COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 8 Dec 2022

Chapter 17 - Overstatement of Certain Unallocated Tax Deposits

Mr. Seamus McCarthy (An tArd Reachtaire Cuntas agus Ciste) called and examined.

Mr. Niall Cody (Chairman, Office of the Revenue Commissioners) called and examined.

Chairman

I welcome everyone to the meeting. Apologies have been received from Deputy Dillon. If attending in the committee room, attendees are asked to exercise personal responsibility to protect themselves and others against the risk of contracting Covid-19. Members of the committee attending remotely must do so from within the precincts of the Parliament. This is due to the constitutional requirement that, to participate in public meetings, members must be physically present within the confines of the place where the Dáil has chosen to sit.

The Comptroller and Auditor General, Mr. Seamus McCarthy, is a permanent witness to the committee and is accompanied this morning by Ms Josephine Mooney, deputy director of audit at the Office of the Comptroller and Auditor General.

This morning, we will engage with officials from the Office of the Revenue Commissioners to examine the following: from the 2021 appropriation accounts for Vote 9, Office of the Revenue Commissioners, the account of the receipt of revenue by the State collected by the Revenue Commissioners in 2021; and from the Report on the Accounts of the Public Services 2021, Chapter 15 - Collection of VAT on e-commerce, Chapter 16 - Revenue's suspension of periodic reviews of tax clearance certificates, and Chapter 17 - Overstatement of certain unallocated tax deposits. The letter of invitation advised at the collection of tax revenue with regard to online gambling is also an area of interest to the committee.

We are joined from the Office of the Revenue Commissioners by Mr. Niall Cody, chairperson of the board, Ms Ruth Kennedy, deputy commissioner, Mr. Dermot Donegan, principal officer, and Ms Angela O'Gorman, principal officer. The Department of Public Expenditure and Reform's representative is unwell and sends his apologies. The witnesses are all very welcome. I remind all those in attendance to ensure their mobile telephones are on silent or switched off.

Before we start, I wish to explain some limitations to parliamentary privilege and the practice of the Houses as regards reference witnesses may make to other persons in their evidence. As the witnesses are within the precincts of Leinster House, they are protected by absolute privilege in respect of the presentations they make to the committee. This means they have an absolute defence against any defamation action for anything they say at the meeting. However, witnesses are expected not to abuse this privilege and it is my duty, as Chairman, to ensure that privilege is not abused. Therefore, if their statements are potentially defamatory to an identifiable person or entity, I may direct witnesses to discontinue their remarks. It is imperative they comply with any such directions.

Members are reminded of the provisions in Standing Order 218 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 of the objectives of such policies. Members are also reminded of the long-standing parliamentary practice that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I invite the Comptroller and Auditor General, Mr. Seamus McCarthy, to make his opening statement.

Mr. Seamus McCarthy

As members are aware, the Revenue Commissioners are responsible for the collection of taxes, duties and other levies and charges and for their prompt transfer, either to the Central Fund of the Exchequer, or to other fund accounts or public bodies as provided for in law. Revenue accounts for these receipts and transfers in what is generally referred to as the Revenue account.

The account indicates that tax receipts payable to the Exchequer in 2021 amounted to a net €67.5 billion, an increase of €11.3 billion, or 20%, when compared with 2020. Non-Exchequer receipts collected by Revenue on behalf of other agencies amounted to a net €17.4 billion, an increase of nearly 14% year on year. The 2021 account was certified by me on 22 April 2022 and received a clear audit opinion.

In parallel with the audit of the Revenue account, I carry out on a cyclical basis examination of Revenue's systems for the assessment, collection and proper allocation of tax revenue. In Chapter 17, I draw attention to an error in the reported level of unallocated tax deposits. These are amounts received by Revenue which have not yet been allocated to either a tax head or a taxpayer record. The statement of balances in the 2021 Revenue account includes a liability amount of €85.4 million in respect of unallocated tax deposits. The audit found that this incorrectly included an estimated €32.5 million received as Revenue audit settlements that should have been allocated to the relevant tax heads. The error means that the tax head receipts reported in the account were understated by an estimated €32.5 million and the unallocated tax deposits amount was overstated by the same amount. The tax settlement amounts were transferred to the Exchequer in a timely way and had been allocated to the taxpayer records correctly. The error arose due to Revenue caseworkers in some cases failing to input manually the relevant tax head. As a result, this was an accounting error. Given the scale of the Revenue account, it would not be regarded as a material error or misstatement requiring correction in the 2021 account. However, the occurrence of the error underlines the importance of strong controls being in place for manual interventions and, where possible, manual interventions being replaced with suitable automated processes.

E-commerce sales are an important income stream for many Irish businesses. The European Commission's 2022 report on digital economy and society index shows that 33% of Irish SMEs sell online, with 11% selling across borders. This is significantly above the EU averages of 18% and 9% respectively. The rapid growth of e-commerce poses a number of challenges to the administration of taxation systems and significant changes in that regard are being implemented at EU level. In general, for EU businesses, EU base businesses, VAT is due in the member state where goods are consumed or services are received by the final consumer. VAT is not charged on goods exported to countries outside the EU. In 2021, the amount of VAT collected by Revenue was a net €15.4 billion, making it one of the Exchequer's main revenue streams. Revenue also collected €3.1 billion on behalf of other member states via what is called the VAT one-stop-shop scheme. Revenue does not require taxpayers in their tax returns to quantify their e-commerce turnover. As a result, it cannot identify the volume and nature of online trading on an ongoing basis. Revenue considers that it is not practical to disaggregate e-commerce risk management activities from routine risk management activities, except insofar as niche regulatory or compliance issues require specialist resources. Given the significant changes that are being implemented at EU level to ensure that effective and co-ordinated arrangements are in place to manage the taxation system, this is likely to be an area that will be kept under review by my office.

A taxpayer may require a current tax clearance certificate issued by the Revenue Commissioners for a range of purposes. In order to qualify for a tax clearance certificate, the taxpayer's tax filing must be up to date and any amounts of tax due must be paid. In normal circumstances, Revenue operates an electronic system that automatically checks, on a six-monthly basis, that current holders of tax clearance certificates remain tax compliant. Where this identifies taxpayers who are no longer compliant, the tax clearance status is withdrawn. In March 2020, as part of the Covid-19 response, Revenue suspended the automated review process. In parallel, under the tax debt warehousing scheme, taxpayers could remain tax compliant by filing their tax returns on time, with no immediate obligation to pay any related tax liability.

The holding of a tax clearance certificate was a requirement for Covid-19 support schemes administered by Revenue, such as the employer wage subsidy scheme and Covid-19 restrictions support scheme. Existing tax clearance certificate status was accepted for the schemes. Those without a certificate could also apply, but had to satisfy the tax clearance test. Revenue carried out two targeted campaigns, in February and July 2021, with a view to identifying and following up with taxpayers claiming under the Covid support schemes that were found not to be tax compliant. Following engagement, the first campaign resulted in 6% of claimants having their tax clearance status withdrawn, while the second campaign resulted in 7% of claimants having their tax clearance withdrawn. Scheme supports then ended for those claimants. Revenue takes the view that all payments made under the schemes were regular, since payees held tax clearance certificates at the time of payment. I have a concern that a significant proportion of claimants continued to receive support payments when they were not tax compliant in respect of their tax returns, because if they had presented as claimants without tax clearance in place, they would not have been admitted to the schemes.

Turning to the Revenue Commissioners Appropriation Account 2021, Revenue’s administration and operational expenses are charged to Vote 9 - Office of the Revenue Commissioners, rather than to the Revenue account. Revenue’s total gross expenditure in 2021 was €489 million. Salary costs of €340 million account for 70% of the spend. Taking account of appropriations-in-aid of €57 million, net expenditure under the Vote amounted to €432 million. I issued a clear audit opinion in respect of the Appropriation Account. However, I drew attention to the non-compliance with procurement rules disclosed by the Accounting Officer in the statement on internal financial control.

The committee previously considered the issue of reallocation of voted funds that was not in compliance with the procedures set out in the Department of Public Expenditure and Reform's public financial procedures, as outlined in Chapter 4. One of the cases referred to in the chapter relates to Vote 9.

In summary, Revenue spent a total of €15.8 million more than provided for under a number of vote subheads. Savings were available elsewhere in the Vote to cover the excesses, but Revenue did not apply to the Department of Public Expenditure and Reform for provisional sanction for the re-allocation before the year–end, as required. Instead, sanction was sought in February 2022. During the audit, it was also found that the analysis supporting the sanction request was incomplete. As a result, Revenue had to apply to the Department for sanction of virement of additional funds, and this was granted on 6 September 2022.

Chairman

I thank Mr. McCarthy. Mr Cody is welcome back to the committee. As detailed in his letter of invitation, he has five minutes to make an opening statement. I am reminding him of the time limit as we want to get the meeting moving.

Mr. Niall Cody

I thank the Chairman for the opportunity to make my opening statement. In the context of the discussion today, I draw the attention of the committee to section 851A of the Taxes Consolidation Act 1997 and my obligation to uphold taxpayer confidentiality.

In 2021, Revenue collected total gross receipts of €96.6 billion, including €17.5 billion in non-Exchequer receipts collected on behalf of other Departments and agencies . The net Exchequer receipts of €67.5 billion were up by 20%, or almost €11.3 billion, on 2020. The net receipts for corporation tax were €15.3 billion, up 29%, income tax €26.7 billion, up 18%, and VAT €15.4 billion, up 23%. Up to the end of November this year, the net Exchequer receipts collected by Revenue were more than €76 billion, some €15 billion, or 25%, more than the same period last year.

Revenue’s gross expenditure in 2021 was €489 million, compared with €467 million in 2020, an increase of more than €21 million, or 5% overall. The increase in 2021 over 2020 primarily relates to ICT expenditure and pay. Revenue had 6,535 staff serving at the end of 2021, with €340 million of Revenue’s €489 million expenditure related to pay. The other main item of expenditure was on ICT, which accounted for some €73 million in 2021.

In Chapter 15 of the report, the Comptroller and Auditor General reviewed Revenue’s management of the capture and collection of VAT due on e-commerce.

E-commerce is an integral part of the economy and integral to the trade of most businesses. In 2014, at the start of the base erosion and profit shifting, BEPS, project, the OECD task force on digital economy issued an interim report that considered the tax challenges raised by the digital economy and stated that it would be difficult, if not impossible, to ring-fence it from the rest of the economy for tax purposes. This is a view shared by the European Commission and member states that have been very active in bringing in legislative changes that have transformed the VAT compliance landscape for e-commerce cross-border transactions.

Revenue has been centrally and actively involved in developing responses to the evolving e-commerce trade for more than 20 years at both domestic and international levels. Those innovative responses improved compliance, increased tax revenues, reduced VAT fraud, simplified the administrative burden for businesses involved in cross-border trade and allowed EU businesses to compete on an equal footing with their non-EU competitors.

E-commerce is now an integral part of business, particularly having regard to changed consumer behaviour arising from the UK’s departure from the EU and Covid-19. Next week, the European Commission will present new legislative proposals on the VAT in the Digital Age package to member states. This will further enhance the modernisation of the EU VAT system to respond to the challenges of e-commerce and we will continue to engage at EU level on these. In our submission to the Commission on Taxation and Welfare, we highlighted the need to modernise the VAT reporting system to reflect changes in business and accounting systems.

I am satisfied that the integrated risk management approach by Revenue, together with the wide-ranging legislative changes outlined to combat cross-border fraud and abuses, significantly mitigate the risks associated with e-commerce. However, there is always more to be done. Our compliance management strategy is not fixed and is something we keep under continuous review.

In chapter 16, the Comptroller and Auditor General reviewed Revenue’s suspension of periodic reviews of tax clearance certificates. In summary, in line with a policy decision in March 2020, at the start of the pandemic, tax clearance remained in place for taxpayers until formally rescinded by Revenue and no applicant for the State support schemes received a support payment in the absence of tax clearance. Equally, no payments were made after the rescinding of tax clearance.

In effect, what was delivered was not a suspension of tax clearance but, rather, an extension of the then-existing tax clearance status as of a specific time in March 2020. This cohort of cases were tax compliant taxpayers at that point in time. It is important to have regard to the fact that the debt warehousing scheme provided for the non-payment of certain current taxes as they arose and the parking of those debts in the warehouse, initially on an interest-free basis.

The retention of tax clearance status was, therefore, a pragmatic and administratively straightforward approach by Revenue that aligned fully with the provisions of the debt warehousing scheme during the pandemic.

In Chapter 17, the Comptroller and Auditor General reviewed the 2021 Revenue account in respect of unallocated tax deposits. As a result of the Comptroller and Auditor General's audit findings, we undertook a reconciliation project in early 2022 and the amount of €32.5 million for audit tax settlements has now been correctly reclassified to the appropriate tax heads. I can reassure the committee that taxpayer records were not affected and the funds were promptly transferred to the Exchequer as they were received.

The Comptroller and Auditor General recommended that an automated solution would be implemented to prevent a reoccurrence, which was implemented in October 2022. This system development reduces the steps necessary for the allocation of moneys into a one-step process, streamlining the process and reducing the risk of manual intervention or error going forward.

Chairman

I will stop Mr. Cody there. Everyone has read the opening statement. Can Mr. Cody make his concluding remarks?

Mr. Niall Cody

There are four chapters and there are accounts for €100 billion. Most Secretaries General or Accounting Officers come here and have to deal with one issue. Can I go to "Other Issues"? There are important issues there and it touches on an area that the Chair is interested in.

Chairman

Okay. I will bear with Mr. Cody.

Mr. Niall Cody

I will go to "Other Issues" on page eight on my paper.

Chapter 14 of the Comptroller and Auditor General's report examines the classification of workers for PRSI purposes and considers issues around the classification of employment-self-employment status. As the economy has come through the pandemic and employment has recovered strongly, many sectors are having challenges recruiting workers. Our engagement with business through real-time payroll reporting and the implementation of the various subsidy schemes has given us valuable insights into business activity. While there continues to be strong levels of voluntary compliance for which I commend taxpayers and agents, I have a concern that there is a growing trend in shadow economy activity with a growth in cash only trades, off-books payments, irregular employment agency-sub-contractor practices and identity hijacking, etc., resulting in the non- or partial operation of the tax and PRSI system. We already have and, over the next couple of years, will continue to have a renewed focus on tackling these risks through the use of data, enhanced reporting requirements, increased compliance activity and the continued transition to real-time reporting to support legitimate business, their employees and the State.

