to and from work. The settlement is a reminder there is always some risk that the administrative functions in any State organisation can fail to comply with the very rules that line staff of the same organisation are trying to enforce.

While compliance issues relating to benefit in kind, and taxation generally, arise occasionally in the course of our audits it is unclear what is the extent of overall non-compliance. Revenue is examining this and the Accounting Officer will be in a position to update the committee on its plans for compliance tests in State bodies and the private sector.

Chairman

I thank Mr. Buckley. I call on Ms Feehily to make her opening statement.

Ms Josephine Feehily

Thank you, Chairman, and members of the committee.

Prosecutions for criminal tax and customs and excise offences are managed by a dedicated division — the investigations and prosecutions division. Criminal investigation is a resource intensive activity which normally takes several years before a case reaches the courts. In 2007 there were nine convictions for serious tax evasion and suspended custodial sentences were imposed in four of them.

Concerning the current status of the 82 cases referred to in the Comptroller and Auditor General's report, 15 convictions, including two associated cases, have now been obtained which will help make 2008 our most successful year ever in terms of criminal convictions. While the chapter does not refer to it, it is important to point out that in addition to the serious prosecutions, there were 1,263 convictions for summary offences relating to the non-filing of tax returns across all the taxes. On the customs and excise side, there were 500 summary convictions for a wide variety of offences besides the five serious ones mentioned in the report.

The legacy investigations referred to in chapter 3.9 are now close to conclusion, in terms of tax yield at least. Some may well continue on for several years before finalisation because of court cases. The additional yield from these investigations since the Comptroller and Auditor General's reported with end of June figures was about €30 million.

The Comptroller and Auditor General refers in the final paragraph of chapter 3.9 to a new investigation which had commenced at the time of writing. This arose because banks and building societies were obliged to provide us with details of accounts where interest of over €635 was paid in a year. This information was due to us in September and October 2008. We announced a voluntary disclosure initiative in May 2008, when the new regulations came into force, whereby persons with €100,000 or more of untaxed funds should come forward to avail of mitigated penalties, etc., in what has now become the norm for these kinds of investigations.

As many as 1,800 notices of intention had been received by the relevant date of 15 September 2008. A total of 1,232 had come forward with detailed disclosures by 15 January, from which we have received just over €70 million. We had over 480 withdrawals of notices of intention, where the taxpayer was satisfied that there were no outstanding tax liabilities and the notices submitted had been protective in nature. We are actively pursuing the small balance of cases that submitted notices of intention but did not make a disclosure or withdraw the notice.

While not mentioned in the chapter because it is new, the committee will be interested in the outcome of a stamp duty incentive scheme provided for in the Finance (No. 2) Act 2008. It was designed to encourage the presentation of old deeds for stamping before we introduce electronic stamping at the end of this year. The incentive scheme provided for the waiving of penalties on instruments presented within 56 days of the passing of the Act; therefore, the closing date was 17 February. The yield from the scheme is close to €30 million from 1,960 instruments. This figure is not included in the circulated statement because we were still counting; therefore, there could still be a little more. It is made up of €24 million in stamp duty and €26 million in interest.

The report in chapter 3.10 also looks at the checks Revenue put in place to prevent the risk of abuse of the various voluntary disclosure schemes relating to DIRT, offshore assets and life assurance products and concludes that reasonable steps were taken to counter this risk. We will be taking similar measures in respect of undisclosed funds in the Irish bank accounts scheme.

Turning to chapter 3.11, the special savings incentive account scheme, SSIA, began in 2001 and finished in 2007. The onus was placed on the financial institutions or qualifying savings managers to operate and ensure compliance with the scheme. Revenue was given overall responsibility for management of the scheme, as well as a policing role that included the power to assess and monitor qualifying savings managers' compliance with the scheme. Regarding some of the issues raised by the Comptroller and Auditor General, the current position is that reconciliation between monthly and annual returns is almost complete and will be finalised shortly. All files relating to checks of the electronic files required to be submitted to Revenue on maturity of the scheme have now been received and checking will begin soon. A sample of cases will also be selected on a risk basis for detailed review. I welcome the conclusion of the Comptroller and Auditor General that Revenue has carried out a reasonable level of compliance checking during the life of the scheme.

In chapter 3.12 Revenue's compliance approach to the charging of interest on late payments of taxes has evolved in the last two decades from a one-size-fits-all approach to one that, while recognising that interest is a very effective tool to encourage taxpayers to pay their taxes in full and on time, focuses on the compliance intervention most likely to be productive in an individual case. The improvement in compliance figures during the years gives solid support to this approach. However, as I mentioned in my evidence last week, we are finding an increase in the number of businesses coming to us looking for time to pay. We are adopting a case-by-case approach to these taxpayers, which seems to be most appropriate in the current environment.

Chapter 3.13 deals with benefit in kind, in particular that relating to travel, as highlighted by an underpayment which arose in my office. The paragraph gives a fair summary of the background and there is not much more that I can usefully add, other than to reiterate Revenue management did identify the problem and reported it to the relevant inspector of taxes and the Comptroller and Auditor General. Notwithstanding this, it should not have happened and I apologise for the fact that it did. Measures have been put in place to ensure that, in so far as is humanly possible, something like this cannot happen again. On the broader issue of the general public sector, we took steps during 2008 to remind public bodies of their responsibilities on BIK. A programme of compliance checks in the public sector will be undertaken this year.

Chairman

May we publish Ms Feehily's statement?

Ms Josephine Feehily

Yes.

Chairman

There are a few outstanding issues from last week. We sought information on the amount of tax paid by those taxpayers who had declared themselves to be non-resident in 2006. Ms Feehily told us that 5,803 individuals had declared non-residency in 2007. We also sought information on the amount of tax paid by those taxpayers who had declared themselves non-resident in 2006 and who fell into what Ms Feehily described as the high worth category. We sought a copy of documentation between the Revenue Commissioners and the Department of Finance on the issue of the introduction of a fiduciary tax arising from the report of the Comptroller and Auditor General of 2001.

The other information we sought was from the Department of Finance on economic forecasts, on which we received a short report from Mr. Jim O'Farrell. Rather than use up our time on that issue, we will wait until the Secretary General of the Department of Finance comes before the committee in the next few months. We will deal with that issue at that meeting. We acknowledge the receipt of the information, to which we will return at a later stage.

Mr. Jim O’Farrell

I thank the Chairman.

Ms Josephine Feehily

We started to do some research on these requests. When I received the clerk's letter stating the committee needed a reply by next week, I had not finalised the work on all the items listed. We will have some information on the tax paid in 2006 by the various categories of resident, non-resident and non-domiciled citizens. It is being compiled. It might take us a little longer to compile the information for 2007, but we will have a reply by next week with the figures for those years.

We started to research an issue relating to the abuse of the concept of limited liability. We have the minutes of the Minister to the committee which indicate that the matter was still under consideration. It seemed probable that most of the engagement occurred at meetings, but I will confirm this.

The committee also sought information on the 11 large liquidations. These cases involved write-offs of over €1 million and the committee wanted to know whether they were all liquidations and so on. In summary, five were liquidation cases; three involved businesses which had ceased trading with no assets; one was outside the jurisdiction and we could not reach those concerned, while the other two were individuals rather than companies and the reasons given were financial circumstances. We will write to the committee with the details of these cases.

Chairman

I thank Ms Feehily.

Ms Josephine Feehily

Deputy Fleming has asked how many jobs were affected. There were 704 liquidations in 2007, but the Deputy was concerned about how many had occurred as a result of our actions. A total of 19 companies were liquidated in 2007 on foot of Revenue petition. We estimate that about 120 staff were employed in these businesses.

Chairman

The committee discussed the issue of fiduciary taxes this morning in private session. It was dealt with in the recommendations made in the annual report of the Comptroller and Auditor General in 2001. Subsequently, the committee made a recommendation to the Minister for Finance, specifically regarding the restriction of limited liability to make persons who controlled companies responsible for their unpaid tax liabilities. In particular, we were referring to moneys paid by employees in PRSI and taxation and which was not passed to the Revenue Commissioners. We decided to carry out an up-to-date assessment of that serious issue. We will be doing so in the next few weeks and months.

