COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 16 Feb 2012

Chapter 31 - National Sports Campus (Resumed)

Mr. Tom O’Mahony (Secretary General, Department of Transport, Tourism and Sport) called and examined.

Chairman

We are now dealing with No. 7, the 2010 annual report of the Comptroller and Auditor General, chapter 31 - National Sports Campus. We will take this item separately as it is a resumed session and we have witnesses from the Revenue Commissioners, the Valuation Office and the National Sports Campus Development Authority for this part of the examination only. Thereafter we will examine Vote 32, chapter 27 - maintenance of regional and local roads.

I remind members, witnesses and people in the Visitors Gallery to turn off mobile phones as interference from phones affects the sound quality of the transmission of the meeting. I advise witnesses that they are protected by absolute privilege in respect of the evidence they give to the committee. If they are directed by the committee to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given, and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a Member of either House, a person outside the House or an official by name or in such a way as to make him or her identifiable. Members are 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 a Minister of the Government or the merits or objectives of such policies.

I welcome Mr. Tom O'Mahony, Secretary General of the Department of Transport, Tourism and Sport and I ask him to introduce his officials.

Mr. Tom O’Mahony

Mr. Fintan Towey is the principal officer responsible for the finance unit, and Mr. Donagh Morgan is the assistant secretary responsible for the sports division.

Chairman

I welcome Mr. Barry O'Brien, chief executive of the National Sports Campus Development Authority, and Mr. Dermot Quigley, Commissioner of Valuation. Mr. Quigley, please introduce your officials.

Mr. Dermot B. Quigley

I am accompanied by Mr. Patrick Cooney, who is head of the valuation services of the office.

Chairman

And the Revenue Commissioners?

Mr. John Farrell

I am John Farrell, principal officer in the VAT interpretation branch.

Mr. Ronan Gallagher

I am Ronan Gallagher from the Department of Public Expenditure and Reform.

Chairman

I ask Mr. Buckley, the Comptroller and Auditor General, to introduce the 2010 annual report, chapter 31: National Sports Campus.

Mr. John Buckley

This is a resumed session. The session of 10 November last reviewed the current state of development of the sports campus project, which has cost €190 million up to the end of 2010. The main asset created has been the National Aquatic Centre. The project costs of the centre include the cost of the authority absorbing VAT on the construction, since it was not possible to cover the VAT it paid in the course of construction.

Following clarification in the course of legal proceedings, it was found that a lease to an operator of the premises was deemed to be an exempt letting since it did not meet the economic value test. This means the capitalised value of the lease was lower than the cost of creating the asset. In the period 2000 to 2004, services were provided to the authority by an executive services team. The VAT exclusive charge reflected in the accounts in the period 2000 to 2004 for those services was €3.6 million.

Chairman

As we met previously on this chapter, the Accounting Officer will not be giving an opening statement. However, he has supplied to the committee a detailed list of papers on the legal strategy, including advice received from the Office of the Attorney General, which is confidential. The witnesses from the Valuation Office and Revenue are here to assist the committee, having regard to the evidence given on 10 November when we last dealt with this issue. The CEO of the National Sports Campus Development Authority is also present, and questions about the development at the campus can be raised during this session. I invite Deputy Derek Nolan to begin proceedings.

Deputy Derek Nolan

I welcome the witnesses and thank the Secretary General for the comprehensive correspondence he has provided.

May I give an overview of what was outlined during the session of 10 November last? It was proposed to build Campus Stadium Ireland, part of which was to be the National Aquatic Centre. There was an issue at the time about the cost of the project and the National Aquatic Centre believed it could raise VAT and use it against building costs. VAT regulations changed, which we will discuss with the Revenue Commissioners, and it is asserted that it was to keep the overall cost of the project low that a certain method of calculating VAT was used. As a result, the campus project did not use the economic value test but instead used a different VAT calculation.

The issue is that it led to a series of events where the strategy of seeking that €10 million in VAT changed over time from being one of seeking to have it recouped, to getting advice from the Comptroller and Auditor General that it would not make common sense to chase that amount, to the legal strategy being changed due to problems with the tenant, Dublin Waterworld, to including that in legal action, which subsequently led to the issue of the VAT going all the way to the Supreme Court nine years later, the taking of which cost the State under €1 million, and which case was lost.

Two issues came out of the previous session. The first is whether the correct VAT approach was taken at the initial stages. The second is whether the legal strategy followed was prudent and cost effective for the taxpayer.

I will begin with the VAT strategy. At the previous session, Mr. O'Mahony said he was satisfied that the VAT strategy taken was a correct one, even though the Supreme Court subsequently stated it was an incorrect approach. Can Mr. O'Mahony fill the committee in a little on the VAT strategy at the time?

Mr. Tom O’Mahony

The strategy that was taken was in line with the Revenue guidelines which were in place until the Supreme Court effectively ruled in 2010 that the guidelines were not a correct interpretation of the legislation. Everyone will understand that for companies and even tax practitioners, Revenue guidelines carry a huge amount of weight because tax legislation is very complex. Successive Finance Acts change paragraphs of previous Acts so one looks to the guidelines for the interpretation of the legislation and, most significantly, for advice on how Revenue is going to interpret them. Therefore, for as long as the guidelines were in place, they were the correct basis for tax decisions taken by Campus Stadium Ireland Development Limited or any other entity. The committee is aware from the previous discussion that in 2006, the High Court upheld the arbitration decision that was based on the guidelines. That remained the case until the Supreme Court found in 2010 that the guidelines were incorrect, from which it follows that all the decisions that had been made on foot of the guidelines were incorrect, but they only became incorrect retrospectively at that time.

I think I made the point on the previous occasion that I attended the committee that if I were the Accounting Officer responsible for the issue and it had arisen in 2007, 2008 or 2009, I would have been speaking to the committee from the position of having a High Court ruling which confirmed that what had been done was correct. If for some reason the VAT had not been pursued, I would now be trying to explain to the committee why VAT that was due had not been collected when the legislation said it should have been. I used the term "game changer" on the previous occasion. The Supreme Court ruling in 2010 was such. It made the previous decisions retrospectively incorrect, but they were not incorrect at the time they were made. I gave the committee very detailed-----

Deputy Derek Nolan

Is it fair to say that it was not cast in iron that that was the case because, in fairness, in the legal proceedings that were taken, the defendant in the matter argued the contrary, which was based on an interpretation of the guidelines? Their interpretation was ultimately held to be correct by the Supreme Court. If their strategy was ultimately proven to be correct, surely there was some legitimate way of interpreting the evidence in a different way?

Mr. Tom O’Mahony

Yes, of course, and this is the point about law, including tax law, that it often comes down to interpretation. However, we should not forget that the High Court and the arbitrator had found that the interpretation taken by Campus Stadium Ireland Development Limited was the correct one. I now say that was wrong, but I say that because the Supreme Court in 2010 said it was based on guidelines which were wrong. One cannot apply 20:20 vision to decisions made at an earlier stage if a subsequent Supreme Court judgment has overturned it.

Deputy Nolan will be aware from the detailed documentation I gave to the committee, to which the Chairman referred, that the ultimate decision to include VAT in the claim was based on legal and accounting advice. Most significantly, the advice of the Attorney General in 2005 revised advice that superseded earlier advice that the claim should be dropped. Members have in their possession documents from various parties. I noted a comment made to the committee by a party to the court case which said that I strained credulity in the evidence I gave. I take that very seriously, as members can imagine. The credibility of my statement about the Attorney General giving revised advice in 2005 is backed up in the documents which I gave to the committee.

Deputy Derek Nolan

Will the Secretary General tell me which letter he is talking about in the context of the Attorney General's revised advice? He helpfully numbered the letters from one to 16. Which one says that the Attorney General overruled the advice?

Mr. Tom O’Mahony

If the Deputy has the letter where I numbered all the documents, it is the sequence that begins with No. 12. I may have a difficulty in reading anything into the public record. I will not necessarily quote everything that is contained in the letter because of the point we made earlier about the Attorney General's advice being confidential. I may draw Deputy Nolan's attention to particular things without necessarily reading the wording out, if that is okay.

Deputy Derek Nolan

Yes.

Deputy Kieran O’Donnell

Will it be on the screen?

Mr. Tom O’Mahony

Yes. No. 12 in the documents I provided to the committee is a draft letter from the Department to Campus Stadium Ireland Development Limited with tracked changes made by the Office of the Attorney General.

Mr. Donagh Morgan

Is it No. 12?

Mr. Tom O’Mahony

Yes. The item immediately before that, No. 11, is an e-mail which we received on 11 November last year from the Office of the Attorney General confirming that document No. 12 had issued from that office. In other words, the Attorney General's office gave us the wording.

Deputy Derek Nolan

I have read the documentation but from what I can figure out, the only correspondence that I can see that instructs the Department to take the case to the High Court, which prevents it from keeping the VAT item, is the internal memorandum, No. 10, that says the Department of Finance has indicated orally that it could not consent to abandoning the attempt to recover the VAT because of existing legislation. However, I have not secured a documented response. In my reading of the documentation provided, I cannot find any other concrete reasoning. I do not see it in the Attorney General's advice or any other advice that the Department had received to take the court case and make the issue part of the proceedings. What I do see is legal advice from McCann Fitzgerald solicitors who were consulted on the matter and were asked for their reasons it should be included. Their basic reasoning for including it is that it strengthens the case and puts a context on it. It increased the value of the case to more than €1 million, therefore ensuring it got treated more quickly and that it was dealt with by the Commercial Court. It was suggested that it made it more expedient and efficient to include the issue, but nowhere is there a line saying that the VAT issue is one that needed to be litigated further, rather that it aided the legal case against the tenant for repudiation of the lease. I do not see any advice that the VAT issue had to be litigated.