The past couple of years presented unprecedented challenges in how and where we work. Revenue staff have risen to these challenges. I would like to take this opportunity to thank Revenue staff for their resilience, commitment and professionalism. Their engagement and dedication enable Revenue to be an adaptable, responsive and high-performing organisation.

Deputy James O'Connor

I welcome all of our attendees from Revenue. From the outset, it is important for members of the committee, myself included, to note how difficult it has been throughout the pandemic. It has not been an easy challenge and they performed quite well overall.

However, I have a number of questions I would like to ask and try to delve into a couple of topics of importance. One area around the debt warehousing that is starting arise a lot in our office with inquiries is small businesses, that is, businesses that might have three or four employees, whether it is a coffee shop, a local hairdressers or otherwise. They may have three or four employees on low wages and revenue of probably less than €200,000 or €250,000 a year to run the expenses of their business, which obviously does not leave much money left over. A number of those businesses would have availed of support schemes at the time, the likes of the employment wages subsidy scheme, EWSS, and others, as a consequence of a drop in revenue and are now facing the prospect of having potentially quite large bills. A number of people in the past number of months have come to me having done their accounts to find that they had overpayments of EWSS and now have to pay back significant amounts of money. In some cases, I have dealt with businesses that have revenues of under €250,000 and have bills to pay back of around €25,000. This is obviously an exceptionally large amount of money for a very small business trying to operate. However, they are the life bread of the rural economy, main streets and towns and villages across the country. We need them to survive to basically give a sense of life within communities. What are Mr. Cody’s concerns about that? We have seen a postponement until 2024. Is this a wise idea, potentially facing into a recession in 2023 or 2024?

Mr. Niall Cody

The debt warehousing was an initiative that we came up with back in March 2020. We suspended enforcement action and the collection of interest. Then, in discussions with the Department of Finance, when we were looking at how to manage through the pandemic with public health restrictions, we proposed this idea of the debt warehousing system, which would allow businesses, particularly small businesses, to submit their VAT and employer returns but not have to pay it on one condition – that they continue sending in their returns.

The scheme had a couple of periods. The first was totally zero interest rate and nothing had to happen. There was then to be a second period. It kept getting extended. The original plan was that the warehouse, like all of the pandemic stuff, would finish up. It then ran. Last November, when there were public health restrictions again and it looked like there were going to be serious issues around Covid, it was extended until the end of April for businesses that were impacted by the health restrictions. They then had a year interest-free. For some businesses, it would expire at the end of December and for others it would expire at the end of April 2022. A year hence, they were to agree arrangements with us for repayment of that. The energy crisis and Ukraine war then all came about, so we decided that we would postpone that period for a year.

We are very conscious of small businesses, with which we deal all the time. We have a strong record of dealing with businesses that engage with us. We have given that further window to allow businesses to get on with the business of trading away, keeping employment going-----

Deputy James O'Connor

I will have to stop Mr. Cody there because of my time limitations. I am sure he understands. We might come back to that point during another round of questioning. I will turn to the breakdown of people who are availing of the scheme. How many of those would be considered individuals with a high net worth? How many of their businesses have availed of the scheme? Have they availed of the debt warehousing scheme? Can Mr. Cody give an approximate answer? Is it a matter on which he could check?

Mr. Niall Cody

I can give the committee a breakdown.

Deputy James O'Connor

Please do.

Mr. Niall Cody

The debt warehousing scheme applied to businesses that dealt with our business division, which is concerned with small businesses. Any other business had to apply and show that its income was impacted by the pandemic. There was no automatic qualification. Of the large corporate division, just over 100 companies were in the debt warehousing scheme.

Deputy James O'Connor

To what percentage would that equate?

Mr. Niall Cody

Some €260 million of the €2.5 billion is covered by large corporate cases.

Deputy James O'Connor

Those companies would, arguably, have quite large capital reserves.

Mr. Niall Cody

For debt warehousing, companies had to show they needed to warehouse debt. It is different from the wage subsidy schemes, which involved a reduction in turnover. For a company to qualify for debt warehousing, specific restrictions must have been involved.

Deputy James O'Connor

One could argue that the owners and major shareholders involved in those companies would be in a much better position than a bakery or other small business.

Mr. Niall Cody

That is absolutely the case. That is why access to the scheme was not automatically granted to large corporate applicants.

Deputy James O'Connor

Would it not make sense for Revenue to grade the effective repayment schedule-----

Mr. Niall Cody

We will do so.

Deputy James O'Connor

-----depending on the scale and size of the companies concerned?

Mr. Niall Cody

We absolutely will.

Deputy James O'Connor

Will Mr. Cody give us some insight in that regard?

Mr. Niall Cody

We have said from the start that we will have a targeted repayment schedule for businesses. It may involve their not paying in 2024. We will look at each business and enter into a tailored, targeted arrangement with the business for the repayment of the warehouse debt. We have said that from the start. That is how we will do it. Our Collecter General's office will engage with businesses. Provided businesses engages with us, we will engage with them and enter into an arrangement. It is absolutely in our interests to keep businesses and their employees in place. It is in our interests to keep small employers in business. That is what we want to do because that is what leads to healthy Revenue receipts every year.

Deputy James O'Connor

I thank Mr. Cody for his answer. I was going to ask a question about inflationary pressures on businesses but Mr. Cody has given a response to that.

I also wish to ask about the concerns of the Central Bank, which released a number of briefings that outlined concern with the area of what it termed "parked debt". What does Mr. Cody say in response to what the Central Bank has had to say? Perhaps there is a degree of worry about the fact the Central Bank was willing to say something publicly about Revenue's plans and intentions to reclaim this tax money.

Mr. Niall Cody

I share the Central Bank's concerns. Before the pandemic, our target was to have debt of less than €1 billion available for collection. That figure is now approximately €1.4 billion. That does not apply to warehoused debt. There is over €2.5 billion in the warehouse and another €1.5 billion or so is under appeal. Our target was to get that figure under €1 billion. We succeeded in 2019, 2018 and 2017. We have never before had a debt warehouse in the 100 years of the existence of the State. This is a new entity. We have to manage that debt portfolio of €2.5 billion. We want to actively manage that. We are realistic and know that some businesses will not be in a position to pay all of it. We know that some of it will lead to the new small companies administrative rescue process, SCARP, for business recovery. We know some of them will be written off.

Deputy James O'Connor

On that point, is it possible to establish how many premises have closed down and businesses have had to cease trading because there are outstanding liabilities? Has Mr. Cody an estimate of how much revenue has been lost?

Mr. Niall Cody

It is too early to say because there is no requirement to pay it.

Deputy James O'Connor

What about the figures for 2021?

Mr. Niall Cody

The figures for liquidation and business closures in 2020 and 2021 were historically low. Deputies will be aware that some businesses will not reopen as a result of the pandemic. Some people will have retired. Some country pubs with elderly owners in my home county of Kilkenny have not reopened. They are probably not viable places to raise a family. The support schemes kept some of those pubs going for a while. The committee members are probably more aware than I am that some of them have not reopened.

Deputy James O'Connor

I thank Mr. Cody. We are in the midst of an extremely serious housing crisis in this country. We have seen enormous inflationary pressure on the cost of construction. For example, some cost estimates for an 1,8000 sq. ft house have increased by approximately €60,000. This is an enormous concern when we are trying to deal with the housing emergency. What is the Revenue taking in from the building sector when it comes to materials such as timber, wood and other building materials? Is any breakdown available? Before the end of the meeting, I would like some information about the tax revenues that are being taken in on building materials.

Mr. Niall Cody

I will see what we can get for the Deputy. We would have a breakdown of payment from the construction sector across tax heads. The taxes on building materials are difficult because of how VAT works. It is an input that is deductible by the building contractor. The VAT is essentially payable on the finished product, whether that is a house or an office building. I should be able to get the committee figures on, say, VAT and construction before we leave today.

Deputy James O'Connor

I accept it is complicated but I would appreciate as much of a breakdown as is possible in order to give us an insight. There are different schools of thought involved. It is difficult because of the EU rules but it is something we need to examine.

The car crisis in Ireland is interesting. It is a result of logistical problems. Throughout 2021, there were problems internationally. Components required for cars were becoming difficult to acquire. That has had an impact on car dealerships and new car sales in Ireland, which has prompted many people to look to the United Kingdom. Post Brexit, rules and costs changed. Because of new laws around diesel, we have also seen adjustments to the taxation rules. Does Mr. Cody have any insight or concern about the ability of car dealerships in Ireland to maintain their businesses when there are such high costs of importing cars from the United Kingdom in the context of the shortage in the manufacture of new vehicles?

Mr. Niall Cody

The UK exit from the EU has fundamentally changed the Irish second-hand car market. In 2019, there were 115,000 second-hand car registrations and most of them came from the UK. Up to two weeks ago, the figures for this year - and I keep forgetting what year this is-----

Deputy James O'Connor

This is 2022.

Mr. Niall Cody

This is 2022.

In 2021, there were 65,000. Up to two weeks ago this year, there had been 34,000. If it gets to 40,000 this year, that will be the outside of it. That is a drop from 120,000 pre Brexit. That is the consequence of the UK leaving the Single Market. It has fundamentally changed the model for a number of second-hand car dealers.

I have spoken here in recent years of the consequences of Brexit. Brexit's impact on what was nearly a single market within a single market, as well as on post, customs and e-commerce, is fundamental. I heard this morning on the radio that IBEC had a report on the divergence of the economies of the UK and Ireland. As regulatory changes happen, it will become more so. It is fundamental change.

Deputy James O'Connor

What has happened in the motoring sector is indicative of what could happen in other sectors.

Mr. Niall Cody

I hope some of the discussions taking place will lead to more convergence than divergence. I am not supposed to talk about policy issues but these are policy issues that are not fixable in Ireland.

Chairman

And so say all of us. We hope there is convergence and a bit of common sense.

Deputy Imelda Munster

I will go back to the Covid business support recoupment, and debt warehousing generally. What is the total amount recouped in Covid wage support subsidies to date?

Mr. Niall Cody

Can the Deputy ask the next question and I will-----

Deputy Imelda Munster

It is a follow-on from the first: what remains outstanding? Mr. Cody will have to find the answer to the first one. Also, what penalties have been applied to date?

Mr. Niall Cody

For the employment wage subsidy scheme, EWSS, assessments have been raised for €30.3 million.

Deputy Imelda Munster

The question concerned the amount recouped.

Mr. Niall Cody

On the EWSS, we have a yield of €107 million.

Deputy Imelda Munster

A sum of €107 million has been recouped. What is outstanding?

Mr. Niall Cody

With the wage subsidy scheme, where there was ordinary error and over-claim, they were able to warehouse that. The debt on EWSS, a business could-----

Deputy Imelda Munster

Mr. Cody is saying there is nothing outstanding and it has been warehoused.

Mr. Niall Cody

It has either been paid or warehoused.

Deputy Imelda Munster

Have penalties been applied?

Mr. Niall Cody

By and large we have not imposed penalties on the wage subsidy. The wage subsidy was quite complicated but-----

Deputy Imelda Munster

For failure to repay, penalties have not been applied.

Mr. Niall Cody

Generally, we have not applied penalties but there are a number of cases where----

Deputy Imelda Munster

No, but just across the board generally penalties have not been applied.

Mr. Niall Cody

Generally, we have not applied penalties.

Deputy Imelda Munster

What percentage of companies in receipt of payments ended up with a recoupment bill, if any?

Mr. Niall Cody

I think it was very much under 5%.

Deputy Imelda Munster

What was the percentage selected for compliance checks?

Mr. Niall Cody

We did interesting things. I do not know whether the Comptroller and Auditor General should be listening to some of this.

Mr. Seamus McCarthy

I should.

Mr. Niall Cody

In the temporary wage subsidy scheme, TWSS, we reviewed all the cases. We did a reconciliation exercise. The comptroller is always encouraging me to do random audits and we keep saying we do too many, but we did a compliance review of all recipients of TWSS. We did it differently then because we learned from TWSS when we introduced EWSS. With EWSS, we did a rolling compliance programme on key issues around eligibility. EWSS was challenging. This is why we did not impose penalties. Companies had to project forward and say they would have a 30% reduction. Health restrictions changed through the year. Sometimes we all forget what we went through in 2020 and 2021.

Deputy Imelda Munster

Is Mr. Cody saying that with TWSS, his office did a total check-----

Mr. Niall Cody

We reviewed all the cases.

Deputy Imelda Munster

-----but that with EWSS, there was little or none.

Mr. Niall Cody

I did not say that. With EWSS, we did a rolling compliance programme on eligibility, based on analytics.

Deputy Imelda Munster

Explain that briefly please.

Mr. Niall Cody

The eligibility criterion for EWSS was a 30% reduction in projected turnover for the year compared to 2019. Halfway through the scheme, we introduced an employee registration record in which they had to declare their actual turnover on a monthly basis and compare it. We built up the data and checked them all through the use of data analytics. We reviewed it on an ongoing basis and outliers were marked for intervention. We followed up with those interventions. We did a high rate of compliance interventions on EWSS, much higher than in the normal course of our audit programmes.

Deputy Imelda Munster

What is the single largest debt currently warehoused by an individual company?

Mr. Niall Cody

Not only do I not have that figure with me, but if I had it I would not tell the committee. I have spoken before about what we have to do under taxpayer confidentiality. We have-----

Deputy Imelda Munster

We are not looking for the identity.

Mr. Niall Cody

I will explain. We have a protocol according to which we do not provide data on companies. We provide it in the context of the ten highest. When we publish our corporation tax receipts, the top ten companies pay X. It is a matter of protocol. While the Deputy or I might not identify the company, if we put out how much was in there, businesses or agents could. That is our protocol on taxpayer confidentiality.