Ms Josephine Feehily

Obviously, we will assist in any way we can, but as we found out at the time, it is essentially a company law issue. The committee might be interested to know that a number of years ago, when the interest rates applied to late payments were being reviewed, a distinction was made in the relevant Finance Act between fiduciary taxes and other taxes. The interest rate on PAYE, PRSI and VAT annualises at 11.75% whereas for income tax and corporation tax it annualises at close to 10%. In terms of our space, we made that distinction at least.

Chairman

The consequence on the ground for elected representatives is that we meet many people who become unemployed and then find they are not entitled to benefits or their benefits are delayed because the employers have failed to pass on PRSI and taxation payments made by them through the employer.

Ms Josephine Feehily

I understand the point. While there may be delays in establishing entitlements, my understanding is that the Department of Social and Family Affairs will award them credits so they are not penalised. It is not a loss.

Chairman

It is not a criticism of the Department of Social and Family Affairs but it causes terrible distress for the individuals who have lost jobs and then find themselves potentially without benefits. It is something we will consider. The issue of limited liability is an issue some people shelter behind.

Deputy Darragh O’Brien

As we discussed this morning, while the Department of Social and Family Affairs grants the stamps and the entitlement for jobseeker's benefit is still available, or whatever payment it may be, the problem is that it is the taxpayer who is footing the cost. When the employer effectively does not pass on the employee PRSI payments, we effectively have to challenge that person and take him or her through the process. It is a double issue in so far as it takes longer for the person to be paid but also that the taxpayer is footing that bill.

I understand each case is assessed separately. What type of action is taken by Revenue in such instances? This happens quite frequently and there were a couple of well-publicised cases last year in regard to two construction companies with large workforces. Not only were they not making the PRSI contributions but they were not paying into workers' pensions either, a matter on which I know the pensions board has followed up. What actions are taken from a Revenue perspective?

Ms Josephine Feehily

We discussed this to some extent last week. In a situation where a business is liquidated, Revenue has significant preferences. We will secure as much of the funds as we can and will exercise our power, as members of committees of inspections in the context of liquidations and receiverships and so on, to ensure we protect the revenues and gather as much yield as possible. The normal penalties would be interest and so on but they are irrelevant in a liquidation situation because one will never get all the money in any case.

We report from time to time on cases we observe. Under a memorandum of understanding which we have, we will report people to the Office of the Director of Corporate Enforcement if we believe it might be useful for the office to examine them in terms of restricting directors or dealing with reckless trading. On occasion, and I mentioned one or two instances last week, we will support — by support, I mean pay for — liquidations in situations where we believe it is important that the liquidator is authorised to pursue directors.

We have no avenue to deal with directors. The avenues are either corporate enforcement or the liquidator. We will support liquidations from time to time with funds. We will report people or exchange information with the Office of the Director of Consumer Affairs. As I said last week, we have very strong checks at registration stage to prevent phoenixing, which is to prevent them doing it again. That is an overview of where we come in with regard to directors.

Chairman

Our predecessors on the Committee of Public Accounts had a meeting on this issue on 13 February 2003 and made a recommendation to the Department of Finance that the required actions and consultation for the introduction of the legislative underpinning to the improvements in tax investigation procedures should be prioritised. A minute from the Minister of Finance on the issue in response stated that in respect of the issue of fiduciary tax, it remains under consideration and consultation with the Department of Enterprise, Trade and Employment, which is responsible for this area under company law.

This committee felt so strongly about the issue that another inquiry was undertaken by the committee in 2006 and the committee was subsequently informed that the Department of Enterprise, Trade and Employment had significant reservations about this whole issue. We got an assurance at the time that Revenue was looking at phoenix companies and commonality programmes in order, as it was put, "to facilitate the early identification of and prompt intervention in cases where there is a deliberate and sustained effort to use the protection of limited liability for a deliberate evasion of timely compliance with tax obligations". Ms Feehily has assured us Revenue is on top of this but, at the same time, we feel we must revisit it, and we will be doing so in the coming months.

Ms Josephine Feehily

Thank you, Chairman.

Deputy Darragh O’Brien

Turning to chapter 3.13, I fully accept what has been said in regard to benefit-in-kind. I will not go over the old issue which was covered last week and I accept the point in the opening statement that the issues arose and were dealt with, and that Revenue had highlighted this. I assume the payment made by Revenue for the outstanding benefit-in-kind was levied against the individual employees within Revenue.

Ms Josephine Feehily

No, it was in accordance with tax law and it is the same with any employer. If the employer does not operate benefit-in-kind at the right time, then the employer takes the hit. That is not unique and it is the position in tax law. It puts the obligations on the employer to comply. If we, as an employer, did not make the deductions at the right time, then it came out of our administrative budget. It would be the same in any business.

Deputy Darragh O’Brien

In general terms, I know from a previous life it was difficult for employers to track mileage issues and so on. While I am referring specifically about the private sector and not the public sector, how confident is Revenue that benefit-in-kind is levied correctly and that Revenue is getting what it should be getting? I am also referring to the issue of cars being leased or companies buying cars for employees and using mileage allowances instead, where effectively they still have that benefit. Will Miss Feehily comment in regard to how Revenue considers the whole matter of benefit-in-kind is actually being administered by companies?

Ms Josephine Feehily

First, benefit-in-kind would feature as part of our normal audit programme. Whenever we are undertaking PAYE audits, benefit-in-kind would be one of the things we would test for and, from time to time, we would obviously get some yield from those tests.

Given that the onus shifts to the employer, referring back to the earlier point, it is quite an imposition on the employer to try to get this right. Employers would try to get it right because if they do not, they must take the entire cost. If they administer it properly, the cost is paid and they collect it through the PAYE system from the worker, so there is a fair incentive for employers to try to get it right. That would be our experience. However, it is complicated and, from time to time, people get it wrong, including at Revenue. There is no doubt about that.

The issue in regard to the payment of mileage concerns options that are exercised within a business as to whether to provide a company car or whether a worker will use his or her own car and claim mileage.

Deputy Darragh O’Brien

Would Ms Feehilyaccept that in many instances that is effectively just a way of getting away from paying benefit-in-kind?

Ms Josephine Feehily

It may be but it is accepted. It starts from the premise that in tax law expenses necessarily and wholly expended in connection with one's employment are not taxable. The concept is that using one's own car and getting a mileage rate, provided it is not excessive, is taken as being necessarily, wholly and exclusively in the carrying out of one's work. By convention, what we do is to take the Civil Service rates, which are payable to all of us, and we accept that those rates are the outer limit. If a company pays expenses up to but not exceeding Civil Service rates to somebody who uses his or her own car, it is accepted that these are no more than reimbursement for proper expenses. In such circumstances, I do not think it can be regarded as a way of avoiding benefit-in-kind. It is a choice and those kinds of expenses are deemed to be reasonable.

Deputy Darragh O’Brien

I do not want to dwell too long on benefit-in-kind but I would agree that the system is complex. Without straying into policy areas, I wonder whether consideration has been given to ways of streamlining collection and calculation of benefits-in-kind?

Ms Josephine Feehily

I would be happy to consider that with a view to simplifying administration. Our intention is to ensure that benefits are not used in lieu of pay, which would result in tax forgone. If one starts from that premise, the matter becomes more complicated but we would be happy to do what we can to make the system easier to administer.

Deputy Darragh O’Brien

Has a request for change been made previously to Revenue?

Ms Josephine Feehily

Not in any particular way. We occasionally receive requests from the business community in regard to increasing the monetary limit on small gifts. In recent times, I am not aware of pressure being applied by the business community in this regard.

Chairman

With regard to benefit in kind, Ms Feehily will be aware that the committee published its interim report on FÁS last week. We corresponded with her in regard to the travel undertaken by staff and management of the agency and their spouses and associates. She noted that companies are in general responsible for the implementation of benefit-in- kind schemes. Have communications been received from FÁS on that issue and can we be given an assurance that Revenue will pursue the recommendations we have made regarding benefit-in-kind and foreign travel policies in the agency?

Ms Josephine Feehily

As the Chairman will know, we do not comment on individual cases. As the case to which he refers involves individual taxpayers as well as a business, I am constrained in what I might say. In my opening remarks I stated that a programme of compliance checks is under way this year in the public sector. He can take it that I received his letter and that I certainly pay attention to anything that comes from this committee. I would be reluctant to comment further than that.

Chairman

I understand. Our biggest fear is that our published report will gather dust. It is reassuring to know that at least one State body is acting on one of our recommendations.