Mr. Tom O’Mahony

I suggest that the Deputy would take the correspondence that I have provided as a whole, including subsequent correspondence from the Attorney General's office written after the fact when these items were being pieced together for the purposes of the court proceedings. If he looks, for instance, at No. 17, which was a letter of 2 February 2010 from the Attorney General's office, the letter states that there was a VAT liability and there was a way of dealing with the dispute about that liability, which was taken. Document No. 16, which is the letter from the Department to Campus Stadium Ireland Development Limited, states that the claim should be included in any proceedings, and that was advised by the Office of the Attorney General.

As I explained on the previous occasion when I was before the committee, we are talking about issues that took place a number of years ago in a Department which no longer exists. My responsibility has been to go through all of the files, to consult the Attorney General's office and to try to piece this together as best I can. What emerges when one puts all of the documentation together is a process where there was correspondence, discussion and telephone calls going on between the Attorney General's office and the Department to establish what should be done. A letter was drafted in the Department and sent to the Attorney General's office. The Attorney General's office made tracked changes to that and there is subsequent confirmation from the Attorney General's office that the appropriate action was taken. It also notes that this was as instructed by the Department of Finance and in accordance with the Revenue guidelines.

Deputy Derek Nolan

That is not my reading of it from going through the documents this morning. In the presentation Mr. O'Mahony made to the committee in November 2011 he said that the legal advice received by Campus Stadium Ireland, the Attorney General, the Department of Finance and the Revenue Commissioners all stated the exact same thing, that the VAT claim must be included. The Department's legal advisers, McCann Fitzgerald, said it could be included and it would be helpful because it would increase the status of the case and get it dealt with more quickly. It did not say that the VAT issue itself needed to be litigated. I only press the matter because the VAT issue was the one which subsequently went back to arbitration, which the Department's advisers said would be the case. It then proceeded to the High Court and the Supreme Court, resulting in a huge legal bill. The Comptroller and Auditor General had stated one year before that it had made common sense not to proceed to litigation. I can take Mr. O'Mahony at his word that it was included for the right reason, namely, to get it to the commercial court, get it quickly into court and dealt with quickly, and get the tenants out of the National Aquatic Centre as soon as possible, which is what the Department really wanted to do. However, we were subsequently left with a trail of litigation that continued and which was superfluous to the original purpose - to have the case dealt with quickly - which has left us with costs. That is the issue.

Mr. Tom O’Mahony

The point is that the High Court case was won. The High Court sent the VAT issue to arbitration and the arbitrator found in favour of Campus and Stadium Ireland Development Limited.

I keep returning to my point that everything that happened at the time has to be seen in the context of what was understood to be the correct interpretation of the legislation at the time. I refer to the Revenue guidelines. Everything that happened was on foot of them. Only in 2010, when the Supreme Court made its ruling, did that foundation disappear. If I had been here in 2007, 2008 or 2009, we would have been talking about a legal strategy that had been successful, a case which had been won and an arbitration which had been confirmed by the High Court. I am not being disrespectful in saying that it is now very easy to say that, because the Supreme Court changed the interpretation in 2010, none of the steps should have been taken and none of the costs should have been incurred. This 20:20 vision was only possible after the Supreme Court changed an interpretation that was upheld by the High Court.

Deputy Derek Nolan

The issue was that if there had been litigation, it would have made no difference to the State. That is what the Comptroller and Auditor General said. If one had won in the High Court and lost in the Supreme Court, it would not have mattered because the State would have received the same amount of money. This is because the VAT issue had cancelled itself out. If Mr. O'Mahony had told me the State had lost the High Court case and did not appeal the decision because it would not have made any economic sense for the country to do so, since it would only have been incurring legal costs with no economic benefit, I would probably have said to him, "Fair play." I would have said it was the right approach, as opposed to going ahead with an appeal.

The issue, however, is that in 2004 Mr. O'Mahony's Department engaged in a strategy of not pursuing the claim on the grounds that there would be no economic benefit to the State. There was significant correspondence between the Department, Campus and Stadium Ireland Development Limited and the financial advisers on how to backtrack, talk to Revenue and determine how to undo all that had been done. Subsequently, rightly, the Department took a case against the tenants of the National Aquatic Centre. By all accounts, they were absolutely dreadful tenants. They had breached the terms of their covenants and had to be put out. In accordance with its legal advice, the Department attached the VAT liability issue in order to get into the commercial court and have the case dealt with more quickly. As a result of that decision, the case was referred back for arbitration. The Department's legal advisers told the Department that this would occur in any case. They said the case would most likely return to arbitration and that the State could incur costs as a result, but that the case would be kept on the commercial court's list.

The arbitration took place. There was an appeal to the High Court and the Supreme Court and the very thing the Comptroller and Auditor General had tried to prevent - needless litigation - occurred regardless and continued. We are left with the bill for legal costs. That is the point I am trying to make.

Mr. Tom O’Mahony

Okay. To my knowledge, these costs are not known by the Taxing Master. We do not have them at this point. I said on the last occasion I was before the committee that I had been informed they would not be excessive, that they would certainly be below €1 million. I do not know, however, what they will amount to.

The Deputy is correct in saying that, in 2004 when the Department received the advice from the Comptroller and Auditor General and the initial advice from the Attorney General, it commenced a strategy of determining how it could drop the matter. That was the correct approach at the time. Everything the Deputy has said on tracking what happened is correct. The only point at issue is whether the Department should have continued with the inclusion of the VAT in the action. The Department of Finance, the Office of the Attorney General and the legal advisers all said we should do what was done because of the VAT liability.

Deputy Derek Nolan

Mr. O'Mahony has not shown that in the correspondence sent to me. The one line I did accept was that there was an oral statement from the Department of Finance that the VAT liability had to be claimed, but this is not documented. I cannot find any documentation to the effect that the VAT issue should have been chased. It was very much a matter of getting legal advice, taking it into account and raising it if it would help with the case in getting the tenant out of the National Aquatic Centre.

Mr. O'Mahony stated on the last occasion that the Revenue Commissioners had also stated the VAT claim should be included. Can Mr. O'Mahony show me where that advice is?

Mr. Tom O’Mahony

Yes. Representatives of the Revenue Commissioners are present and they will be able to speak for themselves. I gave the committee a letter from last September that confirms Revenue's interpretation at the time was that Campus and Stadium Ireland Development Limited was obliged to issue an invoice. The letter states the various actions on the issue were the subject of correspondence with Revenue. The Revenue Commissioners were satisfied that Campus and Stadium Ireland Development Limited had complied with Revenue's interpretation, procedure and practice at the time.

One of the other documents the committee has is a memorandum stating the Department of Finance stated it could not consent to abandoning the attempt to recover the VAT because of the existing legislation. Like the Deputy, I am piecing the story together from such documents as are available. According to the document, the Department of Finance was to consult further the Revenue Commissioners, but there is nothing in the file to indicate the position changed subsequently. I do not find this surprising because Revenue had already confirmed that the invoice should be issued, based on the guidelines. At the various stages - one should remember this matter dates back to 2002-03 - there had been correspondence and discussion with Revenue about what was being done.

Deputy Derek Nolan

I have a question for Mr. John Farrell of the Revenue Commissioners. What is at issue is the VAT liability. As we are not VAT experts, Mr. Farrell might be able to clarify the matter for us. Campus and Stadium Ireland Development Limited did a VAT test - an economic value test from the Valuation Office - which resulted in a figure of €35 million. It failed the economic value test following which one can subsequently claim against VAT. The Supreme Court decided that had been the wrong approach. At the time the decision was made, was the approach of the Department and Campus and Stadium Ireland Development Limited correct?

Mr. John Farrell

The economic value test was introduced in 2002 because of aggressive avoidance schemes being marketed at the time. By registering for VAT and creating a lease, perhaps by way of a linked special purpose company, an exempt body such as a sports body could recover the VAT on development such that the lease would be for a much lower value. Essentially, the State was subsidising, through VAT, exempt bodies. That is not what the VAT legislation was designed for. The economic value test was introduced to try to ensure the existence of a test that meant transactions that were commercial would pass and that those pertaining to exempt bodies would not.

The legislation stipulated that the unencumbered rent needed to be valued. There were three scenarios. Two multiplier formulae were provided to be applied to the unencumbered rent, allowing one to arrive at the value of the lease for VAT purposes. The third pertained to the establishment of the open market price. The VAT legislation states this must be arrived at in all cases by using the unencumbered rent. The Valuation Office arrived at the value of the unencumbered rent in this case based on the documents available and identified a figure of €3 million plus. An open market price was obviously arrived at.

Our position at the time, based on our guidelines, was that a lessor, the person creating the lease, could choose any of the options. That was the position understood in the VAT community and the position of the arbitrator when the matter was referred to the High Court. That was the position in 2002.

Deputy Derek Nolan

There were three options. Two were based on unencumbered rent.

Mr. John Farrell

All three were based on unencumbered rent.

Deputy Derek Nolan

What about the economic value test?

Mr. John Farrell

The economic value test essentially asked if the value was greater than the cost on which VAT has been incurred in developing that property.

Deputy Derek Nolan

The first economic value test Campus and Stadium Ireland got stated the open market value was €35 million.