Deputy Imelda Munster

The Revenue Commissioners does a group thing as in the ten highest but does not state the largest amount. Does anything legally preclude it from doing that?

Mr. Niall Cody

Yes. Section 851A of the Taxes Consolidation Act.

Deputy Imelda Munster

I want to touch on extending the-----

Mr. Niall Cody

Sorry, I have a figure here. In relation to EWSS, we did 7,458 interventions on 6,734 employers.

Deputy Imelda Munster

I thank Mr. Cody for that. Given that the Revenue Commissioners was offering debt warehousing, what was the purpose of the extension of the tax compliance certificates? What was the reason for extending them?

Mr. Niall Cody

The tax clearance certs were extended first. They were extended before the debt warehousing came in.

Deputy Imelda Munster

Was the Office of the Revenue Commissioners not concerned that, by extending the tax compliance certs when the debt warehousing facility was already available, it was introducing unnecessary risks?

Mr. Niall Cody

That is why we did two reviews during the period of debt warehousing. The way the tax clearance works is that we have had a pattern of reviewing them on a six-monthly basis so at any time-----

Deputy Imelda Munster

Time is of the essence. Was the office not concerned it would make matters worse or take unnecessary risks?

Mr. Niall Cody

No. I had far more concerns about how businesses were managing and how agents would be able to deal with them while we had public health restrictions.

Deputy Imelda Munster

Did the Comptroller and Auditor General have concerns around that?

Mr. Seamus McCarthy

Obviously, the tax clearance certificate has more implications than the employment wage subsidy scheme, EWSS, and the Covid restrictions support scheme, CRSS. I was concerned that by extending it, there were people who were not tax compliant who were able to compete for public business, for example, whereas others who were tax compliant maybe should have had another opportunity. In the context of the chapter, I was looking at whether people who had been extended were not tax compliant but were able to benefit from the support schemes. That was the question I had in my head.

Deputy Imelda Munster

Has the Revenue Commissioners taken on board the concerns of the Comptroller and Auditor General? Does Revenue plan to address the concerns?

Mr. Niall Cody

We are now back fully operating tax clearance. When it came to September 2022 we started a programme of reviewing all tax clearance. That is completed and we are now back in our cycle. We are very strong on that.

Deputy Imelda Munster

I want to move on to something else. With regard to companies that are debt warehoused, is Mr. Cody aware of any companies that have their debt warehoused that are paying dividends or have paid dividends?

Mr. Niall Cody

I am not.

Deputy Imelda Munster

The Minister for Finance, Deputy Donohoe, said that Revenue had no plans to repeat the 2021 analysis of the number of firms that made dividend payments that were in receipt of the wage subsidy scheme. Why did Revenue carry out that analysis in 2021 but will not carry it out for 2022?

Mr. Niall Cody

At the time of the publicity about it, we did a preliminary look to find out from the data we had. We actually could not measure exactly who was in receipt of dividends that were also in receipt of the wage subsidy scheme. This was because of the way company accounts are, because of the rules around dividends and, mostly, because policy did not provide any basis for us to do it. We are now-----

Deputy Imelda Munster

Is Mr. Cody saying that Revenue is totally unaware of and oblivious to companies currently with debt warehoused and which are paying out dividends?

Mr. Niall Cody

The debate about dividends has nothing to do with debt warehousing. It was the way that subsidies-----

Deputy Imelda Munster

If a company can afford to pay dividends and yet has its debt warehoused-----

Mr. Niall Cody

There are no figures produced and there is no company reporting that it is debt warehoused and yet paying dividends. The issue which arose-----

Deputy Imelda Munster

Revenue would know.

Mr. Niall Cody

The issue that came up was whether they were in receipt of wage subsidies and paying dividends.

Deputy Imelda Munster

Yes.

Mr. Niall Cody

Large companies do not automatically get into the debt warehouse. There are a couple of hundred cases that have debt in the warehouse that are large companies. Most of the companies in the debt warehouse are small businesses and sole traders.

Deputy Imelda Munster

Did Revenue not carry out an analysis in 2021?

Mr. Niall Cody

No, we did not. That was on wage subsidy, not on debt warehousing.

Deputy Imelda Munster

Yes, on wage subsidy, but with the wage subsidy scheme or debt warehousing, Revenue is oblivious as to whether those companies are availing of debt warehousing and in receipt of wage subsidy scheme, and able to pay out dividends.

Mr. Niall Cody

Any large business that is paying dividends will not be in the debt warehouse because it is are in a position to pay its debt. It would not qualify for the debt warehouse. The debt warehouse facility was in limited-----

Deputy Imelda Munster

Is Mr. Cody absolutely 100% sure there is nobody availing of-----

Mr. Niall Cody

I am not 100%. The rules are such that to get into the debt warehouse the company or person must have difficulty paying their tax.

Deputy Imelda Munster

Mr. Cody cannot state categorically to this committee that there are no companies that have availed of the debt warehousing that are actually paying out dividends.

Mr. Niall Cody

I would be very surprised if there were.

Deputy Imelda Munster

But Mr. Cody cannot say there are none.

Chairman

Before we move off the issue of debt warehousing, the Deputy asked about the figure for the largest amount that is warehoused by any particular company. Mr. Cody said that this was confidential and that he could not answer. Just before the meeting finishes, will Mr. Cody be able to give this committee the range between the ten largest amounts? I understand the confidentiality aspect.

Deputy Imelda Munster

On that question, without identifying the company, what is the largest debt amount and what was the largest amount for an individual?

Mr. Niall Cody

I will not do that.

Chairman

What is asked for is precluded under the Act and legislation but perhaps we could have the figure for the range of the top ten.

Deputy Colm Burke

I apologise for not being here earlier but I was in the Dáil for questions with the Minister for Health.

On corporate tax, how it has grown in the last years? For the final expectations for 2022, we see the increase for 2022. How will the proposed changes at European Union level affect the intake of taxation in the foreseeable future? To what extent will this taxation be adversely affected?

Mr. Niall Cody

The Deputy has raised a whole range of issues there around corporation tax. Obviously, there is a huge focus on corporation tax. Since 2016 we have published comprehensive reports on corporation tax. We feel this is a major contribution to the public debate. As I said in the statement, the figures for corporation tax in the past number of years have increased massively. Until the end of November - I must remind myself of the figure - it was €21 billion. November is the largest month. November just gone was the largest month on record for total tax receipts: €13 billion was collected with €5.5 billion in corporation tax. Exchequer receipts are at €77 billion for the first 11 months. December is not as big a month for tax receipts as November. The reality is that Exchequer receipts are probably going to be at least €80 billion or €82 billion compared to-----

Deputy Colm Burke

With corporate tax, are we talking about another €1 billion or €2 billion?

Mr. Niall Cody

Probably in that range.

Deputy Colm Burke

Okay, so we are talking about around €23 billion. Going forward with the changes, are we talking about increasing corporate tax to 15% on the one hand while on the other hand there is the downsizing because of the location where profits are allocated? What do we need to start planning for to take this into account? Have we any idea what we should be planning for?

Mr. Niall Cody

The Minister has spoken consistently about the need to not rely on the continued growth in corporation tax, and to set aside money in the budget for that reason. There are a number of issues. The base erosion and profit shifting, BEPS, project has been very positive for Ireland so far. Since 2015 it has led to significant growth in Irish corporation tax profits attributable to that activity in Ireland where there is real presence. The next phase is not finalised yet. There are pillar 1 and pillar 2 of the BEPS process. Pillar 1 is about how profits and taxing rights are allocated between market countries and countries like Ireland. It will lead to a reduction in profits attributable and taxable in Ireland.

Deputy Colm Burke

Are we talking about 50% or 30%?

Mr. Niall Cody

It is not possible to put a figure on it yet because the actual rules have not been finalised. The negotiations are still ongoing and there are further complications about which countries will implement it. There are issues around what the US will do.

Deputy Colm Burke

What is the timescale for when we will actually see it coming into place? Are we talking about three years or four years?

Mr. Niall Cody

The second part of pillar 2 is around the minimum effective rate the EU will bring forward. Obviously there is a well-publicised piece around whether Hungary agrees or not, and whether it will be agreed this month or not. The plan is that legislation will come in next year for some of it and further legislation the following year. It will really apply to accounting periods that end after 31 December 2024. It will really start in the 2025 accounting periods, which will probably be the first-----

Deputy Colm Burke

On one hand, we will lose some income. With the increase to 15%, will we be able to regain that loss?

Mr. Niall Cody

Like everything to do with tax and corporation tax, there are complications around how the 15% rate will interact with rules in other countries, particularly in the US in our case, and minimum top-up taxes and the like. There are still a lot of negotiations. This is why there is such uncertainty about what the final figures will be.

Deputy Colm Burke

I will move on to the issue of income tax regarding tax that has come in. We are now talking about over 2.5 million people working here and the increase in taxation as a result. We were informed last week that the number of people who were given PPS numbers in the first 11 months was over 260,000. A large percentage of these people have jobs. Does Mr. Cody believe that despite the economic downturn internationally, we can still maintain that level of taxation from income tax, corporation tax and VAT? What is Mr. Cody's view on 2023 from that perspective? Does he think the economic downturn internationally will affect that?

Mr. Niall Cody

I am always reluctant to get into forecasting. We input into the forecasting prepared by the Department of Finance. What we have consistently done over the years is report on factual matters, on what has happened. That is why we will have our annual report in April and will publish detailed analysis of income tax, VAT, corporation tax and excise to facilitate people making projections based on actual data.

Deputy Colm Burke

The number of people employed in the country has gone up over 80,000 in the past 12 months. Are the returns from companies not giving an indication as regards whether or not we are going to have a slowing of that growth?

Mr. Niall Cody

The way corporation tax works is that it is reporting after the event. We get details on accounts from a year ago. The most up-to-date data we have is our PAYE data, which is now real time, so we get actual detail. In January, we will have detailed analysis of what has happened in the workforce, which is really positive. I know the Comptroller and Auditor General pays attention to it and the CSO is delighted with it. It gives a good view. Overall, figures are very positive. I was looking at one figure. The Deputy spoke about PPS numbers. We have worked with the Department of Social Protection with regard to Ukrainians. We have set them up in such a way that when they get employment, their employer can pull off their PPS number and they do not have to start on an emergency basis. Over 11,500 Ukrainians are in active employment.

Deputy Colm Burke

Can we not do that with junior doctors? We have a situation where junior doctors change jobs every six to 12 months and find that three months after starting a job, they are still on emergency tax.

Mr. Niall Cody

I hesitate to talk about junior doctors because-----

Deputy Colm Burke

They are providing a very valuable service and if we can do this for some new group that has come in-----

Mr. Niall Cody

Let me finish, Deputy. I hesitate to talk about junior doctors being on emergency tax because that will involve me talking about their employer and I am bound by taxpayer confidentiality not to talk about an employer. There is no reason why an employee should be on emergency tax for more than one week.

Deputy Colm Burke

I know but we have a huge problem with it that has been ongoing for over 20 years.

Mr. Niall Cody

We cannot solve the problem if the employer does not pull down the proper records from our service.

Deputy Colm Burke

It is interesting because the employer will always come back and blame Revenue.

Mr. Niall Cody

I know that and we will end up getting phone calls.

Deputy Colm Burke

It is good to get that clarification because it is not unusual for me to have to make representations to the employer asking why someone is still on emergency tax.

Mr. Niall Cody

My colleague has been a commissioner for six months but before that, she was in charge of developing PAYE modernisation. Every so often I would ask her why we still have people on emergency tax and on week one. Perhaps Ms Kennedy would like to add a bit.

Ms Ruth Kennedy

Now that we have real-time payroll reporting, we are able to move people to pay the right tax at the right time and we are using that payroll reporting to ensure people are not on emergency tax or week one basis, which often means they end up paying too much tax and have to wait until the end of the year to get that money back. Some of it is down to timely employer reporting to make sure that as people move jobs, we are notified that they move jobs because people have their credits allocated to a particular employment. With real-time reporting, on your final payment, you can tell us that the job is finished and the credits will automatically move to your new job. It is sometimes down to timeliness of reporting or times when final payments are made to employees, which may be some time after they finished a job but the new real-time reporting system does provide for a mechanism whereby we can ensure people pay the right tax at the right time and do not have to wait until the end of the year.

Deputy Colm Burke

Does Ms Kennedy accept that it is a group on which we need to focus? I thought this issue had been resolved going back about five years ago and then it started coming back up again in the past 12 months.

Ms Ruth Kennedy

We get calls to our helplines from people who want our assistance in moving credits from one job to another and we do provide them with that assistance to ensure they get the right credits.

Deputy Colm Burke

My next question concerns people paid by the Department of Education, the money is being deducted for tax by the Department and yet they are classed as being self-employed. I am talking about people who provide home tuition. I have raised this on a number of occasions with the Minister in the Dáil and in committee proceedings but we seem to making no progress. These people then have no entitlements in a whole range of areas from pensions to sick leave to maternity leave to holiday pay and they are restricted in what they can when they are not working for the Department so they have difficulty with regard to employment for June, July and August. Can we get that clarified because they are working full time and are being paid by the Department?

Mr. Niall Cody

We have given a note to the committee in the briefing around the treatment. We are responsible for the tax treatment only. We carried out an audit in the Department of Education and reviewed the situation. This has been reported on previously by the Comptroller and Auditor General. Our view is that home tutors are actually employees of the family. We entered into an arrangement with the Department of Education that rather than requiring the family to register as the employer, the Department would operate PAYE on the money.

Deputy Colm Burke

The problem they then have is that they are restricted in a whole range of things because they are-----

Mr. Niall Cody

I can only deal with the tax treatment. I am not responsible for determining their employment status for the WRC or the Department of Social Protection. What we have tried to do is simplify the method of collecting taxes. We have a simplification - an administrative measure to collect tax. Our analysis is that they are actually employees of the family.

Chairman

Obviously each family would get a block of home tuition and must register as an employer. I appreciate the clarification.

Deputy Verona Murphy

I welcome everybody. I am sure the witnesses are aware of the issue I have and I am sure they will not beat around the bush by saying it is someone else's problem. Does Mr. Cody agree that e-gaming is an illegal activity?