Deputy Darragh O’Brien

We discussed life insurance products last year with Ms Feehily's predecessor. The yield of €441 million clearly represents a significant amount for the Exchequer. I am aware that the matter was approaching its conclusion last year. Has the life insurance products investigation been concluded and, if so, what is the final figure? Is it planned to expand the scope of the investigation given that the limit on single premium products was €15,000? Will it be expanded to regular premium saving products, a number of which have come onto the market? I refer to normal insured products in this regard and set aside SSIAs. What is Ms Feehily's view of the matter?

Ms Josephine Feehily

By the end of 2008, the sums yielded by the investigation had increased to €464.2 million. Our work in this regard is not yet concluded and the final yield could reach €500 million. In regard to the limits, literally millions of these products existed but a very significant proportion were properly held and invested with tax funds. We certainly did not want to disturb people who had no issues with us and were at the low end. We have no plans to proceed beyond the limit of €20,000.

Deputy Darragh O’Brien

I am glad to hear that.

Ms Josephine Feehily

Our investigation thus far was based on a limit of €50,000 but we now have to consider a band between €20,000 and €50,000. We will sample that group and conduct a cost-benefit analysis to determine what we can usefully do. We are not quite finished in this regard. We would be required to obtain High Court orders, which cost money, and the investigation would impose burdens on businesses and people. We will examine that band but we do not intend to proceed as far as the bottom end.

Deputy Darragh O’Brien

That is good to hear. In regard to the band between €20,000 and €50,000 and the issue of multiple products, many people might spread their money across a number of life insurance companies. Can Ms Feehily comment on the level of co-operation by insurance companies in terms of providing information? How has Revenue dealt with the issue of individuals who were investing in products sold by different companies?

Ms Josephine Feehily

Principally we dealt with the older products by using matching software for name, address, etc. We can make a match if the identifiers are sound. More recent policies are required under money laundering legislation to include a personal public service number, which makes them easier to match. The companies co-operated well with us in providing information. However, it took time because they had to supply a considerable amount of data. They also co-operated by writing to individuals on our behalf. Although this scared a number of people, it helped us because they were put on notice of the issue.

The most useful development from our point of view would be to receive that kind of information automatically on an ongoing basis in a similar manner to the process involving banks to which I referred in the context of the most recent investigation. That would require ministerial regulation but would probably be the easiest way to do what the Deputy suggests.

Deputy Darragh O’Brien

Ms Feehily touched on the issue of undisclosed funds in Irish bank accounts. Have all the financial institutions forwarded the details of account holders?

Ms Josephine Feehily

We got information on three years, 2005 to 2007. Information on the first two years has been gathered. One issue remains for 2007 in regard to a business but we are not worried about it because we already have the remaining details. It is simply a case of information being submitted late because somebody is unwell.

In terms of the features of the case, the committee will be interested to know that of the aforementioned 1,232 cases which yielded €70 million, six settlements were worth over €1 million and the largest was worth €1.6 million. It tends to break down at a ratio of 3:2 in terms of tax and interest and penalties. This information will become a recurrent feature of our business. Unlike other investigations, this was not a one-off arrangement and we will have the information every year. The data for 2005 and 2006 has been entered into our risk analysis system and work on 2007 is ongoing. The risk run currently under way for self-assessed taxpayers will include that information, so any mismatches or discrepancies that arise between the interest reported in tax returns and the figures given to us by financial institutions will raise flags.

We are focusing on the largest discrepancies. Cases that seem to have over €100,000 in capital, the level we chose for the investigation, even those which are not self-assessed, including PAYE cases, are sent to our regional and district offices for them to review and pick out a number for immediate follow-up. In that group we have 1,500 cases in which there are discrepancies of €10,000 or more in the interest reported, which suggests a substantial seven figure capital sum. They will receive early attention. It has been and will continue to be a very useful and yielding exercise for us.

Deputy Darragh O’Brien

The important point is that it is continuous, unlike the once-off life assurance product checks. It has been a very successful investigation. It is not covered in the Comptroller and Auditor General's report, but perhaps we could move to pensions tax relief and tax relief payable, particularly on directors' and self-employed pensions. I do not expect Ms Feehily to have the figures to hand——

Ms Josephine Feehily

To the extent that we have them, I had them last week.

Deputy Darragh O’Brien

If Ms Feehily has anything to hand, it would be helpful. Revenue has set contribution guidelines on directors' pensions where there are significant scales in multiples of salaries a person can pay into a pension scheme within the last ten years. This is done between the person concerned, the broker and the pension company administering the scheme. Does Revenue carry out spot checks? It would be great if we could get the figures on pension tax relief. There is significant relief and salaries are rolled up in the last few years to enable very large, fully tax allowable payments to be made into the pension scheme to beef it up. There is nothing wrong with this under current legislation. On the other side, the 25% tax-free cash figure for directors' pensions is taken out and there are the other elements, whereby the rest of the fund could be placed in an approved retirement fund, with the result that very little tax is paid. It is a way for directors legally to get money out of the company to beef up their pension schemes. Revenue grants significant allowances and I wonder what processes are in place to check these and ensure there is no over-funding or that the contributions are valid.

Ms Josephine Feehily

I do not want to mislead the Deputy on what we can give because we had a complete discussion on this issue last week. From memory, there are approximately 6,500 such schemes. They send us full accounts every year and actuarial reports every three years. As this is all paper, we are not in a position to analyse them.

Deputy Darragh O’Brien

Is Ms Feehily talking about self-administered schemes?

Ms Josephine Feehily

Yes.

Deputy Darragh O’Brien

I am talking about the broader basis of an insurance scheme. I understand self-administered schemes must report directly to Revenue and we can park that issue. I am talking about the normal insurance scheme a company director would have with any of the life assurance providers.

Ms Josephine Feehily

I do not have the figures. We check a proportion of them — I will get the number for the Deputy. On the cost of the relief, because there is no limit on employer funding, the only cost figure we have is for the global cost. We have the global cost of the tax relief on pension schemes. I had it last week but do not have it with me today.

Deputy Darragh O’Brien

I apologise for not being here last week. Revenue has just one big figure for pension tax relief, PAYE taxpayers and directors.

Ms Josephine Feehily

Yes, it is captured on one's P35. Because there is no limit, the number is not relevant to us in our administration of the scheme. As I explained last week, when the tax reliefs were reviewed in 2006, various models and methodologies were used to try to test this by using pension board data for self-administered schemes. A global figure is captured as a result of that work. We were asked to capture a global figure on one's P35; therefore, that is what we do. That is all I will be able to give the Deputy.

Deputy Darragh O’Brien

That would cover both employer and employee tax relief.

Chairman

There was a question last week on the cost to the State of the scheme.

Ms Josephine Feehily

Last week I gave the figure for the total cost to the State.

Chairman

It was €2.9 billion in 2006.

Ms Josephine Feehily

Good man.

Chairman

That is courtesy of the Comptroller and Auditor General.

Deputy Darragh O’Brien

I understand it is difficult if it is one figure — that is the important one for Revenue — but for the assessment of how tax reliefs should be paid in the future, it is important to see the percentages relating to each sector — whether it be PAYE, self-assessed or director schemes. That figure must be available somewhere. Does the Department of Finance hold any of these details?

Mr. Jim O’Farrell

Not to my knowledge.

Ms Josephine Feehily

After the reviews were done in 2006, the Department of Finance published a paper which made some estimations. That was available but I do not have it with me. Some of it was incorporated in the Green Paper on pensions.

Deputy Darragh O’Brien

I have that. If that document is still available, will Ms Feehily send it in her own time? It is important to know the sectors in respect of which tax reliefs are being paid, particularly when one can see that approximately 50% of the general public have no pension schemes and through their taxes are paying for reliefs for larger schemes into which larger premia are being paid.

Chairman

It will be essential for the committee to have that information when we examine the Department of Finance accounts. Can it be supplied before we meet the——

Mr. Jim O’Farrell

I shall convey that request.

Deputy Darragh O’Brien

One matter struck me when examining the SSIAs. There was a compliance visit to a financial institution which had paid approximately €390,000. I do not know whether this issue was covered last week.

Ms Josephine Feehily

No.

Deputy Darragh O’Brien

The institution had overpaid policy holders on matured products. This came to light by way of a compliance check and I am glad it was picked up. What explanation did the financial institution give? I do not understand how it could pay a top-up on matured products. Was it making a bulk payment across all policies? Will Ms Feehily explain what happened and say whether it has happened in any other financial institution?