Mr. John Farrell

No, my understanding, based on the documents which were circulated last week to us, is that there were two figures on the valuation report. There was one figure for the open market price and another for the unencumbered rent. That is my understanding of what the Valuation Office arrived at. At the time, one could choose between several methods. One was using the unencumbered rent and applying a formula method. The other was the open market price which was the figure of €35 million. Our understanding at the time, based on the guidance notes when the economic credit test came in, was the lessor had a choice.

Deputy Derek Nolan

In this case the open market value of €35 million would not have satisfied the requirements. Accordingly, the unencumbered rent option was used instead.

Mr. John Farrell

If the open market price that was arrived at by the Valuation Office were applied, it would have failed the economic value test. If the unencumbered rent were used with one of the two formula methods, it would have passed it. Our understanding at the time was there was a choice between the methods.

Deputy Derek Nolan

Will Mr. Farrell define unencumbered rent?

Mr. John Farrell

It is actually defined in section 10(10) of the value-added tax legislation as follows:

Unencumbered rent for the purposes of valuing an interest in immovable goods means the rent at which an interest would be let, if that interest were let on the open market free of restrictive conditions.

Deputy Derek Nolan

What was the calculation given as the unencumbered rent that qualified?

Mr. John Farrell

We were provided with the Valuation Office report. It might be more appropriate for that office to comment on that.

Mr. Dermot B. Quigley

The unencumbered rent given in the Valuation Office report in 2002 was €3.376 million. The estimated open market price was €35 million. In the subsequent events in the Supreme Court, the €35 million figure got most attention. The Supreme Court decision, as I understand, decided once the economic value test was not met - it was not met on the basis of the open market capitalised value of €35 million supplied by the Valuation Office - the transaction under the law was exempt from VAT.

Deputy Derek Nolan

Is it correct then that as the National Aquatic Centre could fetch a rent of €3.376 million per year, it was deemed it could qualify for this VAT regulation?

Mr. John Farrell

The Deputy asked about the unencumbered rent. There were three methods by which the capitalised value of a lease was determined for VAT purposes. Two of those used the unencumbered rent and multiplied it by a multiplier. We would take the unencumbered rent as valued by a competent valuer. At the time our understanding was - and what we would have published in our notes for guidance - a lessor could choose between the three methods.

Deputy Derek Nolan

That is correct but the €3.376 million the Valuation Office accepted as a reasonable unencumbered rent-----

Mr. Dermot B. Quigley

It was calculated. That was the figure put forward by the Valuation Office as the unencumbered rent figure. That was the figure supplied in the report prepared by the Valuation Office on foot of the request for a valuation from Campus and Stadium Ireland.

Deputy Derek Nolan

The fact remains the National Aquatic Centre never lived up to any of its original financial projections. It has been subsidised by the State since its opening and has never been able to float. It would never have been capable of achieving a rent of €3.376 million since it has been receiving a subsidy from the State since it opened.

Mr. Dermot B. Quigley

This was not the first VAT case that would have come to the Valuation Office. Revenue would have requested valuations or checking of valuations prepared from the Valuation Office. The valuer in this case was experienced and had dealt with most of the VAT cases in the Valuation Office as they arose.

As regards the rent, this is not actual rent. This is a calculation of unencumbered rent for the purposes of VAT legislation. My Revenue colleague has defined it as the value of the letting of a premises that would be obtained in the open market without restrictions. In other words there are no encumbrances to the lease. In this particular case, there were encumbrances to the lease and that was common to all the parties. The encumbrances included the set asides, the covenanted free time and other facilities to be provided to Campus and Stadium Ireland.

It must be borne in mind what this facility was. First of all, it was a facility for the State to provide international competition facilities, top athlete training facilities and so on. This was a facility with a significant development cost of €67 million. This had to be valued on the basis of what the facility could obtain in an unencumbered rent, without restrictions, in the open market. That was the task facing the valuer. The problem-----

Deputy Derek Nolan

I accept that. There was also a commercial element to this. It was expected revenue would be coming in, it would be a business operation and it would be open to the public who would pay to use it. It was not purely a State building that would not be used for other purposes. There was a significant commercial element to it which the PWC report, for which a significant amount of money was paid, gave two scenarios. First, a worst-case scenario stating it would just be profitable and, second, it would make a considerable amount of money. I am sure these fed into the Valuation Office's calculations when determining the unencumbered rent.

Mr. Dermot B. Quigley

No. We had much information from the lease but not all of it. Some of it came along subsequently. The facility being valued was the entire facility. The fact that the lease was being created for some commercial activity validly to take place was not the issue for the Valuation Office. The Valuation Office was valuing the entire facility. When doing the valuation, the question arose as to what was the appropriate method to use. This was a unique facility with no existing comparator in the State. It was certainly not an ordinary leisure facility. Equally, the lessee was not trading at the time. There were projections but there was no history of trading activity.

The view taken by the valuer, which has been stood over in subsequent reviews in the Valuation Office, was that a receipts and expenditure basis for the valuation would not be appropriate. He decided the appropriate methodology to value a lease of this kind for a unique facility was on construction-related costs, the so-called contractor's method. The total cost of the facility was known. Hard figures were available for that. The rental value was calculated as 5% of those costs. I have not gone into all the details but that is roughly what happened. We are valuing a facility without restrictions unencumbered as per the requirements of VAT law and the value of that facility is €35 million, the open market price. That would be the price on the second calculation. If the facility was leased for 30 years and if one was paying out a sum today to get that rent over a period, we calculated in the office that would be €35 million but the rent was 5% of the construction costs, €3.376 million. It was not the rent calculated de facto between the parties based on encumbrances and certain restrictions or rights being kept back. Some of the figures in the papers before the committee may have just taken those kind of figures - I cannot say what private valuers did - and said, “Here is the profit projection. That is what it will be”. The Valuation Office’s approach was a principles-based approach from first principles, “Here is how we will calculate the value”. After all, this was a building costing the State €67 million for development costs. If that facility was let out without restriction, would a rent of €300,000 make sense?

Deputy Derek Nolan

Mr. Farrell said the VAT regulations were changed to prevent the State from subsidising development projects that were not generating sufficient revenue. They were changed to prevent exactly what the Valuation Office's valuation allowed to happen.

Mr. Dermot B. Quigley

No, I do not-----

Deputy Derek Nolan

I put this question to Mr. Farrell. Am I correct that the VAT regulations changed in 2002 to ensure VAT on projects such as this would not be chargeable, as happened?

Mr. John Farrell

I do not quite understand the logic there. What I was trying to explain is that the law changed in 2002 because of exempt bodies engaged in sporting activity. A sports body building perhaps an all-weather pitch would register for VAT, recover the development costs and then create a lease at a lower value. Essentially, the construction cost has, say, €400,000 of VAT on it and then, in the subsequent lease, it is valued in such a way that the VAT on the capitalised value is only €100,000. Therefore, there is a €300,000 loss to the Exchequer in a situation where a body would be exempt. That is what I was trying to explain.

Mr. Dermot B. Quigley

The Deputy's comment arose from what I said. The thing that changed in 2002 was the economic value test, which was introduced for the reasons Mr. Farrell has explained, and this is the factor that the Supreme Court adduced on the basis of the Valuation Office's open market price as resulting in a failure of the test in this case. In other words, the 2002 legislation brought in the test, which was carried out using the valuation for the open market price or capitalised value, not the rent. The valuation figure, when the test was carried out, resulted in a failure and the decision of the Supreme Court that the transaction was not liable for VAT. The 2002 legislation is resulting when one gets to the Supreme Court in the decision that the other methodologies do not come into play because there is a prior failure of the economic value test and the court is interpreting, as I understand it, the test requirement as a prerequisite. There has been some criticism of Valuation Office calculations and figures but the fact of the matter is that the Supreme Court highlighted the figure in the office's report, €35 million, as the basis for its conclusion that the transaction was not liable for VAT.

Deputy Derek Nolan

I do not question the probity of the economic value test carried out by the office. I accept that.

Mr. Dermot B. Quigley

We did not carry out an economic value test. Our job was nothing to do with the implementation of Revenue law. The office's job was to prepare a valuation for unencumbered rent and open market price and that is what it did. I have to emphasise that the Valuation Office at no stage was involved in any discussions with Campus & Stadium Ireland or Revenue on the precise computation of VAT in this case, the methodology that might be used or, indeed, whether the economic value test would pass or not.

Deputy Derek Nolan

There was an arm's length relationship between the office and Campus & Stadium Ireland at all times. There was no discussion about which one would suit better. The office simply provided-----

Mr. Dermot B. Quigley

Absolutely not. Discussions, correspondence, projections and other information were sent and the valuer did not change the valuation report but the Valuation Office's job was to produce a robust valuation based on the methodology for a unique facility, which I have described, to give the open market rent and the capitalised value, which means the open market price as described in the legislation. It was not our task to engage in economic value testing or the selection of a methodology. That was nothing to do with the Valuation Office and, in my review of the papers, I found no basis for that suggestion. I do not know that anybody suggested that.

Deputy Derek Nolan

Revenue accepts what Mr. Quigley said, which is that the construction-related costs at 5% rent was an appropriate and satisfactory method of calculating at the time.

Mr. John Farrell

We have no role at all in valuations. We require a valuation to apply the law so how the valuation is arrived at is not our remit at all. We are provided valuations in this and many other cases and, based on those valuations, we then apply what we understand the law at the time to be.

Deputy Derek Nolan

Revenue, therefore, takes what is presented to it at the time.

Mr. John Farrell

Absolutely.