Mr. Niall Cody

Again, it is a bit like with Deputy Burke.

Deputy Verona Murphy

This is binary, so let us not beat around the bush and we will not fall out.

Mr. Niall Cody

The Deputy knows that I am here to talk about tax. I will tell the Deputy about the tax treatment of e-gaming.

Deputy Verona Murphy

No, do not. I have a reply to a parliamentary question from the Minister. It states: "I am informed by Revenue that it does not have any role in the regulation of online websites", which I accept. Does Mr. Cody consider e-gaming to be an illegal activity? I am not referring to gambling but e-gaming.

Mr. Niall Cody

I consider it to be a vatable activity.

Deputy Verona Murphy

Is prostitution a vatable activity?

Mr. Niall Cody

It is not.

Deputy Verona Murphy

Why?

Mr. Niall Cody

Because it is illegal.

Deputy Verona Murphy

Is e-gaming illegal? Do not nod; answer my question.

Mr. Niall Cody

I will answer the question, Deputy, but-----

Deputy Verona Murphy

It is a "Yes" or "No".

Mr. Niall Cody

No, I will not answer-----

Deputy Verona Murphy

Chair, these are binary questions. I am not going to fall out. I want a binary answer. Is it "Yes" or "No"?

Chairman

Please allow the witness to answer.

Deputy Verona Murphy

Mr. Cody only needs to say "Yes" or "No".

Mr. Niall Cody

E-gaming is subject to VAT under EU-----

Deputy Verona Murphy

That is not the question I asked. Is prostitution subject to VAT?

Mr. Niall Cody

Not under EU law.

Deputy Verona Murphy

Is drug dealing?

Mr. Niall Cody

E-gaming is under EU law.

Deputy Verona Murphy

In Ireland is e-gaming?

Mr. Niall Cody

E-gaming in Europe is under EU law.

Deputy Verona Murphy

Revenue is not responsible for Europe but for Ireland.

Mr. Niall Cody

Yes, and VAT is subject to EU rules. The European Court of Justice has ruled in relation to e-gaming and it is vatable. The ECJ distinguished between certain illegality. It distinguished between prostitution and drugs and e-gaming and the court found that e-gaming is subject to VAT in Europe.

Deputy Verona Murphy

In Europe.

Mr. Niall Cody

We are in Europe. We are in the EU.

Deputy Verona Murphy

Where does the VAT we gather on e-gaming go?

Mr. Niall Cody

The VAT we gather goes into the Irish VAT receipts and a proportion of Irish VAT receipts funds the EU. We are subject to EU rules, EU VAT directives and the ECJ.

Deputy Verona Murphy

I am fully aware of all that. I specifically asked a question.

Mr. Niall Cody

I have no competence in determining-----

Deputy Verona Murphy

Is there legislation in Ireland governing e-gaming?

Mr. Niall Cody

The VAT treatment of e-gaming. The Deputy will not listen to me.

Deputy Verona Murphy

I am listening. We have not transposed the legislation from the EU-----

Mr. Niall Cody

We have.

Deputy Verona Murphy

-----that governs e-gaming.

Mr. Niall Cody

We have covered the VAT treatment.

Deputy Verona Murphy

We have VAT on an illegal activity.

Mr. Niall Cody

Yes.

Deputy Verona Murphy

Therefore, why are we not applying it to prostitution?

Mr. Niall Cody

Because the court has distinguished between different kinds-----

Deputy Verona Murphy

Prostitution and drug dealing.

Mr. Niall Cody

The court has distinguished the VAT treatment between different types of illegal activity.

Deputy Verona Murphy

This illegal activity has some huge consequences for people.

Mr. Niall Cody

I am very conscious that the gambling-----

Deputy Verona Murphy

Has Mr. Cody advised the Government about the fact that Revenue gathers VAT on an illegal activity?

Mr. Niall Cody

The Department of Finance is perfectly aware that VAT is liable on e-gaming.

Deputy Verona Murphy

Does Revenue have any input in relation to the fact that it is illegal?

Mr. Niall Cody

No.

Deputy Verona Murphy

What I am trying to ascertain is how Revenue can be responsible and gather VAT on something that the Government has not even legislated for? The EU has legislated. This is an activity that is causing unprecedented levels of damage to families. We have no control over it and Revenue is happy to gather VAT. Is the VAT rate on e-gaming 23%?

Mr. Niall Cody

Yes.

Deputy Verona Murphy

That is 23% of the misery of the 8% of people affected. Ireland does not have statistics on the activity because it is illegal but statistics in the UK show that 8% of suicides are attributed to online gambling.

Mr. Niall Cody

I know. That is why the Gambling Regulation Bill is going through the Houses.

Deputy Verona Murphy

The Gambling Regulation Bill does not go far enough. It is 99 pages of mostly waffle. We had a regulator here last week.

Mr. Niall Cody

Chairman, we are talking about policy.

Chairman

The legislation is before the Dáil.

Deputy Verona Murphy

Yes.

Chairman

Deputies can change that.

Deputy Verona Murphy

We are here as the Committee of Public Accounts.

Chairman

I get that.

Deputy Verona Murphy

We have a moral obligation to spend taxpayers' money correctly. We also have a moral obligation in collecting revenue to afford people the protections of the State.

Mr. Niall Cody

That is what we are doing.

Deputy Verona Murphy

We do not do that. Mr. Cody is happy, as Chair of the Revenue Commissioners, to add 23% to the misery of people who get involved in addiction. For most people gambling is like drinking. They can go out and enjoy a drink or go off and enjoy the races but for the percentage of people who are addicts and who destroy themselves and their families, Revenue is adding 23% and Revenue does not see the need for protections to be afforded to people in respect of the collection of that 23%. Revenue has no act or part in advising the Government. Does Mr. Cody know what revenue is gathered from e-gaming?

Mr. Niall Cody

I do not. We would not have a breakdown of that.

Deputy Verona Murphy

We have an illegal activity for which Mr. Cody does not have a breakdown of revenue. We have the Gaming and Lotteries Act 1956, which we will discuss later in respect of the national lottery. Mr. Cody does not know what the revenue from e-gaming is. The UK, where the figures are gathered, had revenue of £14 billion from this. Does Mr. Cody know that 60% of profits for online gambling companies were contributed by 5% of punters. Just imagine that. Does Mr. Cody not see that as a serious issue?

Mr. Niall Cody

I totally see it is a serious issue.

Deputy Verona Murphy

It is not serious enough to make an informed-----

Mr. Niall Cody

The Deputy asked me for a binary "Yes" or "No" answer. She spoke for about three minutes and has not allowed me to speak at all.

Deputy Verona Murphy

Mr. Cody did not give me the answer. He is only going to waffle.

Mr. Niall Cody

No, Deputy.

Deputy Verona Murphy

Yes, Revenue has not advised Government in any written format that this is not an approach we should be taking.

Mr. Niall Cody

If we did not receive the money from online gaming that is provided through the one-stop shop in the VAT system, the Comptroller and Auditor General and the Committee of Public Accounts should ask me why we did not receive tax that is properly due in Ireland.

Deputy Verona Murphy

Mr. Cody does not know how much it is.

Mr. Niall Cody

It is included in the VAT receipts.

Deputy Verona Murphy

Mr. Cody knew he was coming in here today and he knows I have asked this question.

Mr. Niall Cody

I will get a figure for what we receive in the one-stop shop on e-commerce and e-services.

Deputy Verona Murphy

E-commerce is not illegal but e-gaming is.

Mr. Niall Cody

No, it is e-services.

Deputy Verona Murphy

They are not illegal.

Chairman

Are those revenues included in the e-commerce figure?

Mr. Niall Cody

They are in the e-services figures.

Chairman

Revenue must implement the law under the Constitution, the rulings of the Oireachtas and, in this case, the ruling of the ECJ. Deputy Murphy asked a question and it was not answered. I understand that Revenue must collect this money. The committee accepts that. Has Mr. Cody advised the Government or the Minister that we are collecting it?

Deputy Verona Murphy

Chair, a distinction must be made and I believe Mr. Cody well understands it. We have criminal activity on which Revenue collects VAT. Mr. Cody is saying that is quite okay because it is done under an EU directive. Is that correct?

Mr. Niall Cody

I am saying that, under EU law, we have to collect it.

Deputy Verona Murphy

Does Mr. Cody agree that it is criminal activity?

Mr. Niall Cody

I do not have a view. I am not the Department Justice. I am not a legal person.

Deputy Verona Murphy

The Department of Justice issues a certificate and that is given to those who are providing the illegal activity for the purpose of providing online gambling but they move into e-gaming, which is illegal. I do not hold Mr. Cody accountable for that.

Mr. Niall Cody

It is not regulated.

Deputy Verona Murphy

I am talking about the criminal law. Mr. Cody is an astute individual. Is e-gaming an illegal activity for the purposes of the criminal law?

Mr. Niall Cody

It is not regulated.

Deputy Verona Murphy

Therefore, it is illegal, end of story. I will let Mr. Cody answer in a second. He has just said e-gaming is unregulated. Under a moral code, the Revenue Commissioners, who are responsible for gathering funds for the public Exchequer, is taking 23% VAT on a criminal activity.

Mr. Niall Cody

And we take income tax from criminal activity.

Deputy Verona Murphy

As a result, CAB is deployed against it nine times out of ten. We do not apply it to e-gaming organisations.

Mr. Niall Cody

CAB collects income tax on illegal activity. I do not know, Chairman, if-----

Deputy Verona Murphy

Does Revenue collect VAT on illegal activities in respect of which CAB has responsibility?

Mr. Niall Cody

It depends on what the-----

Deputy Verona Murphy

It does not depend because it is not-----

Mr. Niall Cody

It does. We do that. If the Deputy wants an example, I can give her one.

Deputy Verona Murphy

I do not want to spend more time on this.

Mr. Niall Cody

I am sorry, Deputy,-----

Deputy Verona Murphy

The reality is that-----

Chairman

Deputy, please.

Deputy Verona Murphy

My time is up. We will come back to this.

Mr. Niall Cody

Does the Deputy want an example?

Deputy Verona Murphy

No. I do not need an example.

Mr. Niall Cody

Well, the Chairman might.

Chairman

I am sorry. Let us just-----

Deputy Verona Murphy

What I needed was-----

Mr. Niall Cody

May I give an example of where we collect VAT on illegal activity?

Chairman

Yes. Give us one example.

Mr. Niall Cody

We collect VAT and excise on laundered fuel.

Deputy Verona Murphy

I accept that, but someone does his or her utmost to-----

Mr. Niall Cody

We do our utmost to collect tax. That is our job.

Deputy Verona Murphy

No. I am saying that someone does his or her utmost to ascertain where the laundered fuel is coming from, yet no one is enforcing the law on e-gaming, which is decimating lives. As chair of the Revenue Commissioners, Mr. Cody has not put anything in writing to say that this situation should be regulated.

Mr. Niall Cody

I will tell the Deputy-----

Deputy Verona Murphy

Has Mr. Cody? It is a yes-no answer.

Mr. Niall Cody

I was at a meeting 14 years ago about-----

Deputy Verona Murphy

I was at several.

Mr. Niall Cody

-----the introduction of a regulation-----

Deputy Verona Murphy

I am asking whether Mr. Cody put it in writing.

Mr. Niall Cody

Yes, we have been doing so consistently. With parliamentary questions, we usually get asked about areas for which we have no responsibility. We worked closely on the new Bill.

Deputy Verona Murphy

I did not ask about that.

Mr. Niall Cody

We would like to see the new Bill implemented.

Deputy Verona Murphy

Revenue is able to publish guidelines on VAT on e-gaming.

Mr. Niall Cody

We are obliged to.

Deputy Verona Murphy

I did not see Revenue publishing what it sent to the Government on the fact that e-gaming is an unregulated business. By "unregulated", I mean criminal activity.

Chairman

Thank you, Deputy.

Deputy Verona Murphy

I would appreciate it if Mr. Cody took this a little more seriously.

Mr. Niall Cody

I take it very seriously. We-----

Chairman

Mr. Cody has accepted that there is an issue of criminal law.

Deputy Verona Murphy

I will be speaking again.

Chairman

To clarify the answer on the 23%, there is a moral issue - there is no doubt about that - but Mr. Cody is saying that Revenue has to implement what is put in front of it. Does any advice go to the Government or is the Government notified of the amount being accrued from e-gaming?

Deputy Verona Murphy

He just said he did not know.

Mr. Niall Cody

I would not say so, Chair. Does Mr. Donegan wish to add anything on this? He engages with the Department on-----

Mr. Dermot Donegan

Not particularly on that, but we collect VAT on e-gaming. We have been collecting it through the mini-one-stop shop, MOSS, system since 2015. We cannot separate the figures that are paid over.

Deputy Verona Murphy

What does Mr. Donegan mean?

Mr. Dermot Donegan

There is no way of doing it.

Deputy Verona Murphy

How come the UK can? The UK can do so because the sector is regulated and there is proper governance.

Mr. Niall Cody

Regulated, but not by His Majesty's Revenue and Customs.

Chairman

It is in the greater e-commerce piece. I call Deputy Catherine Murphy.

Deputy Catherine Murphy

I welcome the witnesses.

I wish to pick up on points made in the opening statement about strong levels of voluntary compliance, which is good. However, Revenue has concerns about the growing trend in shadow economy activity such as cash-only trade, off-the-book payments, irregular employment agency or subcontractor practices and identity hijacking. Will Mr. Cody give us examples of these or expand on the opening statement reasonably briefly?

Mr. Niall Cody

I do not believe I can do so reasonably briefly, as this is a complicated issue. Measuring the shadow economy is difficult, and if we could measure it, we probably would not have one because we could address it.

As we exit the pandemic and the economy recovers, we are seeing activity that we are concerned about, for example, businesses with signs in windows reading "Cash Only" and trends in wage levels in certain sectors that are probably not complete.

Deputy Catherine Murphy

In what sectors?