Ms Josephine Feehily

The scheme ran for 60 months. Some products used as SSIA schemes continued, although the Government bonus did not. That was common. They ran one month too long, giving 61 payments instead of 60. It was identified and paid back and we were satisfied there were no more of them. The reconciliation process would have identified any others. It was a simple, straightforward human error.

Deputy Darragh O’Brien

Has the maturity audit been completed? Many of the products matured last year. By March two thirds of the financial institutions had forwarded their maturity files.

Ms Josephine Feehily

We have all of the files which have been loaded onto our database. We are beginning the checking process. Up until now the more important piece has been the reconciliation of the monthly and annual returns. That is what we were doing initially. It will be finished in about six weeks and we will then turn our attention to the maturity returns. Given that the monthly and the annual reconciliations have been so thorough, the maturity returns should not present us with anything unusual. We have put much of our energy into getting this set up correctly from the outset, getting to know the qualifying savings managers and working with them. The process of monthly and annual returns has meant that anything that needed attending to has been done so incrementally. The Comptroller and Auditor General recognised that in his report.

Deputy Darragh O’Brien

It is a successful scheme and very well managed between Revenue and the various institutions that sold the products. A matter was raised whereby some people tried to push things out a little, but that is always the case with such schemes. We did find a number of duplicate and triplicate cases in which people had been claiming the Government top-up on two or three different products. Is that correct? I do not know whether this refers to just one institution or all institutions, but €1.4 million was recovered on the basis of products that should not have been set up. People knew what they were doing and were trying to pull a fast one.

Ms Josephine Feehily

The figure refers to all institutions. The checks showed that there were initially 15,398 multiple accounts but on examination, 12,613 of them were found to be valid because, as we women will know, some of us do not have our own PPS number but use the same number as our spouses. We then examined the rest individually and 1,138 were ceased, with €1.4 million in tax recovered. That means they were charged 23% on the entire value of the account, so they were effectively taxed on their own contributions. That was the penalty. If one had opened a multiple account, it was not just a matter of the account being closed without a bonus, but one actually had to pay 23% tax on the entire pot, which the institutions collected before they closed the accounts. It was a fairly hefty fine in that regard. I am satisfied we got to all of those that needed to be identified.

Deputy Darragh O’Brien

I thank Ms Feehily.

Deputy Róisín Shortall

I thank Ms Feehily for her presentation and apologise for being out of the room as there was a vote in the Dáil. I hope I do not go over any ground that has already been dealt with.

I am interested in the record of criminal prosecutions. One must ask, what does one have to do in this country to be imprisoned for tax evasion, given the abysmal record on custodial sentences? In the last ten years, say, how many people have been imprisoned for tax evasion?

Ms Josephine Feehily

In 2008 one person was imprisoned — one of the 15 cases that I mentioned in my opening remarks. He received a three-year sentence with two and a half years suspended. That was in November. With reference to our earlier discussion, the judge made remarks about fiduciary taxes in that regard. It was principally a fiduciary taxes case. There was a second person in prison around the same time but it was indirectly as a result of our efforts. It was a liquidation case in which we caused the company to be liquidated, but in the course of the liquidation it emerged that an intermediary had not paid the tax over to Revenue, so he ended up in prison. Based on my notes I can go back to 2003 and say there was only one, but I cannot go back ten years. I am not certain.

Deputy Róisín Shortall

I am not pointing the finger at Revenue for this, but there is obviously a serious problem with the legislation if only one person in the past five years has gone to prison for tax evasion. It is clear from the figures that there seems to be a bit of an industry in this regard. There always has been, I suppose, although it was often denied. It is clear from the figures being produced and the various special investigations that have been done that there is a sizeable problem, and the Comptroller and Auditor General has drawn attention to this on numerous occasions.

I recall the previous Taoiseach talking about getting tough and saying people would end up behind bars, but unfortunately it has never happened. Clearly there is no significant deterrent effect if people are not ending up behind bars for crimes such as this. I would welcome Ms Feehily's views as to why this is the case. Although a small number of cases are being brought before the courts and prosecutions are secured, people do not end up going to prison. Without straying into the area of policy, can Ms Feehily give me an opinion on whether this is a problem with the law or with the attitude of the courts? Is it her view that the law needs to be strengthened in this area?

Ms Josephine Feehily

From Revenue's point of view, our efforts for the last number of years have gone into identifying suitable cases for criminal prosecution and developing our expertise in that regard, although historically we did very little of this. As I mentioned earlier, 2008 was our most successful year to date, with probably the largest number of cases in the courts for criminal prosecution in recent times. On the tax side of the house, we had 19 cases in court. The next biggest year was 2005, when we had 13 cases in court.

I am pleased we are making that kind of progress, and I am also pleased about our conviction rate. We secure convictions in almost all cases, although in 2008 we did have three acquittals. In 2008 we also had one custodial sentence in which the person concerned actually went to prison. Other custodial sentences have been suspended. Also in 2008, we had the highest ever monetary fine imposed, which was close to €1 million — a total of €960,000. This was imposed on an engineering company. That is my priority. The penalties in the law are strong. Not only do I not want to comment on policy, but it is not for me to comment on sentencing. My job is to make sure we get good cases into court. In 2008 we got better at this.

Deputy Róisín Shortall

I accept that the Revenue Commissioners got better at this in 2008, but there is a long way to go in terms of bringing more cases to court and securing convictions. Nineteen cases is probably only a fair performance, although it is better than in previous years. While convictions have been secured, there is still an issue in that people do not end up behind bars. There is a general view that if we had an Irish Lester Piggott, it would send out a clear message which would probably be helpful to Revenue in terms of compliance. I am curious to know why we do not have an Irish Lester Piggott. Is there a problem with sentencing or is there a problem in the law? Ms Feehily is saying there is not a problem in the law.

Chairman

Deputy Shortall is asking the straight question of whether the Revenue Commissioners are frustrated by the attitudes of the courts. In 2007 the largest fine was €14,880, while other fines were €5,000, €100, €4,750, €1,000 and €2,000. Is there frustration in Ms Feehily's organisation with the attitude of the courts to sentencing? Is that the Deputy's question?

Deputy Róisín Shortall

That is right.

Ms Josephine Feehily

The Chairman mentions fines, but in 2008 we had a fine of €960,000, which is very substantial. I take the view that it is not for me to be frustrated or not frustrated but to get cases into court in good shape, and we do that. That is evidenced by the substantial level of convictions or guilty pleas. It is also important to point out that in almost all cases a very substantial amount of money will be paid. Tax, penalties and interest are paid. The court can always consider the situation. There are penalties in the system other than court-imposed penalties.

Apart from that I do not believe it is my place to be frustrated but rather to put our efforts into getting cases through the system so that we can present them to a court. After that, it is for the courts to decide.

Deputy Róisín Shortall

We do not wish to ask Ms Feehily to comment on policy but the committee might express a view on this to the Courts Service, for example. It seems extraordinary that such minimal fines are being handed out and although there are custodial sentences all those awarded in 2007 were suspended. It is pretty meaningless and the levels of fine will not cause hardship to anybody.

Can Ms Feehily indicate the scale of the evasion involved in the cases that were brought to the courts?

Ms Josephine Feehily

A great number would be sample charges so I probably cannot. I shall tell the Deputy about one interesting case in 2007 which involved cross-Border VAT fraud. The 18-month sentence was suspended but the amount due to Revenue in that case was €1.8 million and the condition of the suspended sentence was that the money be paid to us within the 18 months. That is one example where a very substantial amount of money was involved that would include interest and penalties.

Deputy Róisín Shortall

That individual would have to pay the interest and penalties anyway but in terms of being found guilty by the court what penalty was involved? Was it that he or she had to pay the tax that was due? Did the court impose any penalty?

Ms Josephine Feehily

There was a suspended sentence which, presumably, would have given the individual a criminal record.

Deputy Róisín Shortall

It was suspended. I would have concerns about the attitude of the courts in this regard. What about the publican who was fined €12,000? Presumably the scale of the tax evasion must be significant for a case to be brought to the courts.

Ms Josephine Feehily

In some cases it is not always the scale but the repeated failure to pay VAT, PAYE and PRSI. The Deputy is right. We do not apply resources unless the amounts are significant. We tend to consider cases that involve more than €100,000 before we deploy huge resources.