Deputy Derek Nolan

The one person who disputed it was the defendant in the case who said from an early stage that this was an unfair bill and this was not how it should have been calculated. He claimed he was being landed with an inappropriate bill and fought all the way to the Supreme Court over it.

Mr. Dermot B. Quigley

The valuation that the defendant relied on in that argument in the arbitration was the Valuation Office's €35 million figure. I point that out for the record because there was a lot of commentary about what the office did and did not do.

Deputy Derek Nolan

This has reached a conclusion legally but clarity and foresight were not to the fore during this development. The decision after the High Court case to evict the tenants referred the issue back to arbitration. The strategy should have been to observe the Comptroller and Auditor General's view, which was to settle as quickly as possible, and not to continue with the arbitration process, as happened. It is regrettable that did not happen.

Deputy Simon Harris

I thank the officials for attending. Deputy Nolan has teased out much of the detail and this has been useful in progressing the matter. I would like to step back a little because the discussion has been a little chaotic. As a lay person who is not a tax expert, what I am taking from this is that the left hand did not know what the right hand was doing. The Oireachtas makes legislation and on 25 March 2002, the Finance Act passed and my understanding is the economic value test was introduced under it. I fully accept Mr. Quigley's assertion about the role of the Valuation Office and I respect the work done by his office on this. The fact that the Valuation Office's valuation was used throughout by both sides, so to speak, is testament to that work. I do not have a question over that. However, there is real confusion over the fact that the Department and the National Sports Campus Development Authority were relying on guidelines from Revenue which seemed to indicate that there was an option other than to use the economic value test which the Supreme Court, interpreting the Finance Act passed by the Oireachtas, found to be incorrect. While I do not direct this at Mr. Farrell personally, if Revenue is misinterpreting or misadvising the State on how to interpret the Finance Act, we have a very fundamental problem because effectively the legal entity surrounding the Department pursued a course of legal action that lasted eight years and ultimately in the Supreme Court was found to be bogus, invalid - one can call it what one will - regarding the VAT issue. The highest court in the land found it not to be correct.

Mr. O'Mahony and - I suppose - Mr. Morgan have told this committee both today and in the past that they relied on the guidelines of Revenue. My question for Mr. Farrell is quite simple. Were the Revenue guidelines incorrect?

Mr. John Farrell

To answer the Deputy's question, the Supreme Court found they were incorrect - yes. The basis on which the Supreme Court reached its decision was to do with the wording that is actually in Regulation 19, which talks about the fact that one can use the two multiplier methods in the absence of evidence. The Supreme Court found that the Valuation Office report which put a value of €35 million on the open market price was evidence. That is what it actually found. Up to that time when we came out with our notes for guidance of inspectors on it in 2002 we said that a lessor could chose between the three methods. That is what our position was. We believed that was the position. We really believed it. It applied not just in this case - in all cases when we were approached that is what we actually told people.

Deputy Simon Harris

I am not in any way implying that Revenue acted in any sinister manner. However, for eight years from 2002 to 2010 the Revenue Commissioners, which are not charged with creating policy, effectively advised people wrongly on the Finance Act. I believe that is a fair assertion of what happened. As a result a Department pursued a legal action that will end up costing the taxpayer money because it was provided with the wrong advice from Revenue.

I turn to the Secretary General on that issue. Am I correct in asserting that had the Revenue guidelines been different and indicated the need to meet the economic value test without having options 2 and 3, the Department would not have pursued the legal action relating to the VAT?

Mr. Tom O’Mahony

I think we have said the Revenue guidelines provided the basis for the approach that was being taken. In fairness to Revenue, we should also point out that the High Court in 2006 and the arbitrator accepted those. It actually was the Supreme Court interpretation in 2010 that overturned it.

Deputy Simon Harris

Thank God for the Supreme Court. It shows the responsibility on Revenue to ensure it enacts the wishes of the Oireachtas in a much more careful manner. The seriousness with which Revenue guidelines are treated by institutions in the State is appropriate. People know it is Revenue's job to collect taxation based on the policy of the Oireachtas. If the Revenue guidelines are wrong and it could go all the way to the High Court which could attach such weight to them that it decided in favour of the Department's action, thank God the Supreme Court looked at this matter in a more thorough fashion. I might turn the question on its head. Is it fair that a Department or that the National Sports Campus Development Authority would rely entirely on guidelines rather than on legislation? Did departmental officials have any conversations - I believe the Secretary General referred to one earlier - with the Department of Finance on this? If the Department of Finance, which drew up the legislation, was not aware of the implications of its own Act, that is a different matter.

Mr. Tom O’Mahony

I have to say as I said at the outset that tax law is immensely complex as everybody acknowledges. I think that is why one has guidelines. Even tax practitioners - accountancy firms and so on - will rely on the guidelines as an indication of how Revenue is going to interpret the legislation. The records show that the Department did ask the Department of Finance. When the Department was investigating on foot of the Comptroller and Auditor General's views and the Attorney General's initial views in late 2004, when the Department was investigating whether it could actually just drop the VAT and then in the context of deciding whether the VAT claim should be included along with all the other multiple breaches of the covenant that were going to be included in the court case, the Department of Finance was asked and said: "No. There is a VAT liability. You must impose it."

Deputy Simon Harris

I find this astonishing. I know the Department of Tourism, Culture and Sport no longer exists, and the Secretary General leads the new Department which arose from it. It is astonishing that the Department for Finance, which is responsible for introducing Finance Bills, introduced such a Bill into the Oireachtas in 2002 which provided that the economic value needed to be applied before VAT could be recouped. The Supreme Court has interpreted that so there is no question about that. It was the intention of the Oireachtas and it was the legal interpretation of the Act by the Supreme Court, the highest court in the land. Yet the Department of Transport, Tourism and Sport's predecessor Department consulted the Department of Finance and the Revenue, neither of which seemed to be aware of this. It is mind boggling. My question should not be directed to Mr. O'Mahony in this regard. In terms of this committee's role in learning lessons and ensuring that recommendations are enacted, the fact that the Department of Finance was not aware of its own legislation and would misadvise - I am being generous - another Department over whether to take legal action to recoup VAT is astonishing. I would like that point noted.

I wish to return to the court issue. While he does not need to go into a great level of detail, I ask the Secretary General to recap why the State ended up in court in the first place. Why did the court action take place?

Mr. Tom O’Mahony

The primary reason the court action took place was that there were multiple breaches of the covenant under which the operator was operating the aquatic centre and it was concluded that it was going to be necessary to remove him.

Deputy Simon Harris

Would it be fair to say that the primary reason for the legal action was never the VAT?

Mr. Tom O’Mahony

No. Absolutely not.

Deputy Simon Harris

It is helpful to put that on the record.

Mr. Tom O’Mahony

No. Absolutely not. The question that arose in early 2005, as the documentation will show, was whether given that the court case was now inevitable the VAT also should be included or not. That was the net point, but the case was always going to go ahead because as Deputy Nolan has already said there were multiple breaches of the original covenant.

Deputy Simon Harris

Is it the Secretary General's assertion that the VAT was tagged on - for lack of a better phrase - because of the advice the Department received from the Attorney General, the interpretation of Revenue and the conversations with the Department of Finance?

Mr. Tom O’Mahony

What I cannot say - because I do not know and one would get totally into speculation here - is whether the VAT issue might have ended up being pursued or not pursued if all the other stuff was not going on.

Deputy Simon Harris

Okay.

Mr. Tom O’Mahony

I do not know. What I do know is that shortly after getting towards the end of 2004 advice from both the Comptroller and Auditor General and the Attorney General that the VAT issue should not be pursued, the Department was looking at that and whether it could basically withdraw from the VAT issue, when it became clear that all the other stuff was going to happen. In that context the advice from the Attorney General's office was that we would have to include the VAT. Perhaps if all the other issues did not arise, the Department of Finance and the Attorney General's office would still have said: "No. There is a VAT liability. You must pursue it." However, that is speculation - I do not know. There was a court case and the issue then became whether this was included or not. The advice was to do.

Deputy Simon Harris

The Secretary General touched upon this earlier. With regard to the assertion by the Office of the Attorney General that the VAT issue must be pursued, the definitive assertion received was an oral statement from the Department, so a document cannot be produced.

Mr. Tom O’Mahony

The oral statement was from the Department of Finance. The correspondence from the Office of the Attorney General was to track changes to a letter sent to it. It is all in the correspondence the Deputy has.

Deputy Simon Harris

On our screens we saw an internal memorandum from the Department with responsibility for sport. It states the claim for unpaid VAT on the lease should be included in any proceedings.

Mr. Tom O’Mahony

This was advised.

Deputy Simon Harris

It notes the matter may have to be referred to arbitration.

Mr. Tom O’Mahony

It did go to arbitration. The High Court referred it to arbitration and it then returned to the High Court.

Deputy Simon Harris

As a layperson, and excuse my ignorance on the issue, why did we end up in court on the VAT issue before the process of arbitration? In trying to follow the trail I am quite confused because at no point does there seem to have been any engagement with the leasee on what Mr. O'Mahony believed was an outstanding VAT bill. Is it normal practice that a conversation, dialogue or meeting did not take place where the Department explained the reason it believed VAT was owed and how it arrived at the conclusion? It seems heavy-handed, for want of a better phrase. I do not want to get into a tit-for-tat that may have existed between the National Sports Campus Development Authority and a leasee. However, with regard to the VAT issue perhaps considering it was the legal weak spot, and the only point on which the case was lost, why was there not a separate dialogue or discussion? Was it because the National Sports Campus Development Authority and everyone else was so caught up on other legal issues that it was heavy-handed with the VAT issue? It is the elephant in the room.