Mr. Niall Cody

Traditionally, the shadow economy works in cash businesses, but not solely. There have always been elements of it in the language around nixers, jobs for cash and no VAT, etc. Construction has elements of this, as do retail and the food trade. There is also suppression of wages and people operating a trade within a trade, where they return perhaps three quarters of their activity, but there would be an element that-----

Deputy Catherine Murphy

Covid seems to have shown up some of these practices through a number of schemes. Is the situation different now? Has Revenue additional intelligence on aspects that it was not aware of before Covid?

Mr. Niall Cody

The PAYE system and the wage subsidy scheme gave us data. I spoke with Deputy Munster about the level of interventions we had with employers, the level of analysis we could do on payroll data and the level of information we had through the wage subsidy scheme. All of this showed that there were certain outliers and practices about which we were concerned. We have discussed the issue of misclassification several times. Some contractors converted subcontractors into employees when the wage subsidy became available because subcontractors did not get the subsidy. Recently, we have seen some evidence of them being converted back into subcontractors. It is not widespread, but it does happen. We are concerned about what we would call straw men appearing in the construction sector again, with the middleman disappearing. We are concerned about some levels of activity, which we have discussed previously, where labourers are operating as subcontractors and are regularly being paid weekly. We are seeing some of this. It is not mainstream,-----

Deputy Catherine Murphy

It exists.

Mr. Niall Cody

-----but the problem with any shadow economy is that it undermines competition and forces others to do things.

Deputy Catherine Murphy

What about identity hijacking?

Mr. Niall Cody

We spoke to Deputy Burke about the amount of PPS numbers. We are worried about people – it is probably the case that they are mostly non-Irish – who have gone home but whose PPS numbers and identities have stayed here and been misused. I have concerns about economies within economies. I hesitate to say this, as it is not primarily our area of responsibility, but there is probably exploitation of some workers as well as identity theft, which can sometimes lead to concerns for us around extraction fraud. The problem is that organised crime gangs are involved in some of this activity, and they have a focus on extraction fraud whereas we make a presumption of honesty in dealing with all repayments and must ensure that legitimate businesses get their repayments as quickly as they can.

Deputy Catherine Murphy

I will move on. Mr. Cody stated that most taxpayers were compliant and referred to people within the PAYE system. There is another side to that where people do not claim their entitlements. I compliment Revenue on its myAccount system, which is very good and easy to use. In something of an inducement to apply for a tax refund, it will say whether an individual is due an estimated refund. Does Revenue have an estimate of what people do not claim in a given year? People have to fill in a form and make a claim. They are probably underclaiming medical expenses.

Mr. Niall Cody

There are certain areas where we do not know what a person is entitled to claim, for example, medical expenses, given that we do not know what medical expenses a person has. By 5 January, we will know from our data who has apparently overpaid tax, and that information will be made available.

I hesitate to talk about this because there is an expert beside me who probably designed and implemented the system and was responsible for it. Ms Kennedy may have some interesting statistics.

Ms Ruth Kennedy

Since we started receiving real-time payroll information, that is since 2019, we have made available to every PAYE taxpayer a preliminary end-of-year statement at the start of 2020 and every year following, which sets out the taxpayer's income tax and USC calculations for the year. In some instances there will be people who have overpaid tax during the year and in other instances there will be people who have underpaid tax. Some of the reasons they might have overpaid tax go back to the discussion we had about people who may be on emergency tax for too long. We make those calculations available to people. They can come in and file their returns and claim additional things like health expenses, as mentioned, or the remote working relief for people who worked at home during the pandemic. This year we took a very proactive step and wrote to more than 400,000 PAYE taxpayers, that is, we sent them paper letters outlining their preliminary position for 2019, 2020 and 2021 and invited them to come in to file and to claim their refunds. Interestingly, we got a much higher response rate to those letters from people we told owed us money. They came in and filed their tax returns. We got a lower response rate from those we told there was a refund there for them and they just needed to come in and claim it.

Deputy Catherine Murphy

Does Ms Kennedy have any estimate as to what that-----

Ms Ruth Kennedy

What the amounts might be.

Deputy Catherine Murphy

Yes.

Ms Ruth Kennedy

Yes. I think the average amount of overpayment is €500 and it is the same for underpayments.

Deputy Catherine Murphy

What is the total?

Ms Ruth Kennedy

In total there could be around €161 million a year for each of the three years for people. That does not include health expenses, which they may claim on top of that. We also introduced a change whereby people can claim their health expenses in year now, that is, they do not have to wait until the end of the year. You can claim the expense as you incur it. That is an attempt to get the right tax at the right time.

Deputy Catherine Murphy

My time is very short. May I ask the witnesses about when the system went fully online in terms of scanning medical things, inputting and making claims and so on? Have the Revenue Commissioners looked at the difference between the online system and people making claims without the system being fully online? Has there been a difference in the amount of medical expenses, for example, that have been claimed?

Ms Ruth Kennedy

We deal with both. There is a certain cohort within the PAYE tax base who may be unable to deal with us online, and we have a facility whereby they can send in paper forms and make claims. When we wrote to those 400,000 taxpayers we segmented them and tailored the letters. Those we knew were not registered for our myAccount service or MyGovID, through which they can access the myAccount service, we provided with access to a paper return and we have taken in those paper returns. I think about 100,000 have come back in since we issued those letters. They can make claims at the end of the year through a paper return. A huge number of people are now-----

Deputy Catherine Murphy

Ms Kennedy does not know if it is more or less with the new system.

Ms Ruth Kennedy

A huge proportion of people go online now. Most PAYE taxpayers deal with us online but we have a facility to deal with those who are unable to deal with us online.

Deputy Catherine Murphy

May I also ask the witnesses about complaints that are made to the corporate enforcement agency or to the Garda fraud division? Do they notify the Revenue Commissioners of Revenue-related matters? What level does it have to get to before they notify the Revenue Commissioners?

Mr. Niall Cody

There is probably more notification from us to them. We have a memo of understanding with the corporate enforcement agency because we will often see the issue first and will make referrals to them. We have an ongoing relationship with the Garda.

Deputy Catherine Murphy

How many referrals do the Revenue Commissioners make?

Mr. Niall Cody

I do not have that figure with me but I will definitely get figures for the Deputy.

Deputy Catherine Murphy

If Mr. Cody would, please, for both the Garda and the corporate enforcement agency.

Mr. Niall Cody

And both ways.

Deputy Catherine Murphy

Yes.

Mr. Niall Cody

We will try to give the Deputy some feel for the interaction between-----

Chairman

Thank you, Mr. Cody. We will break until 11.15 a.m. We will be back sharp. I ask people to co-operate with that.

Sitting suspended at 11.05 a.m. and resumed at 11.19 a.m.

Chairman

While we wait for other members to attend - some are caught up in the Dáil and at various other committee meetings - may I ask the witnesses questions about classification of workers? It is an issue I have raised with Mr. Cody previously in the context of self-employment, employment and PRSI. The witnesses will have read the Comptroller and Auditor General's recent chapter on the classification of workers, chapter 14. Does Mr. Cody accept that there is a significant issue with wrongly classified employment in a number of sectors? There are recommendations, and I will come to them in a minute. The Revenue Commissioners have been doing checks on the matter. That is welcome, and they have been reporting to us on that, but does Mr. Cody accept that there is still a fairly significant problem there?

Mr. Niall Cody

The evidence does not support the idea that it is widespread. As I said to Deputy Murphy earlier, however, we would be concerned that practices which were evident in various sectors would reappear. Certainly, I worry about some practices in the construction sector. We have initiated and are continuing to follow a plan through to next year in relation to-----

Chairman

What sectors are being examined?

Mr. Niall Cody

I was just going to go on to that. We are looking at construction and carrying out a programme on the whole logistics delivery area. I mentioned earlier the growth in e-commerce and delivery vans in this context. There are many large entities here, but they have subcontracted to haulage and courier companies. These sectors have always been there in a way. If we go back to owner-drivers in the past, there was the Readymix case in the 1960s. When I started my career, I remember looking at owner-drivers and milk delivery and collecting from creameries. There are, therefore, sectors like this. We are looking at logistics. We are also exploring areas around contractors on the ICT side. Some of the multinationals tend not to recruit subcontractors directly, but, as I mentioned in my opening statement, there are several employment agency-type operations-----

Chairman

Some work has been done on media as well.

Mr. Niall Cody

We have.

Chairman

I refer to IT, construction, haulage, courier and transport companies. I have asked Mr. Cody this next question before, but it appears the Revenue has stepped up its activity in this regard. To put a figure on this type of activity, some people say €300 million is lost annually in PRSI, while others put it closer to €700 million or €800 million.

Mr. Niall Cody

I do not think the evidence supports those figures. When we examine-----

Chairman

Is it below €300 million?

Mr. Niall Cody

It is definitely not anywhere near that amount. We undertook targeted programmes and reclassified ten people. What I am concerned about is if this type of activity grows again. The chapter in the report talks about the guide, or code, for determining this situation. The clarity of this acts as a double-edged sword. It also provides the measures to ensure that people fall on the right side of self-employment.

Chairman

Is Mr. Cody saying some employers are reading the five definitions-----

Mr. Niall Cody

A contract is drawn up to-----

Chairman

-----in the code of practice. They are written in such a way that-----

Mr. Niall Cody

This is the way that-----

Chairman

-----legally, they can-----

Mr. Niall Cody

-----this can be done legally.

Chairman

It is what the law allows.

Mr. Niall Cody

It is what the law allows. I have spoken before about an aspect that does not get enough attention, because it is often reduced to simplifications. I refer to the corporate structural process of personnel management companies, service companies and managed services companies. Many of these services are now provided through corporate entities. In this way, a company, for tax purposes, cannot be an employee. I refer to many of the higher-tech enterprises. The other thing also not often talked about-----

Chairman

Is Mr. Cody alluding to the fact that this might be a practice in the IT sector?

Mr. Niall Cody

Absolutely. It is a known practice in many of the sectors. There are two groups. One is well paid and in a kind of self-employment process. Sometimes the debate gets down to the employer versus the employee-worker. In many cases as well, however, both parties want to be self-employed.

Chairman

I can understand that in the media-----

Mr. Niall Cody

The last thing I wish to refer to in the whole area and I do not want to talk-----

Chairman

I think Mr. Cody would have to accept that a greater number would, typically, be labourers on building sites, people driving courier vans or people working in the IT sector, who would be on an average wage.

Mr. Niall Cody

We would be surprised, if we went into the detail, of how many limited companies are in the high-end working context.

Mr. Seamus McCarthy

This was one of the things that surprised me. Looking at figure 14.6, which is concerned with the average contribution per contributor in class S, the figure has increased quite substantially. To me, this seems to indicate there is a trend in the numbers, because the overall numbers in class S are not increasing hugely. The average is increasing, so therefore it would seem to me to be drifting more into a higher-paid space.

Chairman

Okay. We have the criteria, which include the headings of mutuality of obligation, substitution, the enterprise test, integration and control. Moving on, I ask Mr. Cody the comment regarding the employment status investigation unit, which conducted 90 investigations in 2021. Mr. Cody is saying the level here is not that high. In those investigations the unit undertook, however, the level of misclassification was 44%. I take the point that there would be certain reasons for investigating certain sectors and employers and it would not be representative of the right across the board, but this finding is very high. It is not telling me this activity is insignificant.

Mr. Niall Cody

If it is 44% of, possibly, less than 1%-----

Mr. Seamus McCarthy

It is also targeted.

Mr. Niall Cody

It is totally targeted.

Mr. Seamus McCarthy

Therefore, it was expected by the unit that it would find such a high level in these investigations. This goes back to the point I keep making about randomness. I have had this conversation in the context of the Department of Social Protection and the Revenue. If sampling is undertaken on a random basis or if it is possible to interrogate a whole database, it is then possible to get closer to the true level of activity, whereas the results of targeted testing will not be a reliable indication.

Chairman

I will come to this aspect in a moment. I thank the witnesses for those contributions. A level of 44% of misclassification in those investigated is still high and this is an issue of concern.

Mr. Niall Cody

This year, we carried out 1,095 visits to construction sites. We interviewed 2,415 workers on those sites. We had 144 new registrations. They were not on anyone's books, and were neither subcontractors nor employees. Of the total number reclassified, six of those 2,415 workers were reclassified from subcontractors to employees. This represents 0.25% of those interviewed.

Chairman

I thank Mr. Cody for that figure. Turning to the self-employment rates in different sectors, what was particularly interesting here were those people self-employed and without employees. I understand that, for example, many plumbers will not have an employee. It will be the same with many IT engineers. Equally, and typically, a high number of self-employed people in agriculture, such as farmers, will not have employees. In construction, though, 30% of people were self-employed. Of these, however, two thirds, or some 20% of the overall number employed in the construction sector, are self-employed and without employees. This is a high figure.

Mr. Niall Cody

It is a figure we focus on and this is how we target. With our relevant contract tax, RCT, system, we have reporting of all contracts and payment notifications for subcontractors. We then analyse the subcontractors and identify those that have no employees who are receiving regular payments from one principal contractor. This is where we focus on examining this area. RCT was introduced in 1971 to reflect practices that were taking place in the Irish construction sector in the 1960s and it has continued through since then. When we introduced the real-time RCT reporting system in 2012, it was to focus on this aspect and to examine people getting regular amounts from the same principal contractor who had the appearance of being employees. These are then the kinds of cases we go in and focus on.

It is a lot older than I am. We consistently look at it and we have our systems and our data. That is why I said that I am worried that elements of it are coming up again; that they are more like employment agencies rounding up a series of subcontractors. I think what is happening there is not that the principal contractor is employing them but that the employment agency is. We have a number of inquiries going on in that area.

Chairman

Regarding the figures for August 2019 to June 2022, which is just under a three-year period, 110 investigations were commenced in media and journalism. There were 28 still ongoing when this report was put together. The number of investigations completed was 82 but the number of workers reclassified was 50. That is just in media and journalism. In construction, the number of investigations completed was 22 and there were nine reclassified. I understand that one investigation could cover a number of workers. I am not saying each worker is a separate investigation. In miscellaneous services, there were 19 investigations completed and 15 workers reclassified. Looking at the total across the sectors, there were 311 investigations carried out by the employment status investigation unit in that three-year period. On foot of the 167 that were completed, 93 workers were reclassified. We have to bear in mind that the employment investigation unit, with the best will in the world, will only get some places. It will not get everywhere.