My colleague has just shown me another recent example in which the amount at issue was €147,552, including penalties. The person was a farmer and there was a guilty plea on all five charges. We can supply the underlying amounts for the cases mentioned in the Comptroller and Auditor General's report. I do not have them all in front of me.

Deputy Róisín Shortall

I wonder what one must do to be jailed for tax evasion here. It seems one must have to do a hell of a lot. It does not happen and that is an issue.

Chairman

Ms Feehily mentioned a cross-Border tax evader, a builder, who got an 18-month sentence, suspended.

Ms Josephine Feehily

It was an 18-month sentence and he was a farmer.

Chairman

The document we have states he was a builder.

Ms Josephine Feehily

That is a separate case. This one was taken on the customs and excise side because it involved cross-Border fraud and that is why it does not feature on that page.

Chairman

In what year?

Ms Josephine Feehily

In 2007, when there were five customs and excise cases referred to by the Comptroller and Auditor General. The case in question was one of those.

Chairman

What were the costs involved for Revenue in taking that case to court? Was the guilty person liable for full costs?

Ms Josephine Feehily

In a criminal case that does not usually happen. The Director of Public Prosecutions takes the prosecution so the carriage of the actual physical prosecution in court is with the DPP. The costs for us are effectively in officers' time. Some of our cases can take up to two years to prepare, in terms of detailed investigation and so forth. A case such as this might involve a couple of officers over 12 or 18 months. Our costs would be in salaries and opportunity cost, and perhaps in some outlay for searches. The DPP then has carriage of the prosecution.

Chairman

Ms Feehily may not be frustrated in her position but I would be if a person could just walk away after not complying with the tax laws. As Deputy Shortall noted, such a person can walk away almost scot free. I would be very angry if I were in Ms Feehily's shoes.

Deputy Róisín Shortall

Table 7 shows amnesty cases of persons involved in settlements concerning DIRT, off-shore assets and life assurance scams. Of those, 286 availed of the amnesty. We were told concerning each amnesty round that this would be the last chance for people to get in under the line and that if they had lied about their tax liabilities there would be prison sentences. Of the people featured, 286 had already availed of the amnesty and had therefore lied to the Revenue about their tax liability but only 76 had the benefits of the amnesty withdrawn. Did any of them face prosecution?

Ms Josephine Feehily

Perhaps that is not the correct way to present it. We were following up 286 cases of people who claimed they had the protection of the amnesty certificate. In 76 cases we denied that benefit and the others were covered properly. The number, then, is 76.

Deputy Róisín Shortall

Were any of those 76 prosecuted?

Ms Josephine Feehily

Two of the 76 were prosecuted.

Deputy Róisín Shortall

Was the claim not entirely accurate that people who lied about the amnesty would face prison sentences?

Ms Josephine Feehily

I am not sure who made that claim. Revenue denied 76 cases the benefit they sought, using the amnesty legislation available. We prosecuted two cases where we felt we could bring a successful prosecution. Under the legislation we do not have access to the information held by the chief special collector in terms of producing it as evidence in a court case. These would have arisen in the context of offshore cases and bogus non-resident accounts but mainly the former. It was a considerable length of time. More than ten years had elapsed since the amnesty and our advice is that cases older than ten years do not succeed.

Deputy Róisín Shortall

It seems extraordinary to me that in the case of those 76 people who lied and who, as I understand it, broke the law, there were no penalties. Is it the case, that apart from the two persons who were brought to the courts there was no penalty for 74 people who broke the law?

Ms Josephine Feehily

Other than monetary penalties, no. However, when the benefit of the amnesty was withdrawn these people had to pay total taxes and interest.

Deputy Róisín Shortall

Apart from losing the benefit of the amnesty they were not penalised for having lied and broken the law.

Ms Josephine Feehily

Not apart from that but that would have been a fairly strong financial penalty in terms of tax. Those penalties would have been substantial. We re-calculated backwards.

Deputy Róisín Shortall

They lost the benefit of the amnesty but were not penalised for having broken the law.

Ms Josephine Feehily

Not separately.

Deputy Róisín Shortall

They were not penalised separately. It is still a fair bet that if one cheats on one's taxes one will get away with it. The message broadcast is that this is and always has been the case. What area of non-compliance concerns Revenue most?

Ms Josephine Feehily

In my remarks last week I indicated we were most concerned about the cash economy and that cash economy crosses all sectors from tradespeople up to barristers. We have done much work in that area in the past number of years. There have been working projects in the various Revenue regions to learn about these sectors and how they function. We have had a substantial yield from the projects. We are continuing in that space this year. We are also moving to create more real time models, which involves intervening in transactions and activity while they take place. It can be somewhat late, especially in the current climate, if we rely on prior year audits. Our main concern is anywhere where business can be done by cash off the books.

Deputy Róisín Shortall

What are Revenue's requirements in terms of documentation to provide evidence of the level of turnover? I recall being in France some years ago and hiring a bike in a shop in a back lane and there were invoices generated in triplicate. That would never occur in this country. Is there any requirement on people, whether they are barristers or plasterers, to provide invoices and receipts for cash paid?

Ms Josephine Feehily

Such people are required to keep proper books and records. It does not specify that proper books and records means that one needs a physical receipt to be issued. That is not a requirement. However, when such a taxpayer is visited, they are expected to have proper books and records detailing how they earned their income and their expenditures. As part of the keeping of proper books and records, which is the requirement under law, we would certainly examine their balance sheets and invoices. However, there is no charge of not having issued an invoice in that sense.

Deputy Róisín Shortall

How is this dealt with in other countries? I referred to my experience in France with a very casual transaction which was documented. The matter of documenting the relationship between the service provider and the customer seems to be taken more seriously in other countries. It is very easy to cook the books if one only needs to provide a record of the transactions according to the person at the centre of the transaction. Unless there is some obligation to document the link between the provider and the customer, how can Revenue be certain it is in receipt of accurate returns?

Ms Josephine Feehily

There are two dimensions to that. There is the question of business regulation, which is discussed regularly and the question of keeping compliance costs on business low without at the same time losing regulation. The cash register project which I mentioned last week is something we found very useful in identifying transactions, because it is transactions in which we are interested, not to whom a bicycle was sold or hired. There is not a tax issue for the consumer at the other end. The tracking of the who and the one-on-one connection is not the issue. We are concerned with the volume of transactions and the profits made from those transactions.

Deputy Róisín Shortall

How does Revenue prove the volume of transactions unless there is some record of them?

Ms Josephine Feehily

We are getting very good at doing that for cash businesses through cash registers.

Deputy Róisín Shortall

I am referring to people who do not operate with cash registers, such as doctors, consultants who get €180 a throw, barristers, solicitors, accountants and such people.

Ms Josephine Feehily

We have access to their books and records and we have access to their appointment books. That is what I meant by learning about how a sector functions. One would expect to find a certain level of return based on a certain volume of appointments. In the case of professionals we would know broadly what their charging out rates are and one could assume they would charge X number of hours. We have a sense of the return we expect. That is what would be tested by examining the books and records in an individual case. On top of that, and this refers to our earlier discussion, we are using our risk system to correlate that information with other information available to Revenue, such as lifestyle indicators related to car purchases, property purchases from our stamp duty records and now the deposit interest information from the financial institutions. If there is a mismatch between the declared income and the lifestyle indicators in the risk analysis system, the case will be thrown up for a closer look.

Deputy Róisín Shortall

For self-employed professionals, what are the chances of being audited, for example, in the case of a consultant or a barrister? How many such audits would be carried out in a given year?

Ms Josephine Feehily

I do not mean to give a glib answer, but it is the same chance for such people as for anybody else. It depends on the risk score in the risk analysis system. We do not categorise them in that fashion and I certainly do not have such data with me. We examined a number of barristers in the Dublin region in the last year and I brought the details to the committee last week. The examination took place in various districts in Dublin. There were some 80 barristers and solicitors examined with various yield amounts from different groups. In one Dublin district, namely, Dublin 4, there were 47 cases examined. They yielded €838,000.

Deputy Róisín Shortall

They yielded €838,000 because of the Revenue examination?

Ms Josephine Feehily

Yes.

Deputy Róisín Shortall

Some 47 barristers in Dublin 4 were underpaying tax in the amount of €838,000?

Ms Josephine Feehily

That would have included interest and penalties. It is not the same as saying they underpaid tax by that amount.