Mr. Tom O’Mahony

If it is okay with the Deputy, because it is not documented in the papers I have but Mr. Morgan was involved at the time I will ask him to answer the question.

Deputy Simon Harris

Yes.

Mr. Donagh Morgan

The position was that the National Sports Campus Development Authority, or Campus and Stadium Ireland Development Limited, CSID, as it was at the time was very reluctant to go ahead with legal action. There was continuing dialogue with the tenant to try to achieve compliance with the covenant. Despite ongoing discussions this did not prove possible so we were left in a situation where we had no option but to issue a statement of claim to the High Court. This was lodged and subsequently the VAT issue was added to it. Deputy Nolan brought this out in his earlier question. It was not a question of being heavy handed and that we were caught up in all types of other legal issues. There was only one other legal case which had arisen out of the Attorney General's report. Every attempt was made to try to resolve the matter but it became apparent it could not be resolved, so a case had to be made to get the National Aquatic Centre back into State ownership or control.

Deputy Simon Harris

I will finish with a comment to go back to where I began. I do not want to go around the houses on this issue, but what has arisen in my mind from today's hearing is the fact that the Department of Finance and the Revenue Commissioners separately and collectively misinterpreted the Finance Act passed by the Houses of the Oireachtas with regard to the economic value test. This error in Revenue guidelines and on the part of the Department of Finance which had responsibility for drawing up the legislation has resulted in the State being engaged in eight years of a legal mess and will result in the Irish taxpayer having to pick up the tab, and it does not matter what the tab is as 1 cent would be excessive because it should never have arisen.

What I am taking from the testimony of Mr. O'Mahony and Mr. Morgan today and on the previous occasion is that the decision to take legal action was based on advice received from the Department of Finance and from the Revenue Commissioners, both of which provided faulty and inaccurate advice as per the judgment of the Supreme Court. This raises an issue because while Mr. O'Mahony or anybody in his position could claim not to be a tax expert or a VAT expert, and I certainly am not such an expert, the fact that those who were meant to be experts were consulted and gave incorrect information means lessons must be learned.

Mr. Tom O’Mahony

I wish to make one qualification on what the Deputy said, particularly his reference to eight years of legal action. He acknowledged, and everybody understands this to be the case, there was going to be legal action. The VAT issue was one part of it.

Deputy Simon Harris

Yes, but-----

Mr. Tom O’Mahony

It was the part which was subsequently appealed and there was a period between 2006 and early 2010-----

Deputy Simon Harris

I accept that.

Mr. Tom O’Mahony

That is one issue-----

Deputy Simon Harris

I absolutely accept there were other legal issues but the VAT issue was the issue on which the State lost.

Mr. Tom O’Mahony

Yes.

Deputy Simon Harris

This is the point I am making.

Mr. Tom O’Mahony

It was the one issue on which it lost.

Deputy Simon Harris

The one issue lost was, I can only surmise, the issue on which Mr. O'Mahony was incorrectly advised by the Department of Finance and the Revenue Commissioners. Are there potential repercussions for such wrong information and what lessons have been learned by Revenue and the Department of Finance?

Deputy Kieran O’Donnell

I welcome the delegation. I want to take up a couple of points. This all seems to hinge on the Finance Act 2002 which came into force on 25 March 2002. I will address my first question to Mr. Quigley. Was the valuation report completed prior to or after the new legislation came into force? Was he aware then that the development cost was €67 million? I would like a context for this.

Mr. Dermot B. Quigley

The valuation report was done after the date of effect of the Finance Act 2002.

Deputy Kieran O’Donnell

Was the Valuation Office aware of the €67 million cost?

Mr. Dermot B. Quigley

We certainly were aware of the cost because it formed part of our report. The report which was sent to the company on 25 October 2002 also included a covering letter. It set out the development costs. Certain items were excluded and VAT was not included. The total cost figure used was €63 million as adjusted. The total development cost came out at €67.52 million. The office used the cost figures, as I tried to explain earlier, as the basis of its approach to the valuation in the absence of what it regarded as satisfactory other information which might have allowed other methodologies, such as receipts and expenditure or a comparison with similar entities such as a good analogue already operating in the market and providing information-----

Deputy Kieran O’Donnell

Was Mr. Quigley's office conscious of the change in legislation and the fact that the economic value would be lower than the development cost? Was the Valuation Office aware of the implications of the 2002 legislation at the time?

Mr. Dermot B. Quigley

As far as I can ascertain, and obviously I was not there at the time, the office was not aware of it. I saw a note subsequently whereby it checked with Revenue about it because of a newspaper report on what had happened. The fact of the matter is that whether or not it was aware it was none of its business-----

Deputy Kieran O’Donnell

Fine.

Mr. Dermot B. Quigley

-----because it was not the office for implementation of tax law. It was the office to provide good valuations.

Deputy Kieran O’Donnell

If the invoice had been issued prior to the Finance Act 2002 coming into force should VAT have been charged under the existing legislation at the time?

Mr. John Farrell

The answer to the Deputy's question is the economic value test would not have been there so once the person issuing the invoice was engaged in a taxable activity, which the creation of the lease was, if all the circumstances had been met and the invoice was issued before the Act, it would not have. The concept of open market prices and unencumbered rents has existed since 1997. It was not introduced in 2002. We sought valuations prior to 2002.

Deputy Kieran O’Donnell

The kernel of the issue is that, if the same invoice had been issued prior to the new legislation in 2002, VAT would have been charged on it.

Mr. John Farrell

The economic value test would not have applied.

Deputy Kieran O’Donnell

Exactly. Regarding Mr. O'Brien and in terms of the financial projections at the time, am I correct in saying that the aquatic centre was planned on the basis that the Department could reclaim VAT on the project's construction and development cost? Judging by the notes, the VAT that could have been reclaimed was just short of €10 million. For a project of this size, €10 million is a significant amount of money. The lessee would have been charged €10 million in VAT based on the invoice. The State provides a subsidy of €1 million per year. Given the amount that could have been reclaimed in VAT, €10 million would have been available. Why was the VAT invoice not issued prior to the introduction of the new legislation? Everything hinges on this point. Why was there a delay in issuing the invoice? What dealings did the witnesses have with Revenue from the initial period onwards? Was there correspondence with Revenue? Being able to reclaim VAT is a significant element for a business. In this case, the potential difference amounted to a €10 million refund in up front costs. Normally, Revenue would be contacted at that point to ensure that the VAT charge was water-tight.

When putting together projections and business plans on day 1, is it not standard to check that VAT can be reclaimed? Did someone take an eye off the ball, thereby allowing this issue to drift for longer than expected and causing the invoice to be sent out too late? The new legislation was introduced and threw the aquatic centre's financial basis off the rails. Although this is a technical point, it is an important one. What was the process? From Mr. Farrell's comments, it is clear that, had the invoice been issued prior to 25 March 2002, VAT would have been chargeable and the point about VAT would not have arisen today. Will the witnesses address these points?

Mr. John Farrell

May I make one point before the Secretary General responds? The VAT would not crystallise until the leasehold interest was created.

Deputy Kieran O’Donnell

I understand that. I asked why it was not created.

Mr. John Farrell

Presumably, the leasehold interest could not be created until the building was ready to be occupied.

Deputy Kieran O’Donnell

Mr. Farrell is probably answering some of my other questions. I just want to find out why.

Mr. Donagh Morgan

I will take that question. It is important to understand how Campus and Stadium Ireland Development, CSID, was structured. It was structured and became a VAT-able entity following consultation with the Revenue Commissioners. Therefore, it would have been able to charge and reclaim VAT.

Deputy Kieran O’Donnell

I do not wish to cut across Mr. Morgan, but did the Department receive correspondence from Revenue stating that CSID was a VAT-able entity?

Mr. Donagh Morgan

I am sure that information exists in the file.

Deputy Kieran O’Donnell

Does Mr. Morgan understand my question?

Mr. Tom O’Mahony

I do. One of the last items in the documentation we have supplied is Mr. Farrell's letter.

Deputy Kieran O’Donnell

What is the reference number? Could we bring it up on screen, please?

Mr. Tom O’Mahony

I am sure we can. The end of the letter shows that CSID's registration for VAT, the issuing of an invoice by CSID in 2003 in respect of VAT on the capitalised value of the lease and the application were the subject of correspondence with Revenue at those times. Revenue was satisfied that its interpretation of procedures and practices were being complied with.

Deputy Kieran O’Donnell

Will Mr. Farrell confirm whether there was correspondence with CSID to the effect that it was entitled to be registered for VAT as a VAT-able entity?

Mr. John Farrell

I am conscious of taxpayer confidentiality. I am not sure that the correspondence has been laid before the committee, but I confirm that CSID was entitled to issue the invoice at the time. On this basis, we accepted it as being taxable. Otherwise, we would not have allowed it to issue an invoice. Does this answer the Deputy's question?

Deputy Kieran O’Donnell

Slightly. It is clear to me that, when CSID was established, it received Revenue's clearance as a VAT-able entity that could reclaim VAT on development costs and charge invoices. Why did the invoice to the lessee not issue prior to the introduction of the Finance Bill 2002? Had CSID done so, in Revenue's opinion it would have been entitled to charge VAT.

Mr. Donagh Morgan

I will go back slightly.

Deputy Kieran O’Donnell

The calculations were based on being able to reclaim VAT. I presume this ability was built into the financial projections.