Mr. Niall Cody

We are doing far more interventions in the shadow economy. This is an area we focus on. We are out there and we have a real focus on these sectors.

Chairman

I know that. Some of it is joint, with the Department of Social Protection.

Mr. Niall Cody

In addition to the work we do, we try to focus on the top of the food chain. Payments cascade down through a subcontracting system. What we want to see is where that subcontracting starts to look like employment. Many subcontractors have employees and subcontractors of their own, and then you get down to the end. I would be worried, and I have said this here many times, about where someone who does not have a trade is classified as a labourer or self-employed. Some unscrupulous subcontractors are doing that. That is what we were focusing on.

Chairman

I accept that. I have just one more question, because I want to move on and let the other Deputies back in. In terms of the criteria, chapter 14 of the Comptroller and Auditor General's report states, "To date, there has been no assessment of the extent to which the code has been used by workers or employers reviewing an employment status." With regard to the extent of misclassification of employment, it states:

Aggregate data on the extent of self-employment in the State available from the CSO, Revenue and the Department appears broadly consistent. However, when analysed on an economic sector basis, there appears to be significant differences in the estimated numbers identified as self-employed in certain economic sectors. There is no formal periodic analysis or reconciliation of apparent conflicts in the estimates.

Does Mr. Cody want to respond to that?

Mr. Niall Cody

In a way, with designating somebody as self-employed, we are more concerned about the tax treatment. We do not really have a concept of someone being self-employed or being an employee. PAYE works on collecting emoluments. What we have done, following on from the chapter, is sit down with the CSO to work on misclassification, to try to ensure we are classifying comparably. We have a strong relationship with both the CSO and the Department. We want, as much as possible, to try to get comparable figures where we do not have statistical deviation between different categories.

Chairman

The report goes on to state:

... neither [the Department nor Revenue] has estimated the related potential loss of contributions to the SIF. Random sampling and testing of the classification of a sufficient number of individuals would be required to accurately estimate the prevalence of misclassification of employment.

This is what it comes down to. The recommendation is, "The Department should develop a programme of random reviews of PRSI classification in order to establish reliable estimates of the extent of misclassification of employment status". The response is that it is part-agreed. This is what Mr. Cody said: "The Department’s inspectorate carries out targeted investigations based on data analytics, sectoral profiling and cases referred by workers, employers, other Departmental scheme areas and Revenue."

Mr. Niall Cody

That was the Secretary General of the Department of Social Protection.

Chairman

Yes, sorry. I wanted to ask if Mr. Cody agreed with this. The Accounting Officer stated, "These strategies are seen as the most effective use of resources". The Department is saying it is targeted. Does Mr. Cody agree with the Department about it being targeted, or does he see a role for what the Comptroller and Auditor General is suggesting, namely, random investigations?

Mr. Niall Cody

We have had discussions about the approach to random audits various times when I have come here. There is probably scope for limited random audits in some sectors. In some ways, what we are trying to do now in our overview of some of those sectors I mentioned is to try to get a sense of the sector as a whole. To take that delivering on e-commerce piece, what we are trying to do is look at the headline of the logistics sector and track down. It is not for the purposes of establishing what the potential loss is. It is for the purposes of identifying where there are leakages from that cascade. Last year, we had the highest compliance yield in the history of the State for Revenue at €1.38 billion. There is a huge opportunity cost for us in moving from our targeted focus to a random one. I understand fully what-----

Chairman

I am going to bring in the Comptroller and Auditor General in a minute.

Mr. Niall Cody

I fully understand the view of the Comptroller and Auditor General. There are ways we can bridge some of that divide. We welcome any engagement and we will do a review of the process over the next couple of years.

Mr. Seamus McCarthy

When the Secretary General was here last week, he talked about the scale of what I was suggesting. There might have been a bit of a misunderstanding on the Department's part. Specifically, my suggestion related to the cohort that are registered in class S because if there is misclassification, they would be in class S when they should be in class A. That is where the risk is greatest. What I was talking about was a sample being taken of class S and testing comprehensively whether those people were correctly and appropriately in class S. I was not suggesting that we draw samples across the whole spectrum of people in employment to see whether they are in the right place. The economic risk is that people would be in class when they should be in class A. That is where the testing would need to be focused. He also mentioned a sample of about 15,000. I would be talking about significantly lower figures, in the hundreds rather than the thousands.

Chairman

That brings me nicely to the final question I want to ask Mr. Cody. I understand the reason for targeted measures, because it is where you are likely to find problems. I get that and the Comptroller and Auditor General has alluded to that. Does Mr. Cody see a role for a limited number of targeted random investigations and examinations?

Mr. Niall Cody

We always do a small number of random investigations but it is probably not an adequate number for the purposes of drawing conclusions. Part of our audit programme is based on random examinations. These are to ensure that everybody has a chance of getting a friendly visit from their local Revenue office.

We have never specifically ruled out some elements of random, but what we will be doing over the next couple of years in this area will probably be more than the numbers the Comptroller and Auditor General would require. It will start with the sector. One thing that probably does not get discussed enough is that the drivers of misclassification are employers' PRSI contributions, but a bigger contribution at this stage is probably employment rights. When relevant contracts tax, RCT, came in in 1971, employee rights were probably not much different whichever way a person was employed-----

Chairman

It gives an opt-out clause. An employer does not have to provide the same level of-----

Mr. Niall Cody

Some of the very big cases in the UK came about because a worker got injured. The workers were perfectly happy to be subcontractors until there was an issue. Alternatively, when the economy collapses, the change happens.

Chairman

Many times after the crash in 2010 and 2011, I met people who had been wrongly classified-----

Mr. Niall Cody

In 2007, they were delighted.

Chairman

This is an important area and I am again raising it with Mr. Cody. It is important both from the point of view of workers' rights, as he outlined, and from that of PRSI contributions that people get the full benefits from employers' PRSI being paid and the benefits and statutory entitlements that come from that. Moreover, the loss of revenue to the State, that is, the national insurance pot into which PRSI goes, is not where it should be, as everyone here knows, in terms of the level of sums in it. Mr. Cody might outline before the meeting concludes what that pot amounts to, or the Comptroller and Auditor General may have the figure.

Mr. Niall Cody

I certainly will not have it because that is the Department of Social Protection.

Chairman

I understand that, but perhaps the Comptroller and Auditor General has it. That pot of money, in terms of pensions and other demands on it, is not where it should be and it needs to be built up. I raise this issue because if ten workers are affected by this, it is important we get it right.

Mr. Niall Cody

If I might just finish on this issue, ultimately, there are workers' rights and employers' contributions, but two people on €35,000 pay the same tax, whether self-employed or employed. I provided the committee with this information last year. It then depends on the treatment of expenses. The tax risk is the least of the advantage.

Chairman

There is a PRSI loss, however.

Mr. Niall Cody

I just wanted to point out the tax issue. I am not going to go into a lot of detail but the Karshan case shows the complexity of dealing with this. It dealt with the tax treatment and the PRSI treatment of drivers for Karshan Limited. We felt they were employees, and we were successful at the Tax Appeals Commission and the High Court. The Court of Appeal found in favour of the company in a 2:1 decision and we have been granted leave to appeal to the Supreme Court, which is not granted lightly. Presumably, the case will be heard next year. That process started in 2011. It might be worthwhile for the clerk to the committee to look at the judgments in that regard and at the complexity involved in dealing with a case where everybody is legally represented. It shows our commitment, but the Court of Appeal has now found in favour of the company. Effectively, there has been-----

Chairman

We will watch that case.

Deputy Verona Murphy

Did Mr. Cody refer to which sector the case involves?

Mr. Niall Cody

It is Karshan, trading as Domino's Pizza. The drivers are delivery drivers. In total, there are hundreds of pages of determinations and judgments. A lot of external commentators have said this is simple to sort out but it is not simple.

Deputy Catherine Murphy

I will touch on three areas. In 2020, fewer than ten persons paid €1.3 million in respect of the domicile levy. How many people paid it in 2021 and to date in 2022, and what were the sums, if Mr. Cody has that to hand?

Mr. Niall Cody

I certainly remember reading the figure over the weekend. We will get it for the Deputy.

Deputy Catherine Murphy

I will ask my second question and we might return to that. It concerns the Taxes Consolidation Act 1997. Did Revenue ever seek to insert a clear definition of "self-employment" in that Act?

Mr. Niall Cody

We are interested in tax treatment, various cases of income tax and the Schedules-----

Deputy Catherine Murphy

I acknowledge this is a policy area-----

Mr. Niall Cody

It would not be long in the taxes Act. If there are to be issues around what is employment and what is self-employment, the Workplace Relations Commission, WRC, deals with employment status.

Deputy Catherine Murphy

The problem is that the WRC, the Department of Social Protection and Revenue all have a role in a definition here, and if that definition is not consistent-----

Mr. Niall Cody

It is not a definition.

Deputy Catherine Murphy

If the conclusion is not consistent, whereby someone is told by one of the bodies that he or she is self-employed and by another that he or she is employed, that causes a problem. In that particular case, if Revenue is of the view that a person is defined as an employee or if it has made a determination to that effect, how does it ensure that the employer acknowledges that? Does Revenue issue a direction in such cases and follow that up to ensure that is how it is applied, and if so, can the employees see that?

Mr. Niall Cody

If we reclassify someone, the employer has to operate PAYE and provide the employee with all the wage slips and so on. It is all on record and we can see what tax is being operated-----

Deputy Catherine Murphy

Revenue has an expectation of full compliance by the employer.

Mr. Niall Cody

Absolutely.

Deputy Catherine Murphy

Does Revenue check that?

Mr. Niall Cody

We follow up on a sample of cases.

I have the domicile levy figures for the Deputy. In 2019, there were 16 and a total of €2.23 million and, in 2020, there were 16 and a total of €2.57 million. The returns for 2021 are just in now.

Deputy Catherine Murphy

As for people who were declared non-resident for tax purposes, were all of them within the scope of the domicile levy? What kind of numbers are there on this?

Mr. Niall Cody

Off the top of my head, to give a scale, there could be 40,000 non-resident people, and a load of them are people who went to Australia or New Zealand. They might have left their home and be renting it out, for example. There are a whole load of people who are non-resident, whereas a very small proportion of people-----

Deputy Catherine Murphy

It is probably the people at the upper end of the scale who are flying out at 11.55 p.m. and flying back at 12.05 a.m.

Mr. Niall Cody

The midnight rules were changed. They have been changed a good while at this stage.

Deputy Catherine Murphy

All right.

Mr. Niall Cody

The domicile levy applies if someone has paid less than €200,000 in income tax. A lot of non-resident people at the higher end pay some Irish tax and the domicile levy will only apply if they pay less than €200,000 in a year.

Deputy Catherine Murphy

What people really see is somebody who is domiciled elsewhere for tax purposes but who is visible in this country and maybe availing of services citizens contribute to. It is a bone of contention when people see there is then flexibility on contributing, and philanthropy is one example, as opposed to paying tax as others do. What about that particular class of people?

Mr. Niall Cody

When we did our structural change back in 2017, we used to have a large cases division that dealt with large corporates and high-wealth individuals but the scale was too big. We reorganised and we have large corporates in one division and high-wealth individuals in another. All the wealthy residents plus non-residents with a significant presence in the country are dealt with by that division and it monitors activity. Everybody asks do we know how many times they are here. One of the interesting things is when Covid happened, we were looking at a situation where people were here at the time the lockdown happened. We brought in an administrative arrangement but it only applied until they left. It was really interesting that some representations would have been made but Covid is still there. We said, "If you are able to leave you cannot benefit from the concession the next time you are home." What that showed me was a real care in ensuring they do not fall foul of the 183-day rule because of the consequences. These things are very highly managed by people with significant advisers. I think people fully comply with the conditions because it is in their interest to do so.

Deputy Catherine Murphy

It is in their interest not to get caught paying tax domestically.

Mr. Niall Cody

That is what the system is.

Deputy Catherine Murphy

How many people are in that?

Mr. Niall Cody

A relatively small number. I can provide-----

Deputy Catherine Murphy

It would be quite useful to get some sort of profile of how it is handled.

Mr. Niall Cody

I can provide some summary data, because I think we have done it before, on the high-wealth individual case base.

Mr. Seamus McCarthy

Yes. We reported on it previously, so I think the numbers are there but obviously they are out of date in the chapter now.

Mr. Niall Cody

That was probably 2017.

Mr. Seamus McCarthy

It was a test.

Deputy Catherine Murphy

Covid may have been an interruptor. I am conscious of the arrangements made at the time. I think I asked a parliamentary question at that stage.

Mr. Niall Cody

I think the Deputy did too.

Deputy Catherine Murphy

I was worried about these people not being able to leave the country.

Mr. Niall Cody

Or get back in.

Deputy Catherine Murphy

Exactly.

Mr. Niall Cody

I could get that sense from the parliamentary question.

Deputy Catherine Murphy

I have a final question. This is a policy area, but Revenue officials are concerned about, and talked about being concerned about, sectors not complying with the law. There is a principle around the right to tax profits and gains from Irish land, for example, and from property. It could in many ways be argued the real estate investment trusts, REITs, work against that principle because there are people who take advantage of that. When the officials identify issues such as that or if they have identified something like that, do they advise Government? Have they done so on the likes of the REITs in recent years? There have been adjustments to the 2013 Act over time but it is clear there is a competition going on with housing and these people are not paying the same tax, in some cases, as people are paying domestically. Has Revenue had that engagement and has it identified anything?

Mr. Niall Cody

I do not want to make it specifically about REITs because the numbers are very small and I would be in breach-----

Deputy Catherine Murphy

All right, okay.

Mr. Niall Cody

If we take the whole sector of REITs, Irish real estate funds, IREFs, and all that fund and property stuff, first, there are policy issues and if they are implementing in accordance with the legislation, that is the legislation. Then what we identified over time is practices that were not anticipated when the legislation was developed. Where we come across trends like that, we notify the Department of Finance. There were changes in 2017 and 2019 in that sector around responding to activity that was probably not intended to be covered by these arrangements. The Minister has committed, and the Commission on Taxation and Welfare has recommended, that the whole sector be reviewed. Work will start on that now. When the Finance Bill finishes, it is very much on the Department of Finance's agenda that we get together and review that whole area. That will, I imagine, be a consultation process around seeing what exactly is there and whether some of the arrangements are as appropriate as they were when it was introduced.