Deputy Róisín Shortall

Yet again there is evidence of widespread tax evasion occurring in our society. Why we are continuing with the self assessment system when this level of evasion is taking place? Regarding those 47 cases, what is the notional income Revenue would expect a Dublin 4 barrister to have? How does Revenue come to a figure in that regard?

Ms Josephine Feehily

Even if I did have such a figure I most certainly would not put it in the public domain, because then they would all know how to pitch their returns. As I remarked earlier, we examine their books and records.

Deputy Róisín Shortall

The very fact that Ms Feehily says as much supports the view that it is nonsense to have a self assessment system and that it is a licence for tax evasion.

Ms Josephine Feehily

In terms of tax administration I could not agree to the idea of returning to a system whereby every book and record had to be submitted and that we then had to make an assessment and send it back out. That was the system before the mid-1980s. The first Commission on Taxation stated it had virtually broken down. It is a system that would require me to have twice as many staff, because in the early 1980s there were 7,500 staff in Revenue when the labour force and the business space was half their current size. Now, Revenue has 6,500 staff for a labour force of 2 million and 800,000 businesses. Apart altogether from the efficiency from our point of view, self-assessment is best practice worldwide. I do not know of any tax administration with the possible exception of some developing countries which operates that system. Developing countries are coming to the developed countries to learn about self assessment. The system is the accepted norm by the International Monetary Fund, the OECD, everybody. The way to do it is to risk rate the cases and to move on the riskiest ones.

Deputy Róisín Shortall

That may be true but it is based on receipts being issued for work done.

Ms Josephine Feehily

It is based on returns being made of profits and income. There is not a single model anywhere in the world that says this sits on a legal requirement to produce a receipt in every case.

Deputy Róisín Shortall

For a self-assessment system to operate there has to be some connection between the service provided and the customer and some documents to prove those transactions. There has to be an adequate level of random audit in order to prevent evasion. The low level random audits in different sectors show up significant continual tax evasion. We know that too from the points made last week about the re-audits. Even when people are caught they do not mend their ways. They continue to commit offences. That indicates that the system is too lax. It needs to be tightened up in several areas.

Are the Revenue Commissioners trying to learn about best practice in other countries because there does not seem to be the same kind of culture elsewhere? I am not saying that other nationalities are inherently more honest but there is a tighter system that can catch people who serve prison sentences if they are found to have broken the law. That does not happen in this country.

I gave the example of barristers and solicitors and Ms Feehily told us about the 47 cases in Dublin 4. In the medical area there has been much concern expressed in the media about consultants charging €170 or €180 for a ten minute consultation with the potential to earn megabucks in a day. What kind of returns does Revenue get from the medical profession and has it done any random audits there?

Ms Josephine Feehily

I have no doubt that we get tax returns from them. This week I do not have the yield for tax paid by sector. I did not bring my numbers expert this week. We can break the tax yield down by sector by central statistics, a system called NACE codes. We have published on our website recently how much tax comes from different sectors.

Deputy Róisín Shortall

Ms Feehily gave us the example of a few barristers and solicitors from Dublin 4. Has Revenue done the same kind of exercise in respect of consultant doctors or general practitioners?

Ms Josephine Feehily

I am not sure so I do not want to mislead the committee. I have a list of significant projects that have been done in different regions of Revenue but I am not sure whether the medical profession featured in that. I know veterinary surgeons did, if that is any help.

Deputy Róisín Shortall

Perhaps Ms Feehily will forward us any information she has, particularly in respect of the medical profession.

Can Ms Feehily provide us with a profile of taxpayers, particularly the self-employed professionals but also tradespeople? Could she run a programme that could tell us how many GPs are declaring an income over €100,000 and €200,000, and how many consultants are declaring an income over €500,000? Can she give us that kind of data?

Ms Josephine Feehily

I do not think our statistical codes go into that kind of micro-detail. We use CSO codes for tax yield from broad sectors, so there is a sector called medical for which we can give a yield. I do not believe we can break it down into income levels. A substantial part of the medical sector's income comes from the Health Service Executive, HSE, and in many instances they are PAYE taxpayers. This includes consultants in hospitals and junior hospital doctors, nurses etc. so that information is captured under the employers' data of the HSE and will not be broken down between the doctor, the nurse and the cleaner. That is not possible. It will come in as part of the employer's P35. We have the employer data from the HSE but not the data for the professions of the employees. I doubt that anything we could do would give the Deputy the accuracy she seeks in that sector.

Deputy Róisín Shortall

Under the new consultants' contract they will earn in the region of €240,000. We also know from work done by this committee that most of those consultants earn at least the same again from their private work. Does Revenue then examine the returns from consultants and if a significant number declare an income of less than €500,000 would it be concerned and pursue them? Is any work done to ensure that the income these people declare is close to what it should be?

Ms Josephine Feehily

The same checking that applies to the full self-assessed taxpayer base applies to consultants or anybody else. The income tax returns and all the other data built around their PPSN is available in the risk analysis system and that will be checked against 197 rules and 28 data sources three times a year to see whether there are discrepancies. If there are, it will get into our compliance check programme in the normal way. They are not disaggregated. If it is a risky case it will come to the top, and as we said last week, it will be dealt with by audits or compliance checks as required. We look at the taxpayer base as a whole, apart from the projects I mentioned. We do not come at it from the point of view of a particular group.

We have found that the lifestyle indicators are very powerful in showing up those discrepancies, for example because we have the property information from the stamp duty system. In previous years we had car purchase information from the VRT system and now we will have the banking information which has just gone into REAP. The next REAP will have up to date information on deposit interest. We find those to be powerful indicators of the riskiest cases in that group at the individual level.

Deputy Róisín Shortall

Is that the 440 high net worth people about which Ms Feehily spoke?

Ms Josephine Feehily

No, they are the riskiest cases in the 800,000 self-assessed taxpayers.

Deputy Róisín Shortall

How many of those would Revenue regard as risky cases? If Revenue is going into details such as cars and property how many people fall into a category subject to that level of scrutiny?

Ms Josephine Feehily

All 800,000 self-assessed taxpayers are subject to that level of scrutiny.

Deputy Róisín Shortall

In theory they are.

Ms Josephine Feehily

A machine does it, so it is not a theory. The system runs across all 800,000 cases three times a year. This is not a theory, it is a risk analysis check using all of that data, across all 800,000 cases. It throws out the riskiest cases based on the 197 rules and the riskiest cases are dealt with in their Revenue regions, with appropriate interventions, whether an audit or a compliance visit. Approximately 53% of our audits last year were done using those risk indicators. When we analyse the outcome of those we will be in a better position to know whether the risk indicators we are using are the right ones. If it is working it will mean that those cases chosen for audit, using the REAP system, will give us a higher yield on average than those chosen for audit not using the REAP system. That is the mechanism that applies to the entire self-assessed for tax.

Deputy Róisín Shortall

How many of those compliance visits have been conducted?

Ms Josephine Feehily

Last year we did 340,000 compliance visits and about 13,500 audits.

Deputy Róisín Shortall

There are still long odds?

Ms Josephine Feehily

The audit level is at about international benchmarks, at 2%. There are some administrations that are higher and some that are lower. An audit is extremely expensive both for us and for business and is extremely intrusive. The international view is that if one gets the right cases the coverage is probably enough. That is why we are putting our energies into getting the right cases.

Deputy Róisín Shortall

Has Revenue made any recommendations in regard to a receipt-based system for self-employed people?

Ms Josephine Feehily

I am not sure I understand what the Deputy means by a receipt-based system.

Deputy Róisín Shortall

That there would be a legal requirement for barristers, solicitors, consultants, accountants, plasterers, carpenters to provide a receipt for work done.

Ms Josephine Feehily

I do not know. I have not, personally, made such a recommendation. There are some issues around receipts in respect of certain taxpayers who choose the receipt basis of VAT. They would have to have a different kind of records from those who are on a cash basis. There are also electronic receipts. We would have done micro receipts but not on the basis suggested by the Deputy. I have no idea whether, in the past in the context of self-assessment in the 1980s or whenever, that was looked at.

Deputy Róisín Shortall

To the best of the Accounting Officer's knowledge, do many other countries operate such a receipt basis?

Ms Josephine Feehily

I am not aware that they do. I am not saying that there are not some who do but, to the best of my personal knowledge, I am not aware that they do.

Deputy Róisín Shortall

From my experience they do. I want to move on. In regard to representations the Revenue receive in respect of individual cases, to what extent is this an issue where they are made on behalf of taxpayers who are being audited, examined or brought before the courts? Does Revenue have a policy in respect of how it deals with representations?