Mr. Donagh Morgan

I want to pick up on that point. The company did its financial projections on the business model for the National Aquatic Centre. The bidders for the contract submitted their bids and stated whether they viewed it as financially viable. The contract would have been awarded on that basis. At that point, no question of a subsidy arose and the contract was duly awarded. While the VAT issue was important in a general context in so far as CSID could reclaim VAT that could then be re-invested in the project, the timing of the issuing of the VAT invoice on the lease depended on the process of drawing up the lease, signing it, and so on. There was no question of waiting until after the Finance Bill 2002. Rather, it was the result of ongoing discussions with the Valuation Office and Revenue in terms of the applicability of-----

Deputy Kieran O’Donnell

The Valuation Office clearly stated that it did not issue the valuation report until after the introduction of the new legislation. What are the total legal costs incurred to date? A VAT issue has arisen and the Supreme Court has accepted the Valuation Office's valuation report and interpreted the legislation as meaning that VAT should not have been charged. From a management viewpoint, the original financial projections for the campus centre were based on being able to reclaim VAT. When did the building of the centre commence?

Mr. Donagh Morgan

In 2001.

Deputy Kieran O’Donnell

Why was the invoice not issued to the lessee prior to the introduction of the 2002 finance legislation?

Mr. Donagh Morgan

Issuing of the VAT invoice was part of a process. One needed to determine whether one was a VAT-able entity. This was agreed. The valuation of the lease and the issuing of the invoice followed. It was not a question of timing. Deputy Harris referred to CSID being heavy-handed. There were discussions and correspondence with the tenant over his differing interpretation of the applicability of the VAT.

Deputy Kieran O’Donnell

Okay.

Mr. Donagh Morgan

All of that would have gone over, and there is correspondence behind all of that over a period of time.

Deputy Kieran O’Donnell

Was the witness aware at the time that the new legislation had been passed? Was he aware of the new legislation when the invoice was being issued?

Mr. Donagh Morgan

No, I certainly was not aware.

Deputy Kieran O’Donnell

Was legal or financial advice sought as to whether, based on existing legislation at the time, VAT should be charged?

Mr. Donagh Morgan

We had legal and financial advice and Revenue Commissioners confirmation that what we were doing was in compliance with regulations at the time.

Deputy Kieran O’Donnell

It all went back to the Revenue Commissioners guidelines.

Mr. Donagh Morgan

Yes.

Deputy Kieran O’Donnell

What has been the cost to date for legal fees?

Mr. Donagh Morgan

I do not have that figure to hand. I think we might have sent it to the committee already.

Mr. Tom O’Mahony

I do not think that is taxed yet.

Mr. Donagh Morgan

The final cost for the Supreme Court hearing has not been taxed so we do not have an overall cost. We can certainly give the committee the legal cost surrounding the project to date, if that would be of assistance.

Deputy Kieran O’Donnell

Why was the €10 million VAT tagged on in the legal proceedings? What was the logic behind that?

Mr. Donagh Morgan

It arose out of discussions with the legal and financial advisers that it would be appropriate to include it. The issue of the VAT not being paid was a breach of the lease. We were already going forward with a claim for multiple breaches of the lease and it was decided to include that. As Deputy Nolan mentioned earlier, it was certainly going to strengthen the case against the tenant if we did that.

Deputy Kieran O’Donnell

Could one not make the case that the only reason the €10 million was included was that it was factored into the original financial projections for the aquatic centre-----

Mr. Donagh Morgan

No.

Deputy Kieran O’Donnell

-----and that, in essence, this was an economic decision for the overall project?

Mr. Tom O’Mahony

Perhaps I could intervene here because this brings us back to some of the net points of the discussion we had earlier. In late 2004 the Department investigated dropping the VAT claim. That was what the Comptroller and Auditor General had recommended and it was the initial advice of the Attorney General. Then there was the various documentation that we have discussed, particularly in the discussion with Deputy Nolan. In early 2005, given that there was going to be a court case anyway, the Department was told by the Department of Finance and was legally advised that the VAT claim should be included. That is the reason.

Deputy Kieran O’Donnell

To return to the legal fees, our understanding is that the State has incurred nearly €250,000 in legal fees to date in respect of this matter. I believe there are costs due to the former lessee. The accounting office is telling us that it will run into millions. If €250,000 of taxpayers' money has been expended-----

Mr. Tom O’Mahony

Who has told the Deputy it will run into millions?

Deputy Kieran O’Donnell

Our understanding is that the State's legal costs are approximately €240,000. Is that correct?

Mr. Tom O’Mahony

I am not aware of any costs running into millions on this.

Deputy Kieran O’Donnell

Was the witness aware that-----

Mr. Tom O’Mahony

I am aware that-----

Deputy Kieran O’Donnell

Have they been paid?

Mr. Tom O’Mahony

-----there has been extensive legal action, High Court arbitration, Supreme Court and so forth. All of the legal action was won by the State with the exception of the VAT issue. There will be many legal costs surrounding all of that. The VAT issue is the only issue on which the State lost. I cannot say what the costs are at this stage because I am not aware that they have been taxed yet.

Deputy Kieran O’Donnell

Could it be said that the VAT issue was a huge factor in souring relations between Sports Campus Ireland and the lessee?

Mr. Tom O’Mahony

In reading all of the material on this, and I will choose my words very carefully here, the difficulty with the lessee was to do with the lessee's operation of the centre. Deputy Nolan summed that up in his introduction. Irrespective of the VAT issue it would have been necessary to take the action to remove the lessee. The VAT issue was just an added factor or an added complication.

Deputy Kieran O’Donnell

If one looks through it and at the costs incurred, one must question if there was value for money for the taxpayer. It had to go to the Supreme Court, which basically interpreted the legislation. This is something for future reference. All areas of new legislation will have to be bullet proofed. If matters were interpreted accordingly, the Department would not have pursued the VAT issue and further costs would not have been incurred. I believe that is something Mr. O'Mahony would acknowledge.

Mr. Tom O’Mahony

It has been well acknowledged that the Revenue Commissioners guidelines were part of the foundation of the case. If the guidelines had been different, that part of the case would not have been pursued. All of the rest of the case would have to have been pursued and all of the rest of the case was won. In terms of the overall value for the taxpayer that must be put on the record.

Deputy Mary Lou McDonald

To summarise, if I understand the witnesses correctly, the Revenue Commissioners, the Department, CSID and the financial and legal advisers got it wrong, and it took a long protracted procedure via the High Court and arbitration to the Supreme Court to tell them they had got it wrong.

Mr. Tom O’Mahony

That is completely incorrect. That is not what we said at all. We said that the Revenue Commissioners guideline was wrong.

Deputy Mary Lou McDonald

I heard that bit.

Mr. Tom O’Mahony

On foot of that, everybody else acted correctly. Once the Supreme Court said that the guideline was wrong, it meant retrospectively that all the other actions also fell. Nobody incorrectly interpreted the guidelines. The guidelines were an incorrect interpretation of the legislation.

Deputy Mary Lou McDonald

I am sure I do not need to tell a person as senior as Mr. O'Mahony that there is a clear distinction between a guideline and the law. They are qualitatively different things. It hardly needs saying that there is a legitimate expectation that the Department, at its highest levels, understands and implements the law. If there is an issue with a Revenue Commissioners guideline, that is a very serious matter. However, the more serious position is that the Department misinterpreted the law, whether by accident or otherwise. That would be a fair statement of fact.

Mr. Tom O’Mahony

No, it would not.

Deputy Mary Lou McDonald

Why not?

Mr. Tom O’Mahony

It is not possible for individual Departments, individual companies or individual taxpayers to interpret Revenue legislation. It is not possible to interpret the complexity of Revenue legislation. One needs guidelines on it. The reason Revenue guidelines exist is that tax law is so complex. Even accountancy firms will rely on the guidelines.

Deputy Mary Lou McDonald

Absolutely.

Mr. Tom O’Mahony

The extension of the Deputy's argument is that the High Court also got it wrong. Yes, the Deputy can put the argument that way. The effect of the Supreme Court ruling in 2010 was that everybody at every step along the way got it wrong, but everybody was relying on the guidelines.

Deputy Mary Lou McDonald

It would be Mr. O'Mahony's contention, therefore, that Revenue is the State authority that called it so badly wrong. I do not wish to put words in his mouth but that is clearly his contention.

Mr. Tom O’Mahony

I am saying that the guidelines were found by the Supreme Court to be incorrect.

Deputy Mary Lou McDonald

I am not denying that taxation is immensely complicated, and I am far from having any level of expertise in that field. Taxation is immensely complicated and I am far from any level of expertise in the field. Is it fair to say that the change introduced in the Finance Act 2002 was significant? It was quite a shift in respect of the levying of VAT.

Mr. Tom O’Mahony

From what we have heard in this discussion, it is clear that it was.

Deputy Mary Lou McDonald

Does Mr. Farrell agree with this?

Mr. John Farrell

Yes, it was introduced for a particular anti-avoidance purpose.

Deputy Mary Lou McDonald

Boiling down what the law says, in order to levy the VAT, the open market price had to be in excess of the development cost.

Mr. John Farrell

No, the value put on the lease for VAT purposes had to exceed it. We were making sure we at least recovered the VAT on the development costs and passed it on to the next stage.

Deputy Mary Lou McDonald

Can the witnesses explain what the new measure accomplished in two sentences?

Mr. John Farrell

The measure tried to ensure the VAT on the capitalised value, the value put on the lease, equated to the VAT recovered under development costs.

Deputy Mary Lou McDonald

That was a significant change. In taxation terms, how complicated was it?