Deputy Catherine Murphy

Would Mr. Cody say that is for the long term, the medium term or could it be done in the short term?

Mr. Niall Cody

It will take a bit of time. Our people who work in that area see it as a big project for next year. I cannot say because it will be a policy. I was talking to the principal officer who is probably most involved in it yesterday. I said well done on the Finance Bill and that it has been a busy year. All she said was next year looks worse. That will be a big part of that.

Chairman

Okay. Deputy Verona Murphy is next.

Deputy Verona Murphy

I thank the Chair. I have 33 items. No, I am only joking. I wish to address some issues on where we are with Brexit. I am not sure everybody has a contribution in that but I have a lot of engagement. As the officials know, I am the former president of the Irish Road Haulage Association, IRHA. I sat on the customs consultative committee.

Mr. Niall Cody

Oh, did you?

Deputy Verona Murphy

I did, and Mr. Cody knows well that without us, Revenue would have been lost.

Mr. Niall Cody

The Deputy was a lot nicer to me then.

Deputy Verona Murphy

I am concerned about where we were at. The imposition of Brexit has been on, for want of a better expression, the Twenty-six Counties, because the protocol has yet to be invoked. Therefore, there is a little bit of a competition issue there. All of what Brexit entailed is being enforced in our ports, especially Dublin and Rosslare. The issue is there is no comparison between what goes on in Dublin and what goes on in Rosslare, yet we have the same set of agencies and stakeholders from the Department of Agriculture, Food and the Marine and customs. The bigger issue with that is where delays ensue, that delay is on a business. It is on the product on the back of the lorry but ultimately it is the haulier who suffers the biggest delay.

There are associated issues. We have talked about drivers and how they are paid. They very quickly clock up huge expense if there are delays. It might only be an hour but that hour has such an impact between tachograph regulations and all sorts of different things. Rather than that delay being passed to the consumer at the height of a cost-of-living crisis - because that is ultimately where it ends up - we need to work better and smarter as agencies with the haulage operators, business operators, importers and exporters. How can that be done? There was a customs consultative meeting recently but it was the first one since May. From what I see of the disparity between Rosslare and Dublin, the issue is that Dublin is catering for probably 80% of customs traffic relating to UK imports whereas Rosslare is only catering for approximately 20%. The traffic is predominantly direct ferry and it is customs-alleviated.

There is no involvement with the Department of Agriculture, Food and the Marine or the agencies. In Dublin Port, there is no interaction from the customs sector with the business entities outside of the hours of 9 a.m. to 5 p.m., Monday to Friday. These operations work 24-7. There are issues with the opening hours of the port, but there has to be a dedicated phone line and people in place to operate it. This involves the spending of public money, and we must take account the stage we are at in Ireland between inflation and the cost of living. Brexit has brought a lot of that to the consumer and we have to deal with it in a fashion that makes sense to ensure these delays are minimised. I have seen a lot of the interactions over the months whereby the same answer keeps coming back from Revenue that it is dealing with the issue. Again, it is only dealing with the issue on a 9 a.m. to 5 p.m. basis, five days a week. The cost is arising in the rest of that time. We need to put a dedicated phone line in place. As a committee, we should recommend that there are bimonthly meetings at the customs consultative committee, CCC, until such time as the Northern Ireland Assembly is up and running and the protocol is put in place. There is anti-competitive practice at the moment, given that we do not have the same level of stakeholders, agencies and customs staff in Northern Ireland that we do in our southern ports. The imposition and the cost is being borne by us and we had no part in Brexit. It has to be recognised. I am a politician now, but I was previously an advocate. My opinion has not changed much, and not to be disrespectful to anyone, but as revenue and customs we enforce to the nth degree without understanding the consequences for the business owners, the economy and even our workers and consumers. We cannot have it all being imposed down here and nothing happening in the North. That is the situation we find ourselves in. It is not our fault or the fault of the organisation represented here today, but we need to work to minimise the damage and the competition element of that. Would Mr. Cody agree with that?

Mr. Niall Cody

Brexit has been massive for us and a big challenge for the organisation. I think I presented last year's figures, which show that we went from processing 1 million custom entries to processing 29 million entries. One day last year there were 400,000 customs entries. Many of them were in that e-commerce posting area. We had to scale up all our systems to process all those entries. We engaged heavily with business, hauliers, logistics and shipping from 2016 onwards. I remember reading that the fact that Revenue was preparing for Brexit before the referendum was a bad thing. We have put a lot of work into it. There has been huge engagement with the trade and the sector and we really value that. I was talking to the commissioner, Mr. Gerry Harrahill, earlier today. I saw the committee's press release on meeting to discuss customs matters and Brexit. He texted me to wish me good luck, and I responded to say I have the wrong commissioner with me today.

Deputy Verona Murphy

He can come in again.

Mr. Niall Cody

Absolutely. There is no better man to engage with the committee on the matter. We want the system to work as best as possible. We have responsibilities to ensure that the Single Market operates. The economic challenge for the country is to ensure that we retain our place in the Single Market. That is most important. To the end of October, 4,000 ferries arrived in Dublin Port. There were 18,000 movements, a third of which were accompanied and two thirds of which unaccompanied. Some 89% of them were green-routed, 9% received an orange routing and 2% received a red routing, which required a physical check. We have staffed Dublin Port to provide a 24-hour service. There are people there at all times when the port is open.

Chairman

The Deputy's question concerned Rosslare-----

Deputy Verona Murphy

I think it is more of an engagement issue, but I know that the Office of the Revenue Commissioners has staffed the port. I commend it on the work it has done. We have had limited problems for the amount of traffic coming through the port, but when there are problems it takes far too long to resolve them.

Mr. Niall Cody

We talked about this issue during the break. I am absolutely in favour of continued-----

Deputy Verona Murphy

Mr. Cody said that 2% of movements required physical inspections. If there is an issue with such inspections, there are times nobody can be contacted. Sometimes, if there are issues on a Friday evening, they cannot be resolved until Monday morning. That means the driver cannot go home to his family and he is being paid to sit at the port. If there is only a problem with one product, all the other product is left sitting in the trailer.

Mr. Niall Cody

Absolutely.

Deputy Verona Murphy

There is a huge cost involved. As well as that, we need to consider it as more of a moral obligation. Revenue is Revenue, and I understand the need to uphold the customs code. However, that cannot be at the cost of human engagement. There must be no mistreatment of anybody on either side. We need to prevent that. We must ensure that everybody is treated as a human being, whether it is the driver who wants to get home to his family or the customs officer just doing his job. That is what we need to work on. There is a huge difficulty with drivers leaving the sector. We are an island, so we have to start to put the values and emphasis where they are needed. I think Mr. Cody and I are coming from the same place.

Mr. Niall Cody

I do not disagree with the Deputy at all. There are challenges. Commissioner Harrahill is involved in it to the nth degree. I have seen examples of cases where the agent, particularly if the agent is not based in Ireland, is gone at 5 p.m. on Friday. The ferry may arrive in at 7 p.m. and there could be a problem.

Deputy Verona Murphy

There are ways to address the issues and suggestions have been made.

Mr. Niall Cody

We try to work around it. I have no difficulty with having a CCC meeting on a bimonthly basis, but I think the issue requires more. The meeting is only a framework;-----

Deputy Verona Murphy

Correct.

Mr. Niall Cody

-----it is the engagement that has to take place-----

Deputy Verona Murphy

There is a need to listen and engage.

Mr. Niall Cody

-----to proactively engage on individual-----

Deputy Verona Murphy

There is no point in having a meeting and then highlighting what is not working.

Mr. Niall Cody

In a way, the actual engagement on the individual event is what informs the experience and the change. We have tried to adjust systems. Obviously, it is a hugely IT-driven system. We have spent a lot of money and we have tried to work with businesses. We are very conscious of the interactions and the fact that there are multiple agencies, including State agencies, involved. We are working on a kind of a-----

Deputy Verona Murphy

All of us are still learning.

Mr. Niall Cody

We are still learning. I remember appearing before the finance committee at the start of this. We went from a situation where there were no customs agents to suddenly needing them at a level that we never needed before 1992, because the scale of activity, e-commerce and mixed loads increased.

Deputy Verona Murphy

At least the Office of the Revenue Commissioners is funded by Government. Mr. Cody can imagine what it feels like for a small business that is trying to weather a storm it had no act or part in creating.

Chairman

There is obviously still a problem for drivers and hauliers at Rosslare Port.

Mr. Niall Cody

No, there is not.

Deputy Verona Murphy

It is the other way round. The issue is with Dublin Port. It is working at Rosslare.

Mr. Niall Cody

Rosslare is booming.

Chairman

The issue has been raised before.

Deputy Verona Murphy

Was I not right? The Irish Maritime Development Office should be disbanded.

Chairman

So, what the Deputy is saying is that an out-of-hours problem is arising where-----

Deputy Verona Murphy

I think Mr. Cody knows the issues, which are already on the table. The problem is that the level of engagement is not sufficient.

Mr. Niall Cody

Some of the out-of-hours issues are not caused by the fact agents are not there. They are caused by the fact that the person we need to engage with is not there.

Deputy Verona Murphy

There are solutions. My point is that we need to work on those solutions.

Chairman

It is important that the solutions are worked on.

Deputy Verona Murphy

I have another question for Mr. Cody. Is the Office of the Revenue Commissioners responsible for the temporary business energy support scheme, TBESS?

Mr. Niall Cody

I keep hearing advertisements for it.

Deputy Verona Murphy

I never heard anything like it. It is nearly as good as the lottery.

Mr. Niall Cody

We are responsible for administering the scheme. The registration system went live a few weeks ago and the claim system went live on Monday. We will not be able to pay out any money until the Finance Bill is enacted. Report and Final Stages of the Finance Bill will take place in the Seanad next week, after which it will be passed.

Deputy Verona Murphy

Here is the issue, and it is not Mr. Cody's issue.

It is very disappointing for someone who met so many businesses that were suffering over the summer break and lobbied very hard to have a scheme brought in. A business received an email when it opened to be told that although its bill has doubled, it is not eligible for the temporary business energy support scheme, TBESS. I can see why, but that was not how the Government sold it to the people.

Mr. Niall Cody

I am sorry; I did not catch the piece of the-----

Deputy Verona Murphy

I am saying that it is not Mr. Cody's problem. I understand the Office of the Revenue Commissioners is administering it but the issue is how it was sold from the Government to the politicians and the public. I am aware of a small to medium-sized enterprise that employs many people in a local area in rural Ireland that is not eligible even though the owner's bill has doubled. When I say doubled, his monthly bill in September 2021 was €4,900 and in September 2022, it was €8,600.

Mr. Niall Cody

What business is he in?

Deputy Verona Murphy

I do not want to say that.

Mr. Niall Cody

No, because-----

Deputy Verona Murphy

It is the hospitality sector.

Mr. Niall Cody

The rules are that if a business's monthly bill from September 2022 is more than 50% of the monthly bill for September 2021-----

Deputy Verona Murphy

It is a few euro in the difference.

Mr. Niall Cody

If the Deputy said it has doubled, that is 100%.

Deputy Verona Murphy

It has effectively doubled bar-----

Mr. Niall Cody

Then if it has doubled, it qualifies.

Deputy Verona Murphy

I will put it this way; it has doubled short of a few euro

Chairman

It is 50%.

Mr. Niall Cody

Can the Deputy give me the figures again?

Deputy Verona Murphy

It was €4,962 for September 2021. In October 2021, it was €5,364.99. It has gone to €9,450.65. Okay; it is a couple of hundred euro short.

Mr. Niall Cody

The Deputy said it is €9,000 now.

Deputy Verona Murphy

In October 2022, it was €9,450.

Mr. Niall Cody

What was it for October 2021?

Deputy Verona Murphy

In October 2021, it was €5,364. It rose to €9,450.

Mr. Niall Cody

That will qualify for October.

Deputy Verona Murphy

It does not. His October 2021 bill was €5,364. His October 2022 bill was €9,450. To double, it would need to be €10,000.

Mr. Niall Cody

It does not have to double it.

Deputy Verona Murphy

This is from the Office of the Revenue Commissioners. It was calculated to say he does not qualify.

Mr. Niall Cody

If he put in those figures-----

Mr. Seamus McCarthy

He might not have qualified for September.

Mr. Niall Cody

He might not have qualified for September but he qualified for October.

Deputy Verona Murphy

Is the individual responsible for filling it out himself?

Mr. Niall Cody

Yes. We do not know what people's bills are.

Deputy Verona Murphy

I understand that. In that case-----

Mr. Niall Cody

If the Deputy wants to give me the details after the meeting, we will check it out for her.

Chairman

I would suggest that.

Mr. Niall Cody

It is no problem.

Deputy Verona Murphy

Yes, just in case.

Chairman

It is becoming clear what the problem may be. At the point in September, this person was not eligible but he will be now because of the escalation.

Mr. Niall Cody

The rules are that the bill for the month has to be 50% more than the bill for the equivalent month the year before. If a person does that, a business will qualify for 40% of the increase-----

Chairman

For the difference in price.

Mr. Niall Cody

-----subject to the maximum of €10,000 per trade.

Chairman

Okay, I thank Mr. Cody.

Mr. Niall Cody

We are not interested in keeping people out of it. We are administering it. The problem we-----

Deputy Verona Murphy

It is probably better to have further investigation. It came in this morning. It may be this person's mistake as opposed to-----

Mr. Niall Cody

The challenge is that the system is there. We have made it as easy as possible to comply and fill out the forms but there is much filling out to be done. People must have their 2021 bills and 2022 bills. The other thing that is really important is that people have to have tax clearance. We have to be careful-----

Deputy Verona Murphy

That is the other thing.

Mr. Niall Cody

It will be checked next year.

Chairman

I have a few questions. I will let Deputy Verona Murphy back in after. There are a few issues I wish to raise.