Ms Josephine Feehily

Does the Deputy mean political representations?

Deputy Róisín Shortall

Not specifically but I would like to know about political representations as well as others.

Ms Josephine Feehily

Is it an issue? Certainly it happens. We also get parliamentary questions about individuals. I do not have the numbers with me. They are regularly compiled because they are regularly released to the media but I did not take them with me. They are not significant, we do not get thousands by any manner of means.

The Deputy asked if I have a policy about it. Yes, I have a policy and I have a view. It is probably the best complaints system I could have. I review those that come into my office regularly from the point of view of the topics and the themes to see what it says about our performance because if people are raising issues that reflect on our performance in terms of the way they are treated, the fact that we are not answering telephones, that they are not getting their entitlements quickly enough, I want to know about it. My approach to these, as with any other correspondence, is that I welcome anything that points up weaknesses in our performance. We treat them without fear or favour.

In regard to parliamentary questions, the convention is fully honoured where the Revenue Commissioners advise the Minister on the current position in a case. There is no interference, if that is the point of the question, with due process as a result of the fact of a representation. It can happen in the course of a representation, whether from a political person or from a concerned friend, neighbour, family member that a new piece of information will be brought to bear on a case that was not brought to bear before. Perhaps the taxpayer involved did not feel able to engage with the system. It is a complicated system and they cannot afford an agent in some cases. It is not unusual that a new piece of information would be brought to bear and, obviously, we would take that into account and review the case in the light of it but it would be reviewed in the same way as if it came from the person themselves or from their accountant.

Deputy Róisín Shortall

Does the Accounting Officer ever get calls directly from politicians?

Ms Josephine Feehily

Would I ever get calls directly?

Deputy Róisín Shortall

I know there was a practice in the past. In recent years has the Accounting Officer ever got a call from a Minister or a Deputy?

Ms Josephine Feehily

No. I have not got a call other than to congratulate me on my appointment, when I did get a couple of calls.

Deputy Róisín Shortall

I mean from a Minister or a Deputy who——

Ms Josephine Feehily

I know what the Deputy means.

Deputy Róisín Shortall

——who might be pursuing some information.

Ms Josephine Feehily

I am certain on that point. The reason I was looking was that I wanted to be sure I was reflecting back. I never get a personal telephone call. I want to be clear about it, there will be telephone calls from the parliamentary offices of Deputies or from their constituency offices to my office to my staff and they will be dealt with. We do have a special helpline for Members of the Oireachtas, the so-called Deputy inquiry line. Those kinds of helplines were put in place a long time ago to facilitate the conduct of business. They are all focused on giving information and making sure that people who, perhaps, do not have the benefits of an agent and maybe do not have the mechanisms to get in touch with us themselves, get the same kind of service as if they could. There is nothing inappropriate in them.

Deputy Róisín Shortall

I am not talking about that.

Ms Josephine Feehily

I am at pains to point that out. Many of the questions seek factual information, such as statistical information, data, numbers, etc.

Deputy Róisín Shortall

Sure. The type of call I am concerned about is where the Revenue may have started proceedings against an individual and the Accounting Officer receives a call to ease up on the individual. Does that happen any more?

Ms Josephine Feehily

I have never received a call asking me to ease up on proceedings.

Deputy Róisín Shortall

May I ask about training and qualifications within the Revenue?

Ms Josephine Feehily

Yes.

Deputy Róisín Shortall

There has been a fair amount of public criticism recently about the lack of professional expertise in the Department of Finance, in respect of the very complex issues facing the country at present, the Office of the Director of Corporate Enforcement and the Financial Regulator's office. What programmes are in place to ensure staff are adequately qualified and kept up to date on tax law, accounting procedures generally and company law?

Ms Josephine Feehily

It is interesting that the Deputy should ask me about this. It is a matter about which we have been concerned in the last couple of years because we have a demographic problem. There was a lot recruitment in the 1960s and early 1970s which is now washing out of the system and we are losing proportionately larger numbers than in the past, simply on age grounds and much expertise and corporate knowledge is going with them. It is a matter about which we have been concerned. We have in place a very innovative programme in partnership with the University of Limerick. Historically, Revenue has delivered its own technical training in respect of the various tax heads, accounting, book-keeping and so on. Such training, which is still delivered by my staff, now receives academic accreditation by the University of Limerick to national diploma standard.

In January we had a graduation ceremony for this year's graduates. At this stage 200 or 300 of our own staff have been academically qualified to national diploma standard in applied taxation. That is not to say that the rest are not qualified. We are not necessarily requiring people who are well qualified to go through this course. That programme will continue. It has brought a real professional edge to the training and it has delivered good personal benefits to the staff involved because they feel they get recognition for something that used to be called training. It is now training and education and the fact that it is recognised separately by an academic body gives it a very significant edge.

A couple of years ago we introduced with the university a degree course, a BA honours in applied taxation, for approximately 30 of our key people. They would be focussing on the higher end, more sophisticated tax planning and forensic accounting. They would choose their various topics. That programme will continue.

Deputy Róisín Shortall

How many are there?

Ms Josephine Feehily

About 30 per year for the last two years, so we will be starting the new intake now. On top of that, we have standard programmes that all Departments have whereby we refund fees to staff. For example, in 2007, which is the year under examination, we refunded €177,000 to staff who were doing courses in their own time. Those courses are all biased towards accounting, financial — ones that are appropriate to company law and our business.

The final piece of the jigsaw in terms of our approach to this has been targeted recruitment. In the last couple of years we have focussed on recruiting small numbers but with key disciplines. Those staff tend to come in already qualified in tax accounting and company law. We would put some of those directly into the BA degree if they need to be upskilled. In the first couple of years, we would put most of them directly into audit.

Deputy Róisín Shortall

On a point of clarification, does Revenue have a specific graduate recruitment programme?

Ms Josephine Feehily

We did have for the last three years. The advertisement says it is at administrative officer level in the Office of the Revenue Commissioners, as opposed to the AO level in the Civil Service. We have that as well and avail of both.

The Public Appointments Service would run screening and selection tests for us in its usual professional way, but we set out the underlying qualifications we want and those people would come in directly to us. It might not sound like very much within the current budgetary situation, but since the beginning of the year we have made four appointments out of that programme. I am pleased that I was able to make four this year out of that programme. In previous years the numbers were higher. For the last three years we have been addressing this problem by coming at it from the viewpoint of professionalising training with the academic overlay, focussing our refund of fees on the disciplines we need, and having small but niche recruitment programmes. We have also hired three professional economists and statisticians, who are available within the organisation to work in teams and provide analysis and advice to the staff who are trained in tax matters.

Deputy Róisín Shortall

If, for example, one takes it from executive officer upwards, what proportion of Revenue staff would be graduates and what proportion would have a postgraduate qualification?

Ms Josephine Feehily

I do not have that information with me but I could probably make a stab at it from our records.

Deputy Róisín Shortall

Perhaps Ms Feehily can give us that information afterwards.

Ms Josephine Feehily

Sure. We do not necessarily capture everybody who graduates unless they come in as a graduate or we have paid for their graduation. From our HR system we would probably have a stab at it. I can give it to the Deputy later.

Our total outlay in 2007 between training courses, refund of fees and IT training was €2.678 million.

Deputy Róisín Shortall

I wonder why Revenue went for a diploma course in Limerick rather than a degree course.

Ms Josephine Feehily

A diploma course is enough for the majority of the staff. It is a national diploma and is quite a high standard. The modules on tax, including VAT, are in it, so it provides us with the training coverage we need for the vast majority of our staff. It is a national diploma standard and we then have the BA degree for a subset of those. My colleague, Mr. Harrahill, was on the course board. There was also an academic overlay. We were providing the training ourselves, so the academic judgment was about awarding it at national diploma level rather than degree level. For the vast majority of the work we need to do, we are satisfied that the course components provide our staff with the skills they need. A small number every year is enough at degree level for the really sophisticated and complex stuff.

Deputy Róisín Shortall

Can Ms Feehily tell us how many Revenue staff have legal qualifications?

Ms Josephine Feehily

I do not have that information.

Deputy Róisín Shortall

Perhaps Ms Feehily can give us that information afterwards.

Ms Josephine Feehily

We have about 16 or 17 solicitors in the solicitors' office, but a lot of our staff have legal qualifications in their own right.