Mr. John Farrell

I do not understand the question.

Deputy Mary Lou McDonald

The assertion from the Department and presumably from Mr. Farrell, although he has not said it, is that tax law is complex and that the change in 2002 was substantial and noteworthy. Mr. Farrell has managed to articulate the change in two or three sentences and more power to his elbow. How is it something that significant, yet easily communicated, was misrepresented in the guidelines and missed by the Department?

Mr. John Farrell

The net question probably relates to regulation for the manner in which we can value the capitalised value of the lease. There were three options. The nub of the point is that our understanding of the guidelines was that the lessor could choose between the three options. The Supreme Court said there was evidence of an open market price and, because of that, the choice was not there.

Deputy Mary Lou McDonald

Is it correct that the open market price was arrived at on the basis of valuation?

Mr. Dermot B. Quigley

The open market price was €35 million, which was supplied in the valuation report by the Valuation Office. This was the value adduced in the Supreme Court judgment for the purposes of the economic value.

Deputy Mary Lou McDonald

Can Mr. Quigley tell the committee who requested the valuation from the Valuation Office?

Mr. Dermot B. Quigley

It was requested by Campus and Stadium Ireland Development Limited.

Deputy Mary Lou McDonald

What date was this?

Mr. Dermot B. Quigley

I do not have the date but it may have been 18 October and it was supplied, following clarification and additional information, by the Valuation Office on 25 October 2002.

Deputy Mary Lou McDonald

I understand Mr. Morgan was the chief executive of Campus and Stadium Ireland Development Limited. Can he tell the committee why he was seeking a valuation from the Valuation Office?

Mr. Donagh Morgan

I did so with a view to charging VAT on the lease.

Deputy Mary Lou McDonald

Was Mr. Morgan seeking that valuation with a view to establishing whether he qualified for the economic value test?

Mr. Donagh Morgan

That was part of the discussion that took place at the time.

Deputy Mary Lou McDonald

I now need some help because that suggests the change in the Finance Act 2002 had registered with Mr. Morgan and others. In order to be a legitimate taxable person, Mr. Morgan had to cross the hurdle of the economic value test. The valuation was €35 million, as Mr. Quigley has testified, which clearly told Mr. Morgan that he failed the test. Is that correct?

Mr. Donagh Morgan

That is correct.

Deputy Mary Lou McDonald

Why did Mr. Morgan pursue the matter?

Mr. Donagh Morgan

Because there were other options in meeting the test, which was explained earlier by my colleague from Revenue. There were three options available and it was the choice of Campus and Stadium Ireland Development Limited as to which option it would pursue. The option pursued would have passed the test to enable the VAT charge to apply.

Deputy Mary Lou McDonald

In pursuing the VAT, did Mr. Morgan share the valuation he had with the tenant, Dublin Waterworld?

Mr. Donagh Morgan

No.

Deputy Mary Lou McDonald

Why not?

Mr. Donagh Morgan

That was part of the position we were taking on the three methods. That is our business, not that of the tenant.

Deputy Mary Lou McDonald

Even though, when one invoices a person for VAT, the person has a right and responsibility to ensure everything is in order and that the invoice is valid and accurate.

Mr. Donagh Morgan

As far as we were concerned, it was. It had been signed off in terms of the valuation received from the Valuation Office and the interpretation from the Revenue Commissioners.

Deputy Mary Lou McDonald

Mr. Morgan said earlier that there was all manner of meetings and that he was not heavy-handed. Would part of that approach not include sharing the information?

Mr. Donagh Morgan

Our financial advisers suggested not to share the information.

Deputy Mary Lou McDonald

Who were the financial advisers?

Mr. Donagh Morgan

PricewaterhouseCoopers.

Deputy Mary Lou McDonald

Did they advise not to share this information?

Mr. Donagh Morgan

Yes.

Deputy Mary Lou McDonald

Why?

Mr. Donagh Morgan

It was in terms of the ongoing discussions with Dublin Waterworld.

Deputy Mary Lou McDonald

Dublin Waterworld was contesting the invoice for €10 million in VAT.

Mr. Donagh Morgan

Slightly over €10 million.

Deputy Mary Lou McDonald

Was it asserting that this was not correctly done and that Campus and Stadium Ireland Development Limited had no business invoicing it and that it was not a taxable person? The valuation suggested the company had not cleared the economic value test hurdle but this information was kept from Dublin Waterworld on the advice of PricewaterhouseCoopers.

Mr. Donagh Morgan

That is not what I said. The Revenue Commissioners had already confirmed there were three methods and it was our choice of which one we accepted.

Deputy Mary Lou McDonald

Did Mr. Morgan realise at any stage that, at a minimum, the company had failed in respect of one of the methods?

Mr. Donagh Morgan

Absolutely. On the other side, we were making the argument to Dublin Waterworld that it could reclaim the VAT and we could not understand why it would not do so.

Deputy Mary Lou McDonald

The Supreme Court found that, on this matter, Dublin Waterworld was correct and retracing the chain of events means that the valuation was the relevant method and it told Campus and Stadium Ireland Development Ltd that it was not a taxable person. Does Mr. Morgan accept that?

Mr. Donagh Morgan

Of course I accept what the Supreme Court said but it is important to understand that it found the matter could be referred to arbitration.

Deputy Mary Lou McDonald

What happened in arbitration?

Mr. Donagh Morgan

The company that had become the National Sports Campus Development Authority decided not to pursue the matter further.

Deputy Mary Lou McDonald

That was conceding the point.

Mr. Donagh Morgan

It was. If it had come back to arbitration, we would have to speculate that if we won in the second round of arbitration, the matter would be appealed to the High Court or Supreme Court, thus incurring further legal costs, which we did not want to do.

Deputy Mary Lou McDonald

That would presumably have happened because what Mr. Morgan was attempting to do was against the law.

Mr. Donagh Morgan

The Secretary General pointed out earlier that at no stage did anyone on our side act incorrectly. There is no question of attempting to do anything against the law.

Deputy Mary Lou McDonald

The campus was a high profile project, with considerable political capital invested in it. How much money was spent on master planning?

Mr. Tom O’Mahony

If we are going to come in on the actual expenditure figures, it would be good to put the table we circulated on screen. It is on the website.

Mr. Donagh Morgan

The total cost of the National Aquatic Centre, including VAT, was €74.006 million. On the campus development, in terms of ancillary facilities, the FAI building cost €7.3 million, while the Irish Institute of Sport building which also houses the campus authority cost €1.82 million. Miscellaneous costs, including developments taking place on the former Marine Institute building site, amount to €1.92 million. The masterplan for the development control plan cost €1.98 million, while the development of the campus cost €4.65 million.

To move to subsidies and the National Aquatic Centre grants, there were operational subsidies of €4.9 million and capital grants of €2.878 million. The next elements were professional fees and legal costs which amounted to €7.843 million. The executive services team cost €3.639 million, while project management costs for the National Aquatic Centre were €1.74 million. Administration costs amounted to €7.536 million, giving a total cost of €119.385 million.

Deputy Mary Lou McDonald

What procurement process was used for all of the services provided?

Mr. Donagh Morgan

The European procurement process, OJEU, was used.

Deputy Mary Lou McDonald

It appeared in the Official Journal of the European Union?

Mr. Donagh Morgan

Yes.

Deputy Mary Lou McDonald

Did this represent a good bang for the taxpayers' buck?

Mr. Donagh Morgan

Yes.

Deputy Mary Lou McDonald

Looking at professional services, the costs amounted to €7 million, which included, presumably, legal and financial advice. Is there a more detailed break down of that figure?

Mr. Tom O’Mahony

While we do not have a further break down, we can go through the files. If we look at 2009 and 2005, the figures in these years were high, which reflects the legal costs incurred in those years. If they are removed, the figures fall to as low as €125,000, rising to €600,000 in some years. The figures include accountancy and other costs. There have been legal issues, including another case that was recently won on the payment of rates to Fingal County Council. There is a lot encompassed in the figure. Getting a further break down would involve going back through the files, but it can be done.

Deputy Mary Lou McDonald

Who provides the centre with legal representation?

Mr. Donagh Morgan

At the time McCann Fitzgerald was the main provider of legal services. Since the authority was established, several companies have been involved.

Deputy Mary Lou McDonald

It was said it was not possible to give a final cost to the State for the legal actions taken.

Mr. Donagh Morgan

We are waiting for the Taxing Master to give us the figures.

Deputy Mary Lou McDonald

When will the information be available?

Mr. Donagh Morgan

We have no idea, but we thought we would have had it long before now.

Deputy Mary Lou McDonald

Let me give an alternative analysis of what happened. A person looking at this scenario could be forgiven for thinking this was a high profile project that had cost a great deal. People were watching bottom lines and counting the costs to make it stack up. There was pressure, perhaps even political pressure, to make this happen. The €10 million in revenue levied through a VAT invoice must have been attractive. Even when it became clear that CSID was not a legitimate rateable person, there was an attempt, if not to break the rules, to manoeuvre around them and it was only when the matter had landed in the Supreme Court that the whistle was blown. I accept the witnesses gave evidence to the contrary, but when the Revenue Commissioners, the Department of Finance, the legal and financial teams all got it wrong, can they understand how an average citizen could easily have arrive at that conclusion?

Mr. Tom O’Mahony

It has been presented that way in some media coverage, but up until the day the Supreme Court issued its judgment, everything was legitimate. The Supreme Court ruled the guidelines constituted an incorrect interpretation that invalidated everything that had gone before. I do not know if the Deputy was here for the earlier conversation, but I reminded Deputies that the case was won in the High Court.