I am sure Revenue has reviewed and considered the Irish Fiscal Advisory Council's recently published Report of the Commission on Taxation and Welfare. Has Mr. Cody reviewed that? Many times, no doubt.

Mr. Niall Cody

The Report of the Commission on Taxation and Welfare is on my desk. I recommend it as a Christmas read for anyone.

Chairman

Are there recommendations in it that Mr. Cody would advocate in terms of advice to Government and the Department of Finance?

Mr. Niall Cody

The commission report provides, and the commission said this, a kind of a framework in which elements of policy can be looked at. I do not think every element will ever be implemented but some of them will. It will inform development. We were interested in that regard and we made a submission. We do not make submissions to consultations very often or lightly, but we did make a submission regarding how tax is administered. The chapter on tax administration is really important. Mr. Donegan talked about the future of VAT and how VAT will be organised. That real-time data is really important to us and will allow us to administer the taxes very well.

Chairman

The question was whether Mr. Cody would strongly advise Government and the Department of Finance to implement any of the recommendations.

Mr. Niall Cody

I would not breach the Chairman's instructions not to talk about policy matters.

Chairman

Okay. That is a clever answer. Mr. Cody is not going to tell me about the ones he opposes either. Obviously, however, the Office of the Revenue Commissioners does make recommendations as the tax collection body.

Mr. Niall Cody

What we do in the context of the Finance Bill every year is to give technical advice to the Department to support the Department. We draft the legislation and all the guidance and interpretation and try to administer as best we can.

Chairman

Does Mr. Cody see a problem coming with regard to what has been happening very quickly in the IT sector over the past month or so with the big tech companies, which many people would admit they did not see it coming? Is Mr. Cody concerned about that? Will it have a big impact next year?

Mr. Niall Cody

I would be very concerned about any sector in which there are job losses. That is the first concern I would have and also that it would be handled properly. Obviously, in a way, the pandemic gave a booster charge to a whole load of sectors. That is reflected in corporation tax and employment and growth in the tech sector over the period of the pandemic. The sector is probably at a level now that it would not have been if the pandemic had not happened. Many of the companies said they probably over-hired and there was an element of over-exuberance. The key for us is that our multinational sector is actually quite diverse. Within the tech sector, it is diverse. There are different types of companies and many of them are very strong. There is a big growth in Irish industry. Our figures are still very strong.

Chairman

There are risks, though.

Mr. Niall Cody

There are risks. Anything that is dependent on the multinational global economy-----

Chairman

There is movement of capital. I accept that. Obviously, there is a risk with corporation tax. It is booming this year for various reasons or a combination of reasons.

Mr. Niall Cody

We have to be careful.

Chairman

Would Mr. Cody be very concerned about the drop-off in terms of the next couple of years?

Mr. Niall Cody

I talked to Deputy Colm Burke earlier about the changes that are coming in international tax. We are probably looking at a couple of years' time when there will be structural changes that will lead to an adjustment of the allocation of profits and taxing rights.

Chairman

The 15% on the larger ones kicks in.

Mr. Niall Cody

How that interacts with other countries has to be fully teased out and policy decisions have to be made. Ultimately, the final details on both pillars, as they are called, have not been finalised. There is still a lot of work. We do work-----

Chairman

What is the projected timeline for that to be finalised?

Mr. Niall Cody

It is a very political dimension. The EU-----

Chairman

Mr. Cody obviously has some notion.

Mr. Niall Cody

The EU must agree with regard to the minimum rate. The Economic and Financial Affairs Council, ECOFIN, met on Tuesday and there was not unanimity. There is some sense that it would progress. It was an aim of the French Presidency to get that finalised. Then, there are challenges around pillar 1 with regard to developments at US level and OECD level. However, the speed at which the change has happened has been phenomenal in international tax.

Chairman

With regard to the sources of tax within the State, the commission highlighted a number of areas in relation to capital gains tax on rezoned land and the gain there.

There is the whole issue of transport, motor tax and revenue on fuel. If half of us are driving electric cars by 2030, as the fuel pumps are removed, not as much revenue will be coming in. There is employers PRSI, and this State has one of the lowest rates across Europe. There are a number of areas that are highlighted in the report. From the point of view of Revenue, and I know it is a policy issue, are there obvious areas to consider? With regard to motor tax, for example, how does Revenue see that play out if we lose approximately €1 billion in that area, and we can see it decreasing in recent years? What should happen in that regard? There is also the shortfall due to EVs.

Mr. Niall Cody

Obviously, there is a challenge. That is why the report of the commission is very important. It is highlighting the issues that will have to be considered and teased through, for example, the whole approach to fuel tax, vehicle tax and the nature of how we will drive in a number of years’ time, when there will probably be a lot less-----

Chairman

What is the total from the motor industry at the moment?

Mr. Niall Cody

I will formalise this figure but I think I saw a figure of about €2.5 billion at one stage, and it might even be in the Commission on Taxation data. When we take into account excise and VAT on fuels, VAT and VRT on vehicles, and motor tax, which is not our responsibility but it is there as well, there is a significant level of tax.

Chairman

Is there a particular area that Mr. Cody would highlight? The commission has issued a report and various bodies such as Revenue and the Department of Finance, as well as politicians, will look at it.

Mr. Niall Cody

The key issue for us-----

Chairman

Are there areas that need to be examined by Revenue?

Mr. Niall Cody

Whatever is introduced, whatever policy options are taken, the key from the Revenue perspective is that they are workable, administrable, easy to pay and hard to avoid. Those are the principles. The Chairman talked about capital taxes and recommendations. The area we are interested in with regard to capital taxes is that the method of collecting them is antiquated and based on old income tax principles of the annual year. We would like to look at those from an event-based point of view. If somebody has an event that generates capital acquisitions tax, CAT, or capital gains tax, CGT, it would all be wrapped up while the transaction is taking place and while the legal people are involved in it. We believe the technology is now there to move to a real-time process. That is the stuff in the commission report that we will strongly be recommending, regardless of what policy options there are. We can modernise that and certainly-----

Chairman

There are the gains on property, obviously.

Mr. Niall Cody

Even for things like capital taxes and CAT, when people die, there is a whole legal paraphernalia and there is an event after the event which only brings up difficult situations for people. We have done some work on CAT and probate, and we worked with the Probate Office, but there is a lot more to be done.

Chairman

I want to move on to the temporary business energy support scheme, TBESS. Oil is being excluded from that scheme. Is there a practical reason for that?

Mr. Niall Cody

First, the EU framework that provides the temporary support is very much linked to electricity and metered gas, but there is obviously a whole administration process and a compliance process. We have enough problems-----

Chairman

What I am trying to get to from the Revenue point of view is whether there is a difficulty.

Mr. Niall Cody

From our perspective, it would be seriously open to abuse and fraud.

Chairman

Data centres are using 14% or 15% of electricity at the moment and they are included. Is there a figure for what would be paid out to data centres in that business energy support scheme?

Mr. Niall Cody

It depends on who registers and whether they claim or not. Our experience of the wage subsidy is that not everybody who is eligible registers and claims, so we will have to wait and see. There is an individual monthly cap of €10,000 per trade.

Chairman

It is not the sector that needs it the most.

Mr. Niall Cody

What we are doing is implementing the scheme where business energy costs go up by more than 50% on the reference period. A lot of those entities may not apply because of the hedging arrangements they have in the long-term contracts.

Chairman

The cap is €10,000 per month. That is not bad.

Deputy Verona Murphy

The issue is that it is not a doubling of the bill. It is a doubling of the unit price. If someone was paying 50 cent per unit last year, they are only eligible now if they are paying €1.

Mr. Niall Cody

No. If they were paying 50 cent a unit in 2021, they would have to be paying 75 cent. It is a 50% increase, not a doubling.

Deputy Verona Murphy

It is an issue.

Chairman

I want to conclude on the temporary business energy support scheme. Will Mr. Cody clarify if it is on the unit?

Mr. Niall Cody

It is a calculation on the unit.

Deputy Verona Murphy

That does not take into account standing charges.

Mr. Niall Cody

It does. It is not the unit price as stated by an electricity company back then. The unit price for the purpose of TBESS is the total amount in October 2021, excluding VAT, divided by the number of units, so the calculation includes standing charges and the electricity tax of 1%. It is a calculated unit price. We will do those calculations. The thing is that the person has to make sure they put in the units on their 2021 bill and the 2021 net-of-VAT cost, and we will compare the unit cost to the equivalent now. We have detailed guidance on the website. The only problem is that it is 120 pages long. It is trying to deal with-----

Deputy Verona Murphy

Is that the best Revenue could do?

Mr. Niall Cody

The thing is there are so many different scenarios and there are so many different types of businesses. There are new businesses that did not have a reference and there is pay-as-you-go.

Deputy Verona Murphy

Have we settled pay-as-you-go?

Mr. Niall Cody

For the purposes of TBESS, yes, but we are not in involved in household pay-as-you-go.

Chairman

Does Mr. Cody have a figure for the overall cost of the scheme per month?

Mr. Niall Cody

There were projections for the purposes of the Finance Bill which suggested the projected overall cost for the six months it will run from September to February is €1.2 billion.

Chairman

Revenue is obviously seeing a take-up now.

Mr. Niall Cody

There are 4,000 businesses registered for the scheme at present. For the couple of days that the claim system has been in, there are about 400 claims.

Chairman

Does Mr. Cody envisage that the cost will be a lot less than that?

Mr. Niall Cody

We do not know. In fairness to everybody, when we tried to establish what the cost could be, it was very difficult.

Chairman

From an administrative point of view, would there be a difficulty in taking out data centres? I know it is a policy issue. From an administrative point of view, does Mr. Cody see a problem with that?

Mr. Niall Cody

We do everything on self-assessment, so people are eligible to register and they are eligible to claim. If somebody registers who was not eligible, they may get in, but if somebody does something and they are in breach while they are claiming, we have a whole raft of rules so if they claim something they are not entitled to, there are interest penalties.

Chairman

From the point of view of Revenue and its function, is there an issue with trying to exclude a certain sector, such as data centres for example?

Mr. Niall Cody

We would say, from an administrative point of view, that certain businesses cannot apply. We would not be acting as gatekeeper but if it turns out that they were not eligible afterwards, they would have to pay back the money with interest and penalties and compliant businesses tend not to apply for things they are not entitled to.

Chairman

We will wrap up in three minutes so the Deputy can ask another question.

Deputy Catherine Murphy

I want to see how this works. If Revenue is of the view that a person is defined as an employee and the organisation does not accept that, is it at that point that Revenue can issue a direction? Would the employee then be permitted to view that direction?

Mr. Niall Cody

If you take the case we talked about earlier that is going to the Supreme Court, what would happen is as follows. If there was a dispute between Revenue and a company and we reckoned that a category of the workers were employees and the company disagreed with us, ultimately we would have to issue an assessment. The company would appeal that assessment and it could pay the money if it felt it would be better to do so such that it would not suffer interest in the future. We would deal with the employer in that case and we would raise the assessment.

Deputy Catherine Murphy

Can the employee who-----

Mr. Niall Cody

If the employer then said it did not accept Revenue's view, it has appealed the assessment and it is not operating PAYE, there would be nothing for the employee to view.

Deputy Catherine Murphy

But Revenue would not issue a direction. Individual cases make poor law and I understand that. However, I refer to a situation where Revenue has determined a person is an employee and the Workplace Relations Commission has determined that he or she is self-employed. What happens in that situation?

Mr. Niall Cody

Generally the three agencies co-operate closely.

Deputy Catherine Murphy

That is a real case.

Mr. Niall Cody

I know that because the Deputy asked a parliamentary question about it this week. I asked our crew if we know what the case is and they did not know but they told me to ask the Deputy after this meeting. I would be interested in seeing the details of that.

Deputy Catherine Murphy

I mention the changes that are coming down the line in corporate tax. As Brexit has now happened, presumably that changes the dynamic, given that the UK is outside of the European Union. Does that make it difficult?

Mr. Niall Cody

International corporation tax is primarily being driven through the OECD and then the EU gives effect to it in EU law in member states. The debate has been started in the OECD and the UK is active in that debate.

Deputy Verona Murphy

I will send an email on the TBESS and we will have to see.

Mr. Niall Cody

Give me the details.

Chairman

I thank the witnesses and the officials from the Office of the Revenue Commissioners for the work involved in preparing for today's meeting. I also want to thank the Comptroller and Auditor General and his staff for assisting with the preparation for today's committee. Is it agreed that we will seek any follow-up information and carry out any agreed actions arising from the meeting? Agreed.

Do the witnesses have an answer to the question raised by Deputy O'Connor on tax revenue on building material? If not, they might send on a note.

Mr. Niall Cody

We will send that on. It will be very much on VAT on construction because VAT on building material does not really make any sense.

Chairman

It will be global.

Mr. Niall Cody

It will be a figure.

Chairman

Will it be possible to separate out residential construction?

Mr. Niall Cody

We will see. We will give the committee data on VAT and construction and tax and construction.

Deputy Verona Murphy

Could we get a breakdown on VAT and the Government's tax take per new-build house?

Mr. Niall Cody

We could say how much VAT would be involved in a new build.

Deputy Verona Murphy

What percentage does the Government take between tax, excise and VAT?

Mr. Niall Cody

There are various different published figures that cover things like planning levies and the rest. VAT is 13.5%-----

Deputy Verona Murphy

On a new build.

Chairman

I ask Revenue to come back on the VAT take.

Mr. Niall Cody

Does the committee want a note on construction and tax?

Chairman

Yes please. I ask Revenue to include that in it.

Mr. Niall Cody

It is being written as we speak.

Chairman

It is agreed that the clerk will follow up any information and carry out any agreed actions. Is it also agreed that we note and publish the opening statements and briefings provided for today's meeting? Agreed.

The meeting is suspended until 1.30 p.m. when we will continue our examination of the Comptroller and Auditor General's 2021 chapter on Exchequer receipts from the national lottery's sale of tickets. We will have the operator of the national lottery in.

The witnesses withdrew.

Sitting suspended at 12.35 p.m. and resumed at 1.32 p.m.