Deputy Róisín Shortall

Perhaps Ms Feehily can provide us with that information.

Ms Josephine Feehily

It would be one of the factors we look for when they come in.

Chairman

I have a question on whistleblowers. What facilities are there for members of the public to phone Revenue with stories about what they see? What do you call them?

Ms Josephine Feehily

They are good citizen reports or GCRs. There is not a dedicated number but we do get them. A number of them come into my office. All Revenue districts get them.

Chairman

Would they all be investigated?

Ms Josephine Feehily

They are almost all anonymous. They would all be looked at by somebody to see if there was anything that might help us. Sometimes, the underlying suggestions in such reports would not give us enough information even to identify the person. Where we can, however, they would all go into the system and be looked at by an officer on the ground.

Chairman

I will now call on the Comptroller and Auditor General to make his final comments.

Mr. John Buckley

Given the size of the tax collection, the effectiveness of the system is important so as to maximise the yield, especially in this economic climate. The discussion has ranged over Revenue's mechanisms, first, to target non-compliance based on computerised risk profiling. To some extent the jury is out on this. On the face of it, pursuing the riskiest cases is likely to be the most cost-effective approach. In order to clear all that up, however, the Accounting Officer has undertaken to evaluate the effectiveness of this approach against traditional methods of selecting people for review or audit.

Revenue is also committed to isolating cases that appear to have increased in risk between 2008 and 2010, and to check these by way of follow-up audit. Of course, the effectiveness of this will depend on the outcome of the first test that has to be done, so it will depend on whether REAP itself is judged to be the best way to identify risk.

There has also been a commitment to continue to use random audit to enable Revenue to get a handle on the general level of compliance.

Taking both days together, the overall discussion could be summed up in the conclusion that Revenue needs to be able to distinguish the impact of economic factors — such as any contraction in wages, interest, profit and rent, or capital transactions — from taxpayer behaviours, including the tendency towards non-compliance and recidivism, in addition to the effectiveness of its own systems — in other words, basing collection actions, including the audit stance for each risk category and management information, on accurate profiling.

In today's session, the Accounting Officer has indicated that REAP will identify mismatches between interest reported by financial institutions and individuals on an ongoing basis from now on. The committee itself has signalled that it will seek to follow up on instances where companies have failed to remit taxes deducted from employees and traders — in that case it is VAT, obviously. In particular, they will be looking at whether the veil of corporate personality should be lifted to make directors responsible or alternatively whether commonality checks on registration are effective to prevent a recurrence of that kind of behaviour.

Revenue has said that its chief concerns are around the cash economy and is continuing to carry out sectoral audits, and in certain instances what are called real-time audits, which means intervening in the course of a transaction as it is ongoing. The idea Revenue is pursuing is to build up a model for each sector in the cash economy, designed to identify the level of transaction activity. That will vary from one sector to another. There will be a certain amount of cross-checking through REAP. There are a number of other strands, but those are the main strands that came out of the two days' discussions.

Chairman

I thank Mr. Buckley. I also thank Ms Feehily and her colleagues.

Deputy Jim O’Keeffe

I noted the report referred to the tax issues arising out of the tribunals. According to the report, 21 cases were originally the subject of inquiry as a result of the Moriarty tribunal and one further case was taken in 2007. Of these 22 cases, 17 are currently under investigation and five have been settled for a total of €8.44 million. Twenty seven cases are being investigated as a result of the Mahon tribunal. Six of these cases have been settled for €26.6 million and payment on account of €5.94 million has also been received.

What is the up to date position arising from the cases settled for €26.6 million in respect of which payment on account had been received? Have those payments been fully cleared arising from the settlements made, are further payments on account being made or is there an arrangement for instalment payment?

Ms Josephine Feehily

There were 27 cases being investigated as a result of the Mahon tribunal. As we reported, six had been settled for €26 million.

Deputy Jim O’Keeffe

When was that report?

Ms Josephine Feehily

The information would have been given to the Comptroller and Auditor General in the summer.

Deputy Jim O’Keeffe

The summer of what year.

Ms Josephine Feehily

The end of June 2008, when this report would have been prepared by the Comptroller and Auditor General.

Deputy Jim O’Keeffe

Could Ms Feehily update us on what has happened since?

Ms Josephine Feehily

The up-to-date position is that 18 of the 27 cases have been settled.

Deputy Jim O’Keeffe

For how much?

Ms Josephine Feehily

For €32.6 million.

Deputy Jim O’Keeffe

Is that an additional €32.6 million?

Ms Josephine Feehily

No, that is a total. It is an additional €6 million.

Deputy Jim O’Keeffe

The corresponding figures are as follows: six settled for €26.6 million by the end of June and that number has risen to 18 settled——

Ms Josephine Feehily

For €32.6 million.

Deputy Jim O’Keeffe

——for €32.6 million. What of the payments?

Ms Josephine Feehily

I do not have a figure for payments on account. One can take it that the rest are still under investigation. Some of them probably would have payments on account because it stops the interest clock. Obviously, we will work all of those through to the end.

Deputy Jim O’Keeffe

Do I take it that the reference to payments on account involves a settlement and then an instalment arrangement?

Ms Josephine Feehily

No. There would tend to be an engagement, if I might use that word, between my officers and the taxpayer. The taxpayer would accept certain issues and others would be disputed. It is not unusual for the taxpayer to make a payment on account while not accepting the liability, but it stops the interest clock. While the discussions are ongoing, and the disputed matters — perhaps technical arguments — are ongoing or information is being sought by us and maybe the taxpayer must go to some trouble to get it, especially if it is historical, it is not unusual for a taxpayer to make a payment on account.

Deputy Róisín Shortall

Is it an admission?

Ms Josephine Feehily

It is an acceptance that the taxpayer must pay us an amount of money.

Deputy Jim O’Keeffe

In respect of some part of it.

Ms Josephine Feehily

Precisely, but it is not accepting our view at that point. There is no question but it is accepting that the taxpayer owes money. Deputy O'Keeffe is correct.

Deputy Róisín Shortall

Does Deputy O'Keeffe recall that arose in the case of the Taoiseach's predecessor?

Deputy Jim O’Keeffe

Yes.

Ms Josephine Feehily

The total yield on that tribunal paragraph is €41.04 million by the end of the year. That is a combination of the Moriarty tribunal——

Deputy Jim O’Keeffe

The Moriarty tribunal and the Mahon tribunal.

Ms Josephine Feehily

——and the updated Mahon tribunal figures I have just given.

Deputy Jim O’Keeffe

How long will it take for this to play out?

Ms Josephine Feehily

I mentioned in my opening remarks some of the specific cases in the legacy investigations may take years if there are issues that end up being before the appeals commissioners and then on in through the courts. That would tend to be technical argument and some of those cases can take years.

Deputy Róisín Shortall

I seek clarification on issues I raised earlier. Can Ms Feehily give us a profile of the kind of income returns being made to the Revenue by different professions? Can she tell us, for example, how many general practitioners and the total income declared?

Ms Josephine Feehily

We can give the Deputy a profile based on NACE codes, which are sector based CSO codes. We have published the tax yield recently using those codes, by sector, on our website but we cannot go down to the level of an individual profession within a sector because we do not capture the data in such a refined fashion. We capture it by reference to these CSO standard codes using sector rather than a micro-profession.

Deputy Róisín Shortall

Are they publicly available?

Ms Josephine Feehily

The yield is certainly publicly available by sector in the Revenue statistical report.

Deputy Róisín Shortall

Not the declared income.

Ms Josephine Feehily

I would have to check it and see. There is some detail in it.

Deputy Róisín Shortall

Maybe Ms Feehily could let the committee know about that.

Ms Josephine Feehily

Deputy Shortall would be familiar with it. From the statistical report, it is normal for us, for example, to show farmers, and so on. There are income bands by sector.

Deputy Róisín Shortall

If we could have that, it would be useful.

Chairman

Is it agreed that we note Vote 9, Office of the Revenue Commissioners, and dispose of chapters 3.8 to 3.13? Agreed. I thank the chairperson of the Revenue Commissioners and her staff for the forthright responses to the questions today and last week. At the next meeting on 5 March we will look at the Office of Public Works, chapters 4.1, the property management issues, and chapter 4.2, flood relief projects, of the 2007 report of the Comptroller and Auditor General.

The witnesses withdrew.

The committee adjourned at 12.30 p.m. until 10 a.m. on Thursday, 5 March 2009.