Deputy Mary Lou McDonald

I am aware of that, but it is important that we agree that when the Supreme Court made its ruling, it did not mean life had been hunky dory in advance of the ruling, rather it meant that a series of statutory agencies, up to and including the High Court, had called it wrong. I labour the point because I am concerned that senior members of the Civil Service who look after taxpayers' money and are paid by them took the view that when things had gone so horribly wrong, it was okay. It was not; the mistake should not have been made. If it is Mr. O'Mahony's view that the root of the trouble lies in the Revenue Commissioners misinterpreting the Finance Bill, that is a serious charge. I do not exempt the Revenue Commissioners from responsibility, but it is important that the Department accept that the Supreme Court's decision did not exonerate it, rather it pointed out that it was wrong.

Mr. Tom O’Mahony

In this and previous discussions I have made it clear that the import of the Supreme Court's decision was that everything that had been done on the VAT issue up until that point was wrong. I have accepted that absolutely. However, I have also said the steps the Department took were based on advice given by legal advisers, the Attorney General's office, the Department of Finance and the Revenue Commissioners based on the interpretation of the legislation as it stood at the time.

Deputy Mary Lou McDonald

Did they all rely on the interpretation of Revenue?

Mr. Tom O’Mahony

Yes. Everything I say is based on a reconstruction of what happened, but of course it was then a different Department.

Deputy Mary Lou McDonald

Was Mr. O'Mahony there at the time?

Mr. Tom O’Mahony

No, I was not. The Department that was involved in this project does not now exist. I held the post of Secretary General in the Department of Transport but with the departmental changes last year I became Secretary General at the Department of Transport, Tourism and Sport and now am in the happy position of having the tourism and sport as well as transport functions.

Deputy Simon Harris

I am sure Mr. O'Mahony is delighted.

Deputy Kieran O’Donnell

I would say that Mr. O'Mahony is not too happy today.

Mr. Tom O’Mahony

The position has its compensations. Everything I have said to the committee on this issue is based on my going through the files and talking to the various people who had been involved at that time. There are no circumstances, under which I would have expected anybody at any level in the Department, from Secretary General down or the chief executive of the national sports campus, or anybody to have such an understanding of complex tax law that they would set aside the guidelines given by Revenue and state they were wrong. That would be an impossible ask. The reason there are Revenue guidelines in every area of tax, is as I have said, because tax is------

Deputy Mary Lou McDonald

We accept that. When it became plain that the matter was not just a subject of contention but of legal action, Mr. Morgan has told us that to his certain knowledge they knew they had failed by one measurement of the economic value test. Did that not set off some alarm bell that something was wrong? Mr. O'Mahony has made the point in regard to Revenue, which I think is fair. However, I am making a broader point, and I imagine other members share my dismay to discover that so many agencies "singularly and collectively" as Deputy Harris said, got it wrong. It is important to say that there was a defendant in the actions taken by the Department and there was a consequence for the defendant's commercial interests. If the State is taking somebody to court, it must be based on sound and accurate advice. We, as parliamentarians, expect that of Departments collectively.

Mr. Tom O’Mahony

In the sequence of events we have discussing, we have dealt with the Department's reaction in late 2004 to the advice of the Comptroller and Auditor General and the initial advice of the Office of the Attorney General that the case should be dropped. We have shown the Department followed the advice and based on the then understanding of the law, which we now know was flawed, we have shown that all the advice to the Department was that this must be pursued and most significantly, we have also shown that in 2006, based on the then understanding of the law, the High Court found for the Department. I have made this point before, and I think it is fair to make it again, it is fine to take 20:20 vision after a Supreme Court judgment and go back and say that everybody should have known and should not have done this. If I had been the Accounting Officer in 2007 to 2009 and appeared before the Committee of Public Accounts to discuss this, I would have been discussing it in the context of a High Court case, which had been won, where the Department's position had been validated, but the Deputy does not accept that.

Deputy Mary Lou McDonald

With all due respect, this is 2012, but I take Mr. O'Mahony's point on 20:20 vision. The purpose of this committee is to hold Accounting Officers to account.

Mr. Tom O’Mahony

Yes.

Deputy Mary Lou McDonald

When a mistake is made, it ill-behoves the system to be so defensive on the point. Mr. O'Mahony made the point that the mistake emanated from Revenue, and asserted that to the best of their ability, officials made and took all the right steps. I am simply saying that alarm bells should ring very loudly that so many State agencies got it wrong. That is not just my contention, but the Supreme Court has told us that, and so has the Office of the Attorney General. That is pretty astonishing.

Mr. Tom O’Mahony

I am not certain that there is any disagreement between us. We have absolutely accepted that we now know that what was done along the way was wrong and we have identified the steps that led to that. We have also shown, over and over again, that what was done at the time was done in good faith, based on the advice, and it was not just advice, the Department was being told that it must take this action. We now know that this was wrong in that respect of the legal action but in every other respect of the legal action, the State won.

Deputy Mary Lou McDonald

May I address this question to Mr. Morgan? Will Mr. Morgan comment on the alternative interpretation of events that I set out from the perspective of someone looking at all of this?

Mr. Donagh Morgan

I wish to take up the point on the political system. The only pressure that Campus and Stadium Ireland Development Limited, CSID, came under was to deliver the aquatic centre in time for the Special Olympic World Games. We were certainly put to the pin of our collar to deliver that on time. That was the only pressure.

Deputy Mary Lou McDonald

Is the roof now fixed? Did the roof fall off?

Mr. Donagh Morgan

Part of the roof was blown off, but it has been fixed at no cost to the State.

Deputy Mary Lou McDonald

Excellent.

Deputy Paschal Donohoe

I have listened to what everybody has had to say and I participated in the previous discussion of the issues. I have two questions, the first of which is addressed to Mr. O'Mahony. I acknowledge that he has been reconstructing the case from the files because he was not involved at the time, and has gone through the same process that we have in trying to assemble what happened. I have heard again and again the contention that the State had to follow a particular course of action in respect of VAT. What I see in front of me are pieces of paper that say it could follow the VAT issue, but I can see nothing that states the Department must follow the VAT issue.

Mr. Tom O’Mahony

We covered this territory earlier this morning, when we discussed it with Deputy Nolan. Among the papers I pointed to was correspondence referring to an instruction from the Department of Finance, which stated that this could not be dropped. I also referred to a letter from the Office of the Attorney General, written after the event, in 2010, which was written for the purposes of the Supreme Court case, reconstructing this, which confirms that at the time there was a liability and that this particular course must be taken. The members have the tracked correspondence from the Office of the Attorney General where letters from the Department were amended to reflect the advice of the Attorney General. When one takes all the correspondence together, and I do not wish to go through all of it again, it is clear the Department had effectively an instruction from the Department of Finance and advice from the Attorney General and also had the Revenue Commissioners guidelines, all of which pointed in the same direction.

Deputy Paschal Donohoe

What Mr. O'Mahony referred to is the internal memorandum, No. 10, that says "the Department of Finance has indicated orally" that it could not consent to abandoning the attempt to recover the VAT because of existing legislation. Would somebody not have put that in writing?

Mr. Tom O’Mahony

I do not have that.

Deputy Paschal Donohoe

If I was in a meeting with somebody and I was seeking guidance over a very important matter, and they said they were advising me to do something, I would expect that there would be a written instruction from the Department of Finance saying I must do this.

Mr. Tom O’Mahony

Yes, so would I.

Deputy Paschal Donohoe

It is not there.

Mr. Tom O’Mahony

In going through the files, I have to rely on the contemporaneous note of the official saying "I have been instructed orally on this."

Deputy Paschal Donohoe

Am I correct in saying no written document is currently available from the Department of Finance saying this must be done?

Mr. Tom O’Mahony

I have given the committee everything I have been able to find that has a bearing on this issue.

Deputy Paschal Donohoe

I refer to a broader matter on which Deputy Simon Harris touched earlier. In essence, what we have is a decision on a course of action that was subsequently overturned by the Supreme Court. Were any other matters, separate from this one, affected by the Supreme Court ruling?

Mr. John Farrell

I will answer the Deputy's question. The legislation about which we are talking was fundamentally changed in 2008 when new rules for the way VAT was to be applied in relation to property were introduced. We are not aware of any other cases.

Deputy Paschal Donohoe

Am I right in saying the case we are discussing is only one of which the Revenue Commissioners are aware?

Mr. John Farrell

Yes. When the test was introduced in 2002 and 2003, there would have been other cases that failed the economic value test. As a result, VAT would have had to be paid to the Exchequer.

Chairman

Does Mr. Buckley wish to make any further comment?

Mr. John Buckley

I have nothing further to add.

Chairman

I am conscious that the Dáil will vote on the Finance Bill 2012 in the next hour. In view of the evidence we have heard today, I suggest that rather than disposing of chapter 31 now, members might give it some consideration before next week's meeting before deciding what to do. We had intended to deal today with chapter 27 - maintenance of regional and local roads. I propose that we hold it over for consideration at another meeting of the committee. Is that agreed? Agreed. What we have heard needs to be considered by members because it has many implications. Perhaps we might make some recommendations on foot of this meeting. I do not intend to dispose of chapter 31 until we have done this. We will deal with the other matters on another day. I thank the witnesses for attending and the evidence they have given to the committee.

The witnesses withdrew.

The committee adjourned at 12.35 p.m. until 10 a.m on Thursday, 23 February 2